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January 17, 2023 | Tom Ballard

Investor Outlook 1B | A look back at 2022

Our other four investors share their thoughts on 2022 and the positioning of their portfolio companies.

We continue exploring the impact of 2022 on start-ups and how those ventures are positioned for 2023 with the remaining four investors.

Part 2 of The Initial Question: How would you characterize the last 12 months from three perspectives: (1) Your firm and where it is overall entering 2023; (2) the strength of the key companies in your portfolio relative to where they were at the beginning of 2022; and (3) the positioning of those firms as they enter 2023?

Scott Ewing, Principal Business Analyst,  Appalachian Investors Alliance (AIA): From our founding in 2018, the AIA network has grown to include 13 active funds representing more than 340 accredited investors and over $23 million in committed capital.  In 2023, we’re planning to form nine new micro venture funds.

Tony Lettich, Managing Director,  The Angel Roundtable (ART): In general, 2022 has been a good year for the ART portfolio. As we have put COVID behind us for the most part, several of our portfolio companies have experienced solid success in leveraging up their sales revenues during the past year. A few have identified new markets and applications for leveraging their existing product/service portfolios and a few have expanded their platforms and facilities. As we enter 2023, we are encouraging our portfolio companies to buttress their balance sheets such that while they continue their focuses on growing their companies, they are able to  protect them from uncertainties which they may encounter in the macro environment.

Grady Vanderhoofven, President and Chief Executive Officer,  Three Roots Capital: From the perspective of Three Roots Capital generally, as we enter 2023, the last 12 months have produced some notable high-water marks for us with respect to our own historical performance: the most assets under management, the most capital deployed, the most revenue generated, and the most income realized. At the same time, the past 12 months have been incredibly challenging. Most of our deal activity (funds raised and capital deployed) took place in the fourth quarter, but we were working hard for the entire year, which made it hard to feel really good about the first three quarters of the year if raising capital and closing deals are the only metrics that count. We did not realize any exits in 2022. One of our portfolio companies, which was a pure start-up from 2021, didn’t survive 2022. One of the most promising and exciting companies in one of my funds would have been sold in 2022 if valuations hadn’t dropped so precipitously early in 2022. Fortunately, that company is growing rapidly and generating cash. That company does not need to raise capital and is, in fact, deleveraging by using generated cash to pay-off increasingly expensive third-party debt (venture debt), and they are hiring people (which has become incredibly expensive) to enable continuing growth. We want to sell the company in 2023, but we won’t sell the company until valuations come back up from recent lows. The investment banker we engaged to help sell the company has twice this year recommended we delay formally putting the company on the market. The investors in that company are in a position to be somewhat patient and wait for a more attractive market in which to sell the business. We would feel much less patient if the company needed to raise money or wasn’t growing.

Ken Woody, President and Partner,  Innova: Innova is in a very strong position entering 2023. We have strong commitments towards our second AgTech Fund, anticipate a first close in Q1 2023, and are actively raising our fourth TN-focused Tech Fund. We were cautiously optimistic about our portfolio companies entering 2022 and have seen a wide range of results throughout the year. We’ve had some acquisitions and distributions. We’ve had a company expand by buying a key supplier, and we’ve had several companies grow through new funding. Many of those companies dramatically improved their performance in 2022. On the other hand, some could not overcome the challenges of the previous two years and closed their doors. Most of our newer companies are positioned very well for growth in 2023 and are poised to come out of the gate very strong.