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February 01, 2023 | Tom Ballard

Investor Outlook 6 | Evolution of East Tennessee’s entrepreneurial ecosystems

Is our area more adept to help entrepreneurs grow than it was 10 years ago?

Today’s Question: After 11 years of publishing, our observation is that the start-up ecosystems across the eastern half of Tennessee are clearly more advanced than they were in 2012. Would you agree? More important, how has that evolution affected your investment strategies?

Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital: I agree. Without question, the start-up ecosystems across the eastern half of Tennessee are more advanced than they were a decade ago. That evolution has probably broadened the opening of our deal funnel, with respect to where we believe we might be able to find a deal. It has probably also increased our expectation that we might identify a local or regional co-investor for a deal, and we are more likely to attract capital from outside the region to a deal in the region.

Ken Woody, President and Partner, Innova: Both deal flow and deal quality have clearly improved in East Tennessee. Some founders have exited and are coming around with a new idea. Others have moved to our area and want to stay here so are launching their businesses here. Support is stronger now than in the past, so the deals are better vetted, better teams and further along than in the past.

David Adair, Co-Founder and Managing Partner, Solas BioVentures: I would agree that the eastern part of our state has matured with both angel clubs, sophisticated angel syndicates, and formal venture capital. This ecosystem development has helped to float all boats. Our firm in specific has benefited by collaborative communication, ability to attract start-ups, and showcasing our state in ways not previously available.

Derren Burrell, Founder, President and General Partner, Veteran Ventures Capital (VVC): We agree that East Tennessee has truly come of age during the past several years that we founded VVC here. Key initiatives like Innov865, Bunker Labs, and Launch TN have helped elevate this location as a premier destination for entrepreneurs, and we’re excited to see this trend continue.

Eric Dobson, Chief Executive Officer, Sheltowee Angel Network: I wholeheartedly agree. When I moved back to Knoxville in 2007, it was a capital desert. Since then, we have seen seven technology company exits between $12 and $90 million, a true “unicorn” exit, the expansion of (now) Sheltowee Angel Network, the founding of our second venture capital fund, founding of Veteran Ventures Capital, a potential women’s angel group forming, “Innovation Crossroads,” “Techstars Industries of the Future Accelerator,” and the Spark Innovation Center as well as an uptick in other funds seeking to take root in the region. That kind of evolution does not occur by accident. It happens because the community believes in the opportunity to harness innovations to create something new and better. We have invested in 10 Knoxville-related companies over our tenure and that number will continue to rise. We are working closely with the “Innovation Crossroads” program. We expect to fully engage the Techstars program to drive retention and work with other accelerators to engage entrepreneurs earlier in the process. We are optimistic about Knoxville’s future. I challenge our local media outlets to make this a mainstream, weekly/monthly news segment. We need to tell a better story about our successes.

Scott Ewing, Principal Business Analyst, Appalachian Investors Alliance: Yes; there’s quite a bit going on in Eastern Tennessee now – more than was happening a decade ago. Just from an access to capital standpoint, there are more investor groups or active funds – and more being formed – than was the case in 2012. Moreover, some funds are syndicating to bring in co-investment partners from beyond the state. That should greatly encourage entrepreneurs.

Tony Lettich, Managing Director, The Angel Roundtable (ART): Absolutely, the evidence speaks for itself. The ecosystem in Southeast Tennessee in and around Chattanooga continues to percolate toward and strengthen like a robust cup of “one’s favorite morning brew.” Knoxville’s ecosystem has made significant strides and no longer competes in the NASCAR race against Chattanooga with a six cylinder flathead. Knoxville is now running smoothly on eight cylinders and may be developing an ecosystem with the foundations to rival its leading Eastern Tennessee peer, Chattanooga, catching up with “The Gig City’s” fast start.  Finally, Tri-Cities, previously a spectator, has legitimately entered the race. While the region is not a contender in the east, the foundations are being laid in place by local community leaders interested in entrepreneurialism and by traditional institutions such as East Tennessee State University and Ballad Health to build a strong foundation for the future.  From the ART perspective, this evolution is resulting in an enhancement of the start-up opportunities within the regions and our options for investment.

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