Stories of Technology, Innovation, & Entrepreneurship in the Southeast

Lasawni Reynolds, Senior Capital Associate at Launch Tennessee, is out with the organization’s first quarter 2025 Tennessee Deal Report.

According to his analysis, Tennessee’s venture ecosystem demonstrated measured strength in Q1 of 2025, with $362 million in total funding, marking a 23.9 percent Quarter-over-Quarter and 51.7 percent Year-over-Year (YoY) increase. While macroeconomic pressures suppressed deal count, rising round sizes and sector-specific momentum underscored the state’s bifurcated growth: later-stage health tech thrived, while early stage and emerging sectors faced headwinds.

Key takeaways:

1. Seventy-three percent of total funding flowed into health tech, with early-to-growth stage deals (Series A/B) leading the activity.
2. Twenty-one percent of all deals targeted the sector, fueled by investor confidence in Tennessee’s healthcare infrastructure (e.g., HCA Healthcare, Vanderbilt University Medical Center) and proven exits.

Late-stage focus and expanding round sizes:

1. Average deal sizes surged 35 percent YoY, mirroring national trends of “fewer, bigger bets” as start-ups prioritize runway extension over hypergrowth.
2. Established sectors like fintech (+46 percent YoY) and medtech (+76 percent YoY) saw steady expansion, while biotech (‑100 percent YoY) and Web3 (‑300 percent YoY) cratered amid risk aversion.

Ecosystem divergence:

1. Later stage companies in proven sectors (e.g., logistics, enterprise Software-as-a-Service) secured follow-on funding, while seed stage deals slowed to a five-year low.
2. Corporate partnerships (e.g., FedEx, Smith & Nephew) drove non-dilutive capital for scaling start-ups, mitigating equity dilution.

2025 outlook:

1. Expect Mergers and Acquisitions activity as incumbents (e.g., Oak Street Health alumni) recycle capital into vertical artificial intelligence and value-based care tools.
2. Tennessee’s $50 million venture capital co-investment fund, launched in Q4 of 2024, may buoyed early stage deals in the second half of 2025.
3. Declining angel participation (-18 percent YoY, per SEC filings) risks starving pre-revenue startups.

Bottom line:

Tennessee remains a later-stage haven for health tech and legacy industries, but its early-stage pipeline needs reinvigoration to sustain long-term growth.

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