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National downward trend in VC investments shows-up in Q3 “Tennessee Deal Report”

Launch Tennessee has released the second edition of its “Tennessee Deal Report” that captures all venture capital (VC) funding raised by Volunteer State-based start-ups in Q3 of 2022.

Compiled and written by Evan Prislovsky, the organization’s Capital Analyst, the narrative summary distributed as part of Launch Tennessee’s The Pitch weekly newsletter began with the reminder that “global VC funding is down, and not just down by a little. Q3 clocked in with the lowest amount of funding recorded since the first quarter of 2020. While unsettling on the surface, it gets more interesting when you break down Tennessee’s landscape.”

Prislovsky wrote that the impact of the global downturn in VC funding clearly impacted Q3 results as 48 Tennessee companies raised a total of $244 million in funding, representing a 33 percent drop from Q2 and a year-over-year decline of about 13 percent.

Perhaps not surprising given Nashville, healthcare captured 45 percent of the Q3 funding, specifically in digital health and HealthTech according to data from Pitchbook. The next largest sector was information technology (IT) at nearly 38 percent of the dollars invested. The deal count by industry was not as concentrated although IT companies accounted for slightly more than 30 percent of the deals followed by healthcare just shy of 20 percent.

On a geographic basis, 52.3 percent of the funding and two of the largest Tennessee deals in Q3 were located in West Tennessee. Middle Tennessee was a little more than 10 percentage points behind at 40.2 percent, meaning East Tennessee-based companies raised just 7.5 percent of Q3 funding.

Prislovsky’s key trends for the quarter were:

  • Despite inflation and a significant slowing of funding across most stages, Tennessee’s tech growth and investment activity have shown fewer signs of slowing down at the earliest stages;
  • The “sleeping giant” of Western Tennessee captured the majority of the funding in the state due to the two largest deals coming from Memphis;
  • The majority of the local deal count went to seed stage companies; and
  • Technology, Media and Telecom (TMT) and FinTech funding accelerated significantly, making both verticals outliers at 506 percent and 119 percent quarter-over-quarter, respectively.

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