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February 23, 2023 | Tom Ballard

New angel fund emerging to support Upper Cumberland start-ups

The Biz Foundry has partnered with Appalachian Investors Alliance to launch the $1.5 million fund. Verbal commitments are now being papered.

Two years after starting work on a new capital fund to help start-ups in the Upper Cumberland region of Tennessee, the leaders behind the effort can see their work paying off with a planned organizational meeting in March.

“Access to capital was one of our charges when we started The Biz Foundry,” explains Jeff Brown, the organization’s President and Chief Executive Officer (CEO). The effort gained good traction recently due to two factors: (1) Congress reauthorized the “State Small Business Credit Initiative,” providing an impetus for local leaders to find a way to leverage part of the $117 million that will be coming to the Volunteer State; and (2) the organizers engaged Knoxville-based Appalachian Investors Alliance (AIA), a firm with a solid track record of helping establish funds across the 13-state Appalachian region.

“We are a nonprofit that did not want to own it (the fund), but we did want to sponsor it,” Brown said, explaining that AIA will actually operate the member-managed fund. AIA has 12 funds either operating or being organized across the 13-state Appalachian Region Commission (ARC) footprint and four more in other states.

The always upbeat and gregarious Biz Foundry leader acknowledges that even he was “pleasantly surprised with the interest shown” after hosting a number of lunches with business leaders and existing angels in the region.

“We got the people we wanted to be involved,” he said, starting with Gene Bressler, the longtime Vice President of Sales and Operations at ATC Automation. The recently retired business executive is serving as Chair of the newly formed Upper Cumberland Investment Alliance LLC.

Brown explained that the level of pent-up demand for a fund from prospective investors surprised him. “The number one thing we were asked was about time commitment,” he said. “Once they knew it would not be great, they were all in.”

The goal is to have a $1.5 million fund, and Brown has verbal commitments for more than two-thirds of that amount. He is now working with the AIA team to turn those verbal commitments into fully executed documents.

“It’s a member managed fund,” says Jim Hart, AIA’s President and CEO. “This is a fund where the angels are investing their own money.”

They can join the Upper Cumberland Investment Alliance by purchasing:

  • Class A individual units where there is a minimum commitment of $25,000 for one voting unit for individuals, family trusts, or closely held LLCs;
  • Class B institutional units that require a minimum commitment of $50,000 for a single voting Unit for institutions with assets of at least $5 million or
  • Class C non-voting units that also require a minimum commitment of $50,000 for one non-voting unit for individuals or institutions.

“There is no maximum on how many units you can buy, but you can only vote a maximum of 10 percent of all outstanding units,” Hart says, explaining that “we’ve seen voting go awry when someone controls too many units.”

AIA is a non-profit educational foundation working to revitalize the region’s economy by facilitating community-based, self-reinforcing economic and workforce development through entrepreneur readiness. It is supported by ARC funding provided through the agency’s POWER (Partnerships for Opportunity and Workforce and Economic Revitalization) program that is designed to help communities adversely impacted economically by the decline in the use of coal.

“I would encourage other Tennessee communities to think about this approach,” Hart says in relation to the new fund forming in the Upper Cumberland region. “The first step is to get the right people in the room . . . investors and the leadership group. They will build the vision . . . they set the thesis.”

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