(EDITOR’S NOTE: We continue our multi-part series sharing the thoughts on the past year and the outlook for 2022 from seven angel or venture investors based in the region.)
TODAY’S QUESTION: The State of Tennessee is scheduled to receive about $65 million in funding under the “State Small Business Credit Initiative (SSBCI 2.0).” By the time this series publishes, decisions may already have been made about its management and allocation. If not, what advice would you offer in terms of how the one-time federal monies could best be used to grow innovation and entrepreneurial ecosystems?
- Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital. I believe Tennessee has the opportunity to receive significantly more than $65 million of funding under SSBCI. I believe it would be a horrible mistake for the state to handle the SSBCI 2.0 funds in the same way the SSBCI 1.0 funds were handled. The funds should be used to “invest” (which implies an expectation of return) in supporting companies across the state. The funds should be distributed to investors that already are raising and deploying capital, with established investment and lending track records, deal flow, and capacity, and are active in the communities in which the capital will be deployed. The funds should not be concentrated in a state governmental entity or a quasi-state governmental entity or concentrated in one or more entities that are removed from the communities in which the capital will be deployed.
- Ken Woody, President of Innova Memphis. Invest in ecosystems and partnerships. We need these funds to come alongside the hard work already being done. We need to continue to attract great companies and solid investors.
- David Adair, Managing Partner and Co-Founder of Solas BioVentures. That is a dandy of a question. I suspect as you alluded, our great state will have already answered it for us. But, if I were king . . . I really don’t have an answer. Micro events perhaps aimed at each of the five largest cities, the traditional political football of splitting the baby. I suspect largely the majority will reside within the I-840 beltway so significant time and effort on this question is probably futile.
- Derren Burrell, President and Founder of Veteran Ventures Capital (VVC). Distribute dollars to existing managers with the infrastructure, team, deal flow and processes already in place. Places such as Sheltowee Angel Network, Three Roots Capital, and VVC have demonstrated competency and have programs in place. Why wouldn’t you keep these firms growing?
- Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. First, get most of the money into the communities that can invest it in start-ups. There are angel groups and small venture groups across this state. They are the ones with their thumb on the pulse of local start-up “ecosystems.” They are the ones that can most effectively deploy money into start-up companies and are the ones that must mentor these companies to make good decisions for growth. Second, create a statewide educational program for angel investors. We need to expand the number of angel investors in this state. Angel investing is a learned activity and not taught in our university systems at any level. Invest in educating investors as they are the catalyst for change in their communities.
- Scott Ewing, Co-Founder and Principal Business Analyst, Appalachian Investors Alliance (AIA). In the previous SSBCI program, participating states were expected to leverage the SSBCI funds to generate an amount of private financing and investment at least 10 times the amount of their SSBCI funds. We assume 2.0 funding will come with the same stipulation which suggests that a good portion of the $65 million is going to be deployed as equity investment. Deploying SSBCI capital as debt may pose challenges to generating the required 10:1 leverage. Our state’s economy – certainly in the Appalachian part of Tennessee – depends very much on Main Street small businesses. Main Street entrepreneurs creating locally-rooted, sustainable businesses need access to capital just as do tech start-up founders; although, most equity investors focus on high-growth business models with apparent fast money-making potential. Whatever is decided with respect to SSBCI 2.0, AIA would like to see a respectable portion of the capital used to build stronger Main Street businesses that often require straight debt or revenue-based lending solutions.
- Tony Lettich, Managing Director, The Angel Roundtable. We would encourage the lawmakers to engage key members of the ecosystems in each of the various communities around the state and to consider ways to support the growth and development needs within each of those ecosystems. One size does not fit all as ecosystems in the major markets such as Nashville and Memphis are at different stages than the ecosystems in locations such as Chattanooga in Southeast Tennessee or Knoxville and Johnson City in Northeast Tennessee. However, as the funds are ultimately allocated, such allocations should consider the needs and strengths of each community in the state as well as the development of the overall Tennessee state ecosystem.
Previous Articles in the Series:
- Part 1A – A review of the past two years as well as a look into the future.
- Part 1B – A review of the past two years as well as a look into the future.
- Part 2 – Quality of deals and size of “asks.”
- Part 3 – Impact of COVID in past two years and going forward.
- Part 4 – Thoughts on national trends in angel and venture funding.
- Part 5 – Is there a “bubble” on the horizon?