(EDITOR’S NOTE: We continue our annual “Investor Outlook” series with another important question for our panelists.)
The decade began with the brand new TNInvestco program that most people would say opened-up investment capital at a level the state had not seen before. It is easy to look back and say, “It should have been done this way.” Instead of looking in your rearview mirror, let’s look forward and get your thoughts on what, if anything, the Governor and General Assembly should consider doing to help ensure more investment capital is available this decade. Should something be considered, what are your thoughts on how a program would differ from TNInvestco?
- Partner David Belitz responded for the Chattanooga Renaissance Fund. I frankly don’t think the state needs another program like TNInvestco which is focused on capital. I firmly believe that good companies attract capital wherever they are located. I think the state would have more impact on the innovation and start-up economy by recruiting mid- to large-size tech companies to open offices in the major cities such as Memphis, Knoxville, Nashville and Chattanooga. Tech companies will attract talent, and experienced board members, executive level leaders and experienced employees are harder to find than capital currently. Established tech companies also provide a soft landing for employees recruited to a start-up or early stage company that subsequently does not survive. Nashville has some success with recruiting, but recruiting more and spreading them around the state would have a much larger impact on the start-up economy than recreating a capital only program like the original TNInvestco.
- Ken Woody, President and Partner, Innova Memphis. This is a challenging one since we don’t have a state income tax, so some of what other states have done to encourage investors doesn’t work here. I would propose the state work with municipalities to create more Innovation Districts to promote shared workspace, common administrative support, health insurance pools, logistics and finance support. All of these are major burdens for start-ups and could provide a big boost as these companies struggle to grow.
- Kristina Montague, Managing Partner, The JumpFund. To truly ramp-up start-up growth on a state level, we need a dedicated statewide fund that would attract companies along the lines of Ohio or Georgia. There are several models for this – fund of funds, direct investments, matching funds, etc. Ideally, such an engine would be fueled by BOTH public and private dollars (large corporate) to help enhance our state’s economy. Tennessee is generally considered a strong state in which to do business and has several hot metro centers that have attracted new business. A state fund could do even more to make the state attractive to companies looking to set-up headquarters or get their first start.
- John Morris and Geoff Robson, Fund Managers, The Lighthouse Fund. We think the Third Frontier initiative in Ohio should be considered for the State of Tennessee. It not only provided funding for start-ups, but distributed it evenly across the state. It also provided funding for venture development organizations to encourage and support idea stage entrepreneurs and get the connected with capital sources.
- John Bruck, Knoxville-based Member, and Scott Jacobs, Executive Director, Queen City Angels. While we don’t have experience with the TNInvestco program, there are several ways that states can better support the start-up community, including investors. The Kauffman Foundation’s recent report – America’s New Business Plan, covered by biz here, provides specific recommendations for Governors and legislatures to consider and enact. Additionally, state-level investor tax credits (obviously stepping down in Tennessee as the Hall Tax disappears) and matching grants and investments (e.g., LaunchTN’s SBIR/STTR matches and Ohio’s Third Frontier program) clearly stimulate the start-up economy. The states can also assist specific local efforts by making resources (e.g., inexpensive office/co-working space) better available and having entrepreneur centers better equipped to meet the specific needs of the local startup community.
- Grady Vanderhoofven, Founder, President and Chief Executive Officer, Three Roots Capital. I think the TNInvestco program was extremely positive as a catalytic influence on access to risk capital within Tennessee. I believe the Governor and General Assembly should explore opportunities to create TNInvestco 2.0 . . . thematically similar but mechanically different than version 1.0 in some ways. With that said, I absolutely believe the state should not be in the direct investment business. I believe it’s inappropriate and a recipe for disaster to have state entities or quasi-governmental entities in the direct investment business. The state should support and incentivize private initiatives to aggregate and deploy risk capital, and it definitely should never compete with private investment initiatives.
- Eric Dobson, Chief Executive Officer, Angel Capital Group. Virtually all the TNInvestco Funds have raised new funds from the private sector. We have a vibrant and growing start-up culture in the state as a direct result of the program. In my opinion, any questions of the value of the TNInvestco program and process are answered. It was a brilliant stroke of political action that had exactly the intended consequences – to jump-start an entrepreneurial ecosystem statewide. I think the market is working the way it should. In my experience, there is always the tendency to think that more deals will be funded if there is more capital, but that is not true. Great deals will always be funded at the appropriate level. Investing in mediocre deals is a waste of time and money. There is a reason this is a “power-curve” success market, not a “bell-curve” success market. All the stars have to align for a start-up company to be successful – team, product, market, competition, timing, etc. And, smart investors have learned how to apply “Moneyball” principles to angel investing. They have also learned they must be active investors. I do support investment matching programs and incentives to bring more angel/impact investors into the market. More at-bats mean more great companies will be created. More great companies mean more investment capital is going to be needed. More investment capital means more investors will be needed to mentor and support these companies. So, if you want to create more great companies, create more great investors who will hold these entrepreneurs to high standards and invest time and money in their success.
- Tony Lettich, Managing Director, The Angel Roundtable. In our view, the state government’s role is to create policies and provide the leadership to facilitate innovation, entrepreneurialism and investment within the State of Tennessee. That begins with the establishment of goals. We would urge the Governor and General Assembly to “Think Big” by establishing the goal of Tennessee being recognized as being in the top 10 percent of the entrepreneurial ecosystems in the United States. Only by doing so will we be able to be world class and compete with the top quartile cities, states and provinces around the globe. Next, we would urge them to provide the commitment as evidenced by effort, the allocation of scarce resources, and policies developed to enable this goal. Finally, we would urge them to establish processes to engage the constituents within the state at all levels – from students to seniors, from academics to business, from outside the entrepreneurial community to the core of it – to support its development and obtain their commitment.
- Brandon Bruce, Entrepreneur-in-Residence with Greater Sum Ventures. I think it’d be interesting to explore a state fund that helps entrepreneurs hire their first employee. Adding that first full-time person can be transformational for start-up companies. For solo founders, adding the first employee represents 100 percent headcount growth. Having a first full-time employee can enable founders to spend some time working strategically on the business and not exclusively in the business. Separately, the entrepreneurs and investors that participated in the “Innov865 Investor Series” event last year said that they see a Series A gap in the capital continuum in Tennessee. I think it’d be interesting to explore a state fund of funds that partners with private funds that write checks in the $2,000,000 to $15,000,000 range to Tennessee companies.
NEXT: What are your thoughts about emerging technologies like the Internet of Things, autonomous vehicles, Blockchain and other financial technologies, artificial intelligence, and AR/VR (augmented reality and virtual reality)?