VENTURE CAPITAL OUTLOOK #3: Vanderhoofven, Ewing offer their thoughts
(EDITOR’S NOTE: This is the third in a three-part series.)
Over the past two days, we presented the thoughts of four venture investors – Ken Woody of Innova, Eric Dobson of the Angel Capital Group, David Belitz of the Chattanooga Renaissance Fund, and Geoff Robson of 3-Degrees. This article completes the series with the perspectives of two additional individuals involved in start-up investments in the region.
Grady Vanderhoofven, Co-Manager, Meritus Ventures and Southern Appalachian Fund
Like Belitz, Vanderhoofven says he’s “kind of lukewarm at this moment” on the investment outlook for 2013. He bases his opinion on several factors.
“It seems to me the federal tax policy is still somewhat dynamic and not fully resolved,” Vanderhoofven says, adding that “the increase in capital gains and dividends tax rates will negatively affect how much money is available for investment.”
Like others, he’s concerned about the likely decline in 2013 in terms of early stage investments.
“We in Tennessee have a distorted perception of how much early stage capital has been available,” Vanderhoofven says about the elevated level of funding over past three years as a result of the TNInvestco program. He describes it as an anomaly relative to the state’s history and a two-edged sword for new enterprises.
“It’s been a good thing for start-ups, but you have to be able to take the next step and fund the growth stage for these companies to really maximize the benefit of the TNInvescto program,” Vanderhoofven said about the demand that he sees for expansion capital.
“If the program is not renewed, we will see a decline in early stage investments in Tennessee,” he says.
Vanderhoofven is a fan of several initiatives in South Carolina – from the creation of the South Carolina Research Authority (SCRA) to the latter’s establishment of an initiative called SCLaunch that was created to facilitate applied research, product development and commercialization programs.
He describes SCLaunch as a “renewable source of capital,” a concept that provides program sustainability without a requirement for continual public investments. “SCLaunch is recapitalized each year, without special action by the South Carolina legislature or administration,” said Vanderhoofven. “It is not a one-time-only program or source of capital.”
Like others, Vanderhoofven says “there are a lot of opportunities . . . the key is finding them.” He adds that he sees capital in 2013 “flowing into enterprise IT, healthcare IT, and mobile or machine-to-machine communication.” In the area of clean technologies, he believes the growth spurt in the sector “was artificially bolstered by federal incentives and subsidies” and adds that private investments will decline in that sector if cuts occur in what has for several years been a supportive federal budget.
Scott Ewing, President and Chief Executive Officer, Venture Incite, Inc.
Ewing shares the cautious perspective that several of his colleagues have about 2013, but he says that should not surprise anyone who understands the Venture Incite strategy.
“Venture Incite was created with the idea of running against the wind,” he said. “This will be a capital constrained environment for a long time. None of us believes we will reset to 1996.”
Ewing believes the next few years will be “a painful time for many” as the nation’s debt challenge is addressed. “People with available cash will be cautious, perhaps for the next 10 to 15 years.”
He does believe that “private equity is going to be one of the bright spots if it is smartly handled.”
Ewing said that Venture Incite’s approach is like a Thrifty Dutchman – “If I had only one guilder to spend, where would I spend it?”
Like others, he shares the concern that others have expressed about follow-on capital, saying the concern “is very relevant.”
And, Ewing added a new priority, saying, “Tennessee must make itself a destination for intellectual capital.” He believes placing a priority on this will help ensure that seed and follow-on funding become more plentiful.
Finally, Ewing quoted Townes Duncan, Founder of Venture Incite parent Solidus Company, who is known for saying, “Pioneers get massacred, but settlers survive.” That statement probably best describes the prevailing theme of the venture capitalists that we interviewed for the series.