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VENTURE CAPITAL OUTLOOK #1: Dobson, Woody offer their thoughts

(EDITOR’S NOTE: This is the first in a three-part series.)

A New Year is always a good time to look forward, so we asked a number of venture capitalists who live in the region to give us their thoughts on 2013. We did not ask a series of questions, so we’ll present their perspectives in the order in which the interviews occurred. In the first article in the series, we review the thoughts of Ken Woody and Eric Dobson.

Ken Woody, President, Innova

“Overall, 2013 should be a pretty bullish year,” Woody said, citing three key trends or indicators.

The first of those is “the corporate world (that is) looking more and more to early stage companies for their technology,” a change that Woody says emerged several years ago but is accelerating rapidly. He thinks it is a “really good trend” for Tennessee start-ups and added that he received several calls in late December from corporations interested in Tennessee start-ups…

Woody’s second trend relates to the evolution of the TNInvestco program and how it has benefitted start-ups. “Most of the investment in Tennessee in early stage companies in the last three years came from TNInvestcos,” he said, noting that the first six TNInvestcos, including Innova, were launched three years ago.

“We were heavily milestone-driven (to make investments quickly), so much of our money is already out the door,” Woody said about the initial six. As a result of this front-end loading, the pool for new investments is already limited and further reduced as the initial TNInvestcos reserve dollars to make follow-on investments in the portfolio companies they previously funded.

Woody believes the four newer TNInvestcos will feel the same effects by the third quarter of 2013 as they reach their required milestones. As a result, he foresees a more limited pool of early stage dollars later in 2013.

Woody’s third trend is the direction that LaunchTN takes under its newly named Chief Executive Officer (CEOs). The organization, officially known as the Tennessee Technology Development Corporation, has been operating under Interim CEOs for more than two years before selecting Charlie Brock of Chattanooga.

“The actions that LaunchTN take will have a huge impact,” Woody said about the organization charged with championing “all things entrepreneurial” in the state including early stage funding.

“Charlie is a wonderful guy and will do a great job,” he said of the person who was part of a variety of entrepreneurial activities in Chattanooga including CO.LAB, Gig Tank and the Chattanooga Renaissance Fund. “I’m excited to see him come on board.”

Eric Dobson, Chief Financial Analyst and Knoxville Chapter President, Angel Capital Group

Dobson says that the deals that were presented to the Angel Capital Group (ACG) in the last two months of 2012 “bode well for 2013.”

“We saw a major uptick in companies seeking funding in the fourth quarter,” he added, noting that he met with 42 companies in 45 days. “They were solid companies with solid business plans and management teams.”

Dobson believes there has been a good deal of pent-up demand that was waiting on the election and resolution of the fiscal cliff. As such, he saw a decline in the amount of dollars that could be invested by angels in the fourth quarter. Now that 2013 has come, he sees “a general sense of renewed enthusiasm” among investors and, with the quality of the companies, he’s “very optimistic” about 2013.

Dobson did voice two concerns. Both related to the availability of sufficient funds for the number of good opportunities.

In the case of ACG, he said that he “wished we had the time and resources to invest in all these high quality deals,” considering the increased volume he is seeing.

Dobson also echoed Ken Woody’s observation about the impact that the TNInvestco program has made on early stage companies the past three years.

“What is going to happen without a TNInvestco 2.0,” he asked.

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