LaunchTN Looks to Put Tennessee VC Scene on the Map
February 11, 2014
Big things get started in Tennessee. Memphis, for one, is the home of Sun Records, the label that helped launch the careers of Johnny Cash, Elvis Presley and Roy Orbison. Five hours east of Memphis sits the “Secret City,” Oak Ridge, which was established in 1942 as a production center for the newly formed Manhattan Project. Fast-forward to today, and a new public-private partnership, tucked away in the Wells Fargo building in downtown Nashville, has high aims to continue that tradition well into the 21st century.
Established by Gov. Bill Haslam in 2011, Launch Tennessee is behind nine regional accelerators that are trying to make Tennessee “the No. 1 place in the Southeast to start and build” high-growth businesses. Spearheading the effort is Charlie Brock, Launch Tennessee’s president and CEO, who is criss-crossing the country to raise attention for the Volunteer State’s startup community.
His itinerary doesn’t include any direct flights from Nashville to the Bay Area—not because of any clerical errors, but because there aren’t any. Among other initiatives, a direct flight to San Francisco topped his 10-point wish list for 2014. Other goals include more coding and software education, more entrepreneur-centered events and more research commercialization out of the state’s higher education hubs, such as Vanderbilt University, the University of Tennessee, and the FedEx Institute of Technology at the University of Memphis. Launch Tennessee also administers a venture capital fund, the INCITE Co-Investment Fund, which has invested $20 million and leveraged $54 million of public money for a total of $74 million in co-investment funds, according to the public-private partnership.
Charlie Brock, Launch Tennessee president and CEO | Provided by Launch Tennessee
“The INCITE program has been a great ‘lever’ for the investment scene in Tennessee, providing that extra 20% to 25% of capital in a deal that extends the company’s runway to achieve operating sustainability,” said Brock. “The program also provides a nice incentive to the investment firms, as 25% of Launch Tennessee’s profit, [known as “carry”], goes to the private investors. It’s a great way for private firms to juice their returns while bringing investment capital to Tennessee-based companies.”
According to PitchBook data, Tennessee has had success in recent years attracting fresh capital. In 2009, Tennessee-based companies brought in 15 VC financings and an 8.5% share of all regional activity (PitchBook tracks Tennessee in the Southern U.S. region, which also includes Texas, Kentucky, Arkansas, Louisiana and Oklahoma). By 2010, Tennessee took in 35 VC deals and a 15% share of regional activity. 2011 and 2012 recorded further growth with 50 deals (19% of regional activity) and 63 deals (21%), respectively.
“Part of the reason for the additional activity the past several years,” Brock notes, “is due to the state sponsored TNInvestco program, which provided much needed capital at a time when private-capital funds had flowed to a trickle. TNInvestco helped prime the pump and now private capital is back in the game with new funds being formed at various stages of need, from seed to growth.”
Like Wisconsin’s startups, Tennessee’s entrepreneurs have struggled to raise the later stages of funding needed to realize their full potential, particularly Series B rounds. In 2009, Tennesse saw no VC financings beyond the third round; however, since 2010, the percentage of late stage rounds has gone up noticeably, with 20% of all VC deals that year being fourth financings or later. Following a brief slowdown in 2011, late stage deals rebounded to 21% of all VC deal activity in 2012 and 28% in 2013.
Part of this swing may be due to momentum—more early stage capital for companies can translate into more late stage capital down the road.
“All of the activity the past few years in the seed, angel and A and B rounds has created an incredible pipeline of early stage companies,” said Brock. “We do not have enough late stage capital in the state to fulfill all the funding opportunities, and thus, as a result, we are getting a lot of interest from out-of-state funders. They are often finding more compelling valuations than exist on the coasts and, depending upon the industry, strategic advantages to being located in Tennessee, particularly for companies in healthcare, medical devices and transportation & logistics. Our Southland conference in June is a great draw for out-of-state investors to see some of the top early stage companies, not only from Tennessee, but from throughout the Southeast.”
For more information on the Southland Conference, which will feature speakers like Al Gore and Bonobos CEO Andy Dunn, click here.
Featured image is courtesy of Wikimedia Commons/Flickr user Tabitha Kaylee Hawk.