Nashville Tech Story (12/4/09)
The Nashville Technology Council conducted a roundtable discussion on Capital Formation last night. The event was held and sponsored by Bradley Arant Boult Cummings.
The panelist included: Vic Gatto (Solidus), John Chadwick, (Claritas Capital), Jim Phillips (XMI High Growth Development Fund), and Christopher Rand (Tristar Technology Ventures). The session was moderated by Chris Sloan from Bradley Arant Boult Cummings.
As previously reported, Tennessee and Nashville in particular is set to receive approximately $100M of new early stage/seed investments from the TNInvestco Program. This program is really causing a lot of excitement, but as we learned last night, there is some tempered enthusiasm about how much immediate impact this will have on the entrepreneurial community.
One thing that struck me last night is how much Harpeth and Massey Burch continue to impact the city with their alumni now running multiple funds, including Chadwick and Gatto.
Vic Gatto brought his usually entertaining and candid responses to the table. He uses three screens for new deals: Geography (DC to TX to FL), Seed Stage, Customers/Management Team in place. He likes “applied technology” using existing technology in new industries. In particular, he is looking for healthcare revenue cycle opportunities that are applying technology to increase efficiency and effectiveness in care delivery and reimbursement.
Additionally, social gaming and mobile applications are interesting to the panel and we have some level of expertise developing here locally. At least two of the audience members are focused on energy and green technology plays. There doesn’t seem as much appetite for these types of investments, due to lack of deep industry expertise, but also, the funding required to bring it to market and exit. Kleiner Perkins and other Sand Hill Road firms are investing 75-80% of their funds in energy plays.
John Chadwick is focused on startups in healthcare, digital media, and mezzanine funding. His recent investments include Studio Now, Metro Park and Digital Blue.
Christopher Rand is focusing on bringing technology transfer from Universities from both inside and outside of the state. Ideally, they would be looking at $1-3 million investments with a low end of $250K. Tristar and Innova will likely be the only TNInvestco funds to focus on biotech.
XMI’s fund is focused on “crossing the infrastructure divide.” They are looking businesses with a revenue model and in need of $500K to $1M. They will reserve up to 50% for follow on investments.
All agreed that is it is good to have a “warm” introduction if a new business plan is going to be funded. All of the panelists agree that a solid management team or an experienced entrepreneur is one of the first hurdles to be cleared. A great idea is important, but the money follows experience. One exception was Jim Phillips from XMI, who seems to have more of the backend business processes in place, so that a sole entrepreneur with a bold new idea can get launched with less risk. All agreed that the stimulus money will hopefully open more doors for new entrepreneurs.
John Chadwick mentioned the new Entrepreneur Center as a good platform to help entrepreneurs work through the kinks of starting a business and gaining access to capital.
So the real question is how much will the TNInvestco help. The panelist believed it will create 15-16 more deals statewide that get funded in the next two years. The audience asked questions related to talent availability in Nashville and the angel market. The panelist all agreed there is sufficient talent and business plans available in Nashville to create the demand, but now is the time to get prepared for funding if you feel like you have a fundable entity. Vic Gatto said “I see 5X the number of deals as I would fund”, so there is plenty of deal flow in town. That is a healthy sign from our vantage point.
