Nashville riding wave

TNInvestco has recently been among the drivers in a sharp uptick in Nashville-area venture capital investment and startup activity, according to a report released early this morning.

Nashville Capital Networkand Nashville Health Care Council (a nonprofit) have jointly published Nashville Venture Capital Report 2001-2011, which also illlustrates that local conventional wisdom is on-target: the preponderance of VC investment goes to healthcare-related companies.

Sid Chambless

Releasing the very readable report alongside NHHC President Caroline Young, NCN Executive Director Sid Chambless noted, in part, "As a community, we need to keep developing a healthy continuum of capital so that companies of all stages are able to connect with the resources they need to be successful."

The Nashville Entrepreneur Center and Jumpstart Foundry are among local groups cited as contributing in substantial ways to Nashville's newfound venture energy. The Mid-Tennessee region is also home to eight of the state's 10 TNInvestco-funded firms.

The fresh interpretation of data appears in advance of a NCN-NHCC panel discussion scheduled for this afternoon (registration now closed) on "fresh approaches" to healthcare venture capital.

The report emerges just ahead of what VNC has been told is the imminent release of the state's 2012 TNInvestco report, due-out from the State Department of Economic & Community Development. Several sources have also said that the staff of State Comptroller Justin Wilson is auditing the TNInvestco program (as it does other grant-funded programs), but a spokesman for Wilson declined comment when asked about the rumored audit by VNC.

Today's NCN/NHCC-backed report states that recent venture-investment trends demonstrate that, among other things, "Overall, state government has established a strong track record of fostering entrepreneurship that crosses party aisles, which as the data indicates, has begun to make a real impact on the number of promising start-up companies in Nashville."

TNInvestco is fueled by an undeniably innovative state-incentive program to spur capital formation, involving allocation of $200MM in state insurance premium tax credits for sale by 10 TNInvestco funds selected to invest in seed and early-stage companies. Further momentum has been created by the state's use of federal funds to launch a $30MM INCITE co-investment fund that is also energizing business accelerators.

Across the decade covered by the report, 65 percent of the $1.4 Billion invested locally (i.e., $950MM) went to healthcare companies. Altogether, 215 different companies received such investments.

The report spotlights, among other pluses and minuses, an apparent "widening gap in Nashville’s venture capital market between the capital available to the earliest ventures and the capital available to later stage ventures" -- in the face of an escalating number of startups. In 2011, it says, 77 percent of local capital raises had targets of $2 Million, or less.

Cultivating more sources of growth capital to fuel companies emerging from seed stage is imperative, says the report. (Earlier related VNC column by Council Capital's Katie Gambill here.)

Chris McGanity

The report was authored by NCN Associate Chris McGanity, who is a Vanderbilt University student pursuing his VU JD/MBA; and, it was researched largely by Devin Devrai, an economics student at Duke University. The authors cited assistance from nearly 20 VC, private equity and other firms and financial media.

NCN-NHCC attribute improvements in early-stage investing and in the venture-business climate to factors including TNInvestco, the state's federally funded INCITE co-investment program, new regional accelerators, and the "institutionalization" of Angel investing in the state.

Said Chambless, “The report indicates that Nashville has seen increases in organized angel and early stage venture investment."

However, Chambless continued, "more companies get first-time financing, they will need capital partners to support their continued growth."

Today's full press release is here. The NCN board is here and the NHCC board is here. VNC