Reporter's Notebook: Nashville Capital Network could play a broader role

Milt Capps updated 10 July 2017

Published October 27, 2016

Updated 10 July - NCN announced its total take closed at $34MM. 7 June 2017: NCN announced raising its new $25MM NCN Partners Fund with individual investors drawn from ranks of execs with successful corporate careers. Our Oct. 27, 2016 harbinger follows below.-Ed.

NASHVILLE Capital Network (NCN) was founded as an Angel group in 2003, and has since evolved into and "early stage investment platform and a network of professional investors."

Since inception, NCN investors and affiliated funds have invested more than $60MM in this region's seed- and early-stage companies.

NCN Executive Director and Managing Partner Sid Chambless told Venture Nashville, "Our funds and partners have plenty of dry powder. I believe we will continue our pace of [investing in] 2-4 great new companies a year."

However, the segment of the capital continuum about which NCN is "most concerned" is capital for early-stage companies seeking $1MM-$3MM.

That's the level at which Nashville companies often face a "gap between seed funding and institutional venture capital." In Tennessee, this segment often corresponds with a Series A raise.

Ensuring early-stage funding by in-state capital providers is "imperative," Chambless said, partly because out-of-state "venture capital firms have not yet demonstrated a consistent appetite for investing in the seed and early growth stages of Nashville companies."

Sid Chambless

Asked whether NCN might pursue raising money for another early-stage-oriented fund, Chambless said NCN's recognition of the issue and the organization's track record in managing Angel Funds I and II, the Tennessee Angel Fund (a TNInvestco) and related programs "in partnership with professional investors" makes another raise a legitimate topic for periodic consideration.

"We believe the model of pairing professional investors with small funds is a very effective way to support Nashville's most promising early stage companies.

"While we do not currently have a new fund open, we believe the current opportunity in Nashville and the success NCN is having with companies like Digital Reasoning, Aspire Health, Ampersand Health and others who have bridged the 'capital gap' will hopefully lead to an expansion of our platform. I would love to keep building on the momentum our platform has right now," Chambless said.

Responding to followup questions, Chambless also said, "We hope local professional investors will continue to work with NCN to address the gap between seed funding and institutional venture capital. There are a lot of factors that may increase a company's capital requirements in the early-stage rounds beyond the scope of individual angel investors. Therefore, it is important to have a local venture resource that can organize and aggregate investors in order to maintain a healthy capital continuum. Again, this is where NCN is focused. As a community, it is important that we promote policy, partnerships, and resources that support early stage capital formation."

In contrast to the difficulty experienced raising capital at the Series A level, many Nashville companies that seek "later-stage growth capital" have demonstrated their ability to attract regional and national VC firms outside Tennessee, said Chambless.

Chambless acknowledged that the availability of Seed capital for startups in non-Healthcare sectors is often debated by entrepreneurs, and it is difficult to determine whether or not the capital supply at any point in the continuum is "adequate."

However, he noted, reports from an array of sources make clear that "a large number of seed-stage transactions have happened in the last four to five years."

In August, NCN published in cooperation with the Nashville Health Care Council the duo's Nashville Venture Capital Report, covering 11 years of investments totaling $1.6BN, of which approximately 60% (more than $940MM) was devoted to the Healthcare (HC) sector, defined as including Services, IT, Biomedical and Medical Devices.

In 2015, for the first time since 2007, annual non-HC investment surpassed HC investment, according to the NCN-NHCC report. Perhaps equally significant, during the period 2012-15 the largest shares of HC investment shifted toward Healthcare information technology (HIT or healthtech), from Services, driven by a spike in federal funding for HIT implementation and other factors.

Prior to NCN, Sid was EVP of Nashville-based Surfari, which was acquired by Coolsavings.com. At Vanderbilt University, he earned his bachelor's and his MBA at the VU Owen Graduate School of Management.

Tom Wylly

NCN's board of directors is chaired by Tom Wylly, senior partner, Brentwood Capital Advisors.

Chambless said today NCN's advisory board includes, in addition to himself and Wylly the following individuals. (Chambless has not yet responded to followup requests asking which advisory board members are also members of the board of directors.)