New Developments in Capital: Strong Results Announced, New Funds Created

April 21, 2016

In the last month, major new developments have occurred in TBED capital programs. Launch Tennessee and Pittsburgh-based Innovation Works both announced positive findings about the growth of their startup investment ecosystems with $1 billion being raised by Tennessee startups from 2012 to early 2016 and over $279 million invested in Pittsburgh startups in 2015. Meanwhile in Ohio, both Youngstown-based and Cincy-based startups will see an influx of capital, while a new $150 million fund focused on stem cell companies and regions has been launched.

Tennessee

Launch Tennessee (LaunchTN) announced that private investment in Tennessee-based, early stage companies surpassed $1 billion between 2012 and Q1 of 2016 – well ahead of its organizational goal of $1 billion invested by the end of 2017.

LaunchTN attributes much of the local startup success to partnerships that have been cultivated with established organizations to offer mentorship at its accelerators. “Domain expertise from the music industry in Nashville and companies like FedEx in Memphis and Scripps in Knoxville gives our entrepreneurs real advantages in succeeding in those sectors,” said Courtney Corlew, director of communications for LaunchTN.

The vast majority of the aggregate $1 billion benchmark was achieved by individual investments of under $5 million, made primarily in earlystage startups by venture capital funds according to the press release. Full details around LaunchTN’s investment tracking methodology can be found on its website.

To further stimulate early stage capital in Tennessee, Tech2020, which is currently winding down, will have a successor organization that focuses on access to capital, according to Venture Tennessee Connections. The yet-named organization is in the process of narrowing the focus of its charter, selecting a new identity, reconstituting the board of directors and other activities to prepare for an official launch. Grady Vanderhoofven, a regional venture capitalist with long-standing Tech2020 ties, has been identified as a potential leader for the new organization. Gov. Bill Haslam also recently proposed a new angel tax credit of 33 percent, or 50 percent in distressed counties with a cap of $50,000 according to The Tennessean.

Pittsburgh

In 2015, Pittsburgh tech startups raised $280 million via 179 funding rounds, a 36 percent drop in dollars and two transactions more than in 2014 according to the Pittsburgh Business Times. But due to the sale of several large companies, Pittsburgh startups generated $5 billion in proceeds – increasing the five-year total to $7.7 billion according to a report from Innovation Works and Ernst & Young.

Of the $280 million invested in 2015, approximately $217 million came from venture capitalists. The industry sectors that received the most funding between 2011 and 2015 were both software-focused industries – enterprise software, at 22.6 percent, and consumer software, at 20.9 percent. Pittsburgh ranked fifth nationwide in number of venture rounds per million residents, according to the Pittsburgh Post-Gazette.

Ohio

The Youngstown Business Incubator received a $3 million grant from Ohio’s Third Frontier Program to make investments in Ohio startups.  While the funding can be used for companies across the state, the intent of the funding is to be a catalyst for economic prosperity in the Mahoning Valley region of the state. Barb Ewing, COO Youngstown Business Incubator, hopes the fund will help attract tech companies to Youngstown. Read the article…

Across the state in Cincinnati, CincyTech, a regional venture development organization, announced that it closed its fourth and biggest fund. The $30.8 million fund will make up to 25 investments in digital and life sciences startups. Fund IV combines $20.75 million in private investment raised by CincyTech with a $10 million Ohio Third Frontier loan. The fund includes participation from 79 individual investors and 12 institutions, including Cincinnati Children’s Hospital Medical Center, Castellini Management Company, Interact for Health, The Greater Cincinnati Foundation, Western & Southern Financial Group, and UC Health. Read the announcement…

California

The California Institute for Regenerative Medicine (CIRM) approved financing terms for a proposed, $150 million public-private investment fund, according to the Capitol Weekly. One-half of the fund will be supported by a $75 million loan with the remaining $75 million in funding coming from a private partner. The aim of the agency is to de-risk development of therapies in order to entice a well-financed and well-managed partner to take CIRM research into the marketplace and make it widely available to the public.

Via three rounds of funding, CIRM will make loans in startups with the right to convert those notes into stock in the company. If the companies produce a return on investment, CIRM will be collect royalties from those companies. 

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