State investment firm spreads dough afar

State investment firm spreads dough afar

April 9th, 2011 by Ellis Smith in Business Around the Region

The TNInvestco economic program has doled out more than $17 million, created 110 jobs throughout the state and caused multiple companies to relocate to Tennessee, according to the agency's just-released first annual report.

But so far, no new jobs have been created in Southeast Tennessee. Supporters say it's too early to judge the program, which they say is complicated but effective.

Financiers such as Chattanooga-based FourBridges Capital Advisors helped insurers like Unum Corp. to shed themselves of millions in future tax liability by paying into TNInvestco with cash. The cash was then distributed to in-state venture capital firms, which were directed to invest it in early-stage companies.

"The goal of this is to create jobs," said Charlie Brock, partner at FourBridges Capital, which sold about $60 million in tax credits to insurance companies.

The program has helped provide seed funds for nearly 40 Tennessee businesses judged to offer the greatest growth potential. TNInvestco, started under the administration of former Gov. Phil Bredesen, is being reviewed by the new administration of Gov. Bill Haslam as part of a streamlining effort of most state agencies.

During a meeting in Chattanooga this week of the Tennessee Technology Development Corp., the new commissioner of Economic and Community Development for Tennessee - Bill Hagerty - said his office wants to promote new technology startup businesses, but his office must share in the overall 2.5 percent reduction in state spending. Hagerty said investments in venture capital and innovative startup businesses "can be difficult for a politician because the political cycles tend to be much shorter than the return on investments you see from these type of projects."

"I think it's still too early to judge (TNInvestco)," Hagerty said. "Venture capital is one piece of this equation, but we can also do more tech transfer from our universities and labs, and that's what we're looking at right now."

Local Firm signs on with FUND

Chattanooga-based Signix, which has developed a process for signing documents digitally, is the only Chattanooga company to receive funding so far from TNInvestco. The company says the funding helped retain some jobs but hasn't yet added to Signix employment.

"There is a preponderance of heavy Nashville weighting, and over time you would see some improvement in that diversity," said Limestone fund partner Joe Cook III, but he added that firms are looking at each startup's potential, not where it's located.

And though a few of the program's venture capital firms have a Chattanoogan or two on the board, no Chattanooga-based firms applied to participate, according to Mark Drury, assistant commissioner with the Tennessee Department of Economic and Community Development.

That's because there weren't any venture capital firms in Chattanooga at the time, said Brock, though he and Belitz subsequently created the Chattanooga Renaissance Fund to co-invest in opportunities across the state.

Passed over

Some Chattanooga entrepreneurs can't understand why their startups were passed over in favor of the primarily health care-related companies in Nashville that received funding.

Chris Watts, who claims he's already sold $250,000 worth of his popular headlight renewal product from Ringgold, Ga., said a $250,000 investment "would take us from Ringgold to a national marketing campaign."

Though auto mechanics throughout the region have raved about his product in comparison to competitors', larger chains require vendors to have a certain amount of inventory to sign a contract, Watts said.

Ken McElrath, another Chattanooga entrepreneur, invented a product called Skoodat that brings cloud computing to K-12 educators, a radical departure from current, silo-based storage systems that educators use.

He applied for TNInvestco funding through several of the state-appointed venture capital firms and said "we were told initially we were an ideal candidate.

"But we were turned down by all of them," he said.

But Sid Chambless, managing partner at Tennessee Angel Fund, said he and other investors are looking for "explosive growth," and the health care-based entrepreneurs in Nashville and elsewhere were simply better positioned to achieve that.

"I don't think it's fair to say they're getting passed over," Chambless said. "For us to be successful, each one of those deals has to have the potential to generate return for the entire portfolio."

Ken Woody, a partner with Memphis-based Innova, said the company had looked at six to eight Chattanooga firms, and though "we've seen some really bright things from Chattanooga, there's always more demand than there is supply."

Dan Marcum, managing partner for the Nashville venture capital fund Marcum Capital, said only a small share of those applying for TNInvestco funding got it in the past year.


Marcum said other state investment programs, including the Rural Seed Fund and the Technology Maturation Fund, can help provide smaller grants to entrepreneurs with promising ideas.

But Chattanooga-based SecureWaters, which developed the AquaSentinel water sensor with technology from Oak Ridge National Laboratory, said they were eager for TNInvestco funding since the program was announced, according to company finance director Robert Clark.

Though he's received no TNInvestco funds, out-of-state competitors seem to think his idea is a good one. Several have started marketing exact copies, he said, with one in Chesapeake, Va., even using the same name.

As he waits for funding, he's forced to fight the patent violators in court to protect his intellectual property, he said.

"An investment from TNInvestco would go a long way toward getting us past this stage, and keeping this business in Tennessee," he said.