Capital Idea: Chattanooga-based venture funds grow to boost startup firms

Capital Idea: Chattanooga-based venture funds grow to boost startup firms

January 12th, 2014 by Ellis Smith and Dave Flessner in Business Around the Region

Miller Welborn

Photo by John Rawlston/Times Free Press.

Lex Tarumianz

Photo by John Rawlston/Times Free Press.

Tiffanie Robinson

Photo by John Rawlston/Times Free Press.

The Big Three

Three local venture funds are raising money to help fund more startup and growing small businesses in Chattanooga.

*Chattanooga Renaissance Fund.The first fund raised $3.2 million from 46 investors. The second fund is trying to raise about $7 million

* Blank Slate Ventures. The first fund was $500,000. A second round of funding recently raised $1 million.

* Jump Fund. The new female-created fund has already raised more than $2 million toward a goal of $2.5 million by March.

When Chattanooga businessman Lex Tarumianz agreed to pump $100,000 from the Blank Slate Ventures fund into a startup, online restaurant reservation firm known as Quickcue, the business was still developing its technology and yet to turn a profit.

But two and a half years later with some additional coaching and investments by Tarumianz and others, Quickcue sold last month for $11.5 million. The deal returned 12 times the initial investment for Blank Slate within 30 months and helped the overall venture fund return about two and a half times as much as what investors put in three years ago.

"That's the kind of thing that can and will happen in Chattanooga, because the big companies of the world are looking to add to their technology or sales or marketing through companies like (Quickcue)," Tarumianz said.

The initial success of the first round of Blank Slate helped the fund raise another $1 million for a second round of investments.

The venture fund is one of a trio of Chattanooga-based venture funds raising money in recent months to fund growing startup or small businesses in the Chattanooga area.

The biggest local venture fund, the Chattanooga Renaissance Fund, invested in more than a dozen companies in its first $3.2 million funding round. CRF is now raising up to $7 million more for a second round of investments.

Another venture capital fund, the Jump Fund, is raising $2.5 million from area women for one of the first venture funds in the South committed to investing in female owned or operated businesses.

Investors in the funds run the gamut from first-time investors who works as doctors and lawyers during the day, to more experienced hands such as Miler Wellborn, a 30-year veteran of the transportation industry and one of the six founders of the Chattanooga Renaissance Fund and the Lamp Post Group, a venture incubator.

"What we want to do is make sure every level of funding is covered," Wellborn said. "We don't need any businesses leaving Chattanooga because of funding and I think what we're building here can help nurture and support a lot of businesses by putting great ideas with the people and the resources they need to succeed."

Startup ventures often are launched with savings from family and friends, aided by early-start investors like Blank Slate and then grown with equity investments from the Chattanooga Renaissance Fund or Jump Fund, Wellborn said.

The Lamp Post Group, The Company Lab, Hamilton County Business Center and other incubators and small business programs are working to turn business ideas into profitable ventures.The state's Launch Tennessee program also has started accelerator programs across Tennessee to help nurture and coach new businesses.

Venture Capital Fund leaders also say they are being careful in who and what they invest in and usually provide help and guidance along with investments in the businesses they back.

"The success rate of investing in venture deals is drastically increased if you invest with a group that has an organized and disciplined plan," Wellborn said.

But venture capital has still been one of the missing pieces for some growing startups in Chattanooga, business development experts say.

Sheldon Grizzle, air traffic controller for The Company Lab and co-founder of Blank Slate Ventures, said Chattanooga is competitive with most markets in early-stage funding and, for its size, tends to provide more community support for entrepreneurs than in most communities.

"What we lack severely is that next stage," he said. "If you need to raise $50,000 to $300,000, Chattanooga is a decent market for you. If you are looking $300,000 to a million dollars you better have a decent team and some success."

Though Chattanooga still lacks major venture funds, more successes like Quickcue could quickly change that picture.

Grizzle said the sale of Quickcue provided significant returns for Blank Slate and Chattanooga Renaissance Funds and proved the potential for startup tech ventures after some local investors lost money in the past on failed businesses such as the streaming video company st3.

"That (success at Quickcue) brings confidence to the market on the investment side and people begin to realize that investing in local firms is not a black hole that some have feared since the dot.com bust (shortly after the turn of the century)," he said. "The success of Quickcue reignited confidence in the venture market and showed there is real value in some of these enterprises. It's encouraging to see."

Another void in the startup market in Chattanooga and most other cities is in attracting women into technology and other high-growth ventures. To help promote more female-headed or female-owned businesses, the Jump Fund has decided to invest only in companies led by women.

"There's data that shows women aren't as sure of themselves when it comes to game of pitching and finding an investor," said Tiffanie Robinson, one of six women who helped start the Jump Fund last year. "But since there's such a small percentage of women participating as angel investors, venture capitalists, if there are more women at table writing a check, then you might see more women pitching. That's our hope."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340 or Ellis Smith at esmith@timesfreepress.com or at 757-6315