The lucky six: TNInvestco winners chosen

Five local VC firms to share in state's $120M venture funding pool [Updated with video of announcement]

Email | Print By J.R. Lind and E. Thomas Wood

ECD Commissioner Matt Kisber

Tennessee Economic and Community Development Commissioner Matt Kisber and Revenue Commissioner Reagan Farr this morning announced the six venture capitalists chosen to take part in the $120 million TNInvestco program.

The firms, which will each be allocated up to $20 million in gross premiums tax credits to invest in early- and mid-stage entrepreneurial ventures within the state, are:

• Council & Enhanced Tennessee Fund LLC, Nashville – led by Council Ventures principals Denny Bottorff and Katie Gambill as well as Michael A.G. Korengold, CEO of New York City-based Enhanced Capital Partners LLC
• Innova Fund II LP, Memphis – led by Ken Woody, general partner of Innova Memphis Inc, a for-profit subsidiary of the nonprofit Memphis Bioworks Foundation
• Limestone Fund LLC, Nashville – led by John C. Cook Jr., John C. Cook III and Steven D. Singleton of Mountain Group Capital LLC, with Byron W. Smith, a former senior officer with Asurion Insurance Services Inc.
• Tennessee Community Ventures Fund LLC, Nashville – led by Eric Satz, William Guttman, William Hagerty, Eduardo Rallo & John Hopkins
• Tri-Star Technology Fund LLC, Brentwood – led by Christopher P. Rand, Brian Laden & Harry Jacobson, all of whom have been involved in past spin-out businesses created at Vanderbilt University
• XMi High Growth Development Fund LLC, Nashville – led by Mike Shmerling & Jim Phillips of Xebec Management Inc.

Chosen as alternates were:

• Solidus-TNInvestco LLC, Nashville – led by Townes Duncan and Vic Gatto of Solidus Co. (a major shareholder of SouthComm Inc., which owns NashvillePost.com)
• Tennessee Angel Fund, Nashville – led by Sid Chambless, executive director of the Nashville Capital Network

Kisber said at this morning's press conference that ECD and Revenue will be seeking $40 million more in funding from the General Assembly next year to enable the alternates to take part in the program.

The state chose ten finalists last month. The two that were not named as either funding recipients or alternates were:

• Memphis Biomed Ventures Tennessee I LLC – led by Gary D. Stevenson, managing partner of MB Venture Partners LLC, which former Autozone chief Pitt Hyde co-founded in 2001 to invest in medical device and biotechnology companies
• NEST-TN LLC, Tullahoma – led by private equity investor Fran Marcum

Council & Enhanced Tennessee Fund is the only recipient affiliated with a so-called "Capco company," a specialist in obtaining state-sponsored venture funding. Enhanced, one of the three major Capco specialists in the U.S., lobbied for the creation of such a program in Tennessee as a way to jump-start early-stage entrepreneurship

The Bredesen administration did not embrace the standard Capco model, which has come in for heavy criticism in a number of states as enriching the Capco firms without boosting job creation. The TNInvestco program, designed to try to overcome the problems seen in other jurisdictions, won unanimous approval in the General Assembly, and the governor signed it into law in July.

The program offers tax breaks to insurance companies in exchange for funding that they will provide to the chosen TNInvestco venture firms. Those VCs have submitted confidential plans to the state outlining the start-ups and other businesses they plan to fund with the money allotted to them.

A total of 25 entities tied to investment firms applied to become certified as TNInvestco participants, each putting up an application fee of $7,500 and proving they had set aside $500,000 in equity capital.

Video of the announcement is available below: