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Game-changing ideas for Tennessee venture capital
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If high-growth development in Tennessee doesn't accelerate in the next few years, it won't be because of a shortage of ideas or a lack of smart plans and programs designed to enhance the state's economy.

It now seems that only classic undercapitalization could thwart the state's renewed push for technology-driven economic development. If that's an accurate picture, then it's thanks in large measure to the early gains and increasingly entrepreneurial mindset of Tennessee Technology Development Corporation, a nonprofit that not long ago narrowly avoided extinction, itself.

Addressing the state's need for more financial capital, members of TTDC's Tennessee Capital Formation Board met Nov. 20 (related story here)during TTDC's first Innovation Conference. Here are some ideas that surfaced during that event:

Angel Tax Credit would incent high net worth individuals to invest in Angel funds. Earlier this year, State Sen. Diane Black said she plans to submit such a bill when the General Assembly convenes in January.

Emulate grants programs that entrepreneurs with, say, $50,000 "maturation grants," mentoring and other resources, preparing student-created businesses to become operational upon graduation, and graduate quickly to an Angel investment round. A program at University of California at San Diego was mentioned.

Create funds-of-funds to systematically develop fund managers and support emerging funds, perhaps after the model of the California Public Employees' Retirement System (CalPERS).

Use government leverage to help fund "quasi-equity" funds that operate similar to SBICs, and which would lend to one or more in-state venture funds, directly or indirectly. Analogous organizations have been created in some U.S. states, Canada and other countries, for direct lending.

Adapt other states' programs, perhaps creating a clone of the Arkansas Institutional Fund, which contracts Cimarron Capital Partners to manage AIF investment in other funds, including several with Tennessee headquarters or other ties: Petra Capital, Meritus Ventures, MB Venture Partners, Noro-Moseley and SSM Venture Parters. Also mentioned was adapting the Maryland Venture Fund, which provides seed and early-stage funding and requires matching capital contributions from other sources.

In truth, TTDC already has all these ideas and many others either under consideration or in-train as part of the action agenda described in TTDC's first annual report, which was recently submitted to Gov. Phil Bredesen and members of the General Assembly.

In line with that report, the TTDC board of directors on Nov. 6 approved further action on a host of TTDC initiatives, and is expected to cast the die, greenlighting a detailed gameplan during the January 2009 TTDC board meeting.

Cromwell (at left) and others frequently remind their audiences that TTDC's contract with state Economic and Community Development (ECD) ends June 30, 2010, giving Cromwell and crew about 18 months to demonstrate results and the compelling value, thereof, to legislators, state officials, business leaders and the scientific community. Cromwell has said that economic austerity means 2009 "is, for the most part, a pass" with respect to major state funding for TTDC, but he has higher hopes for 2010.

Cromwell and his staff frequently employ startup jargon to demonstrate that TTDC, itself, is a potentially high-yield and risky-yet-viable enterprise – albeit an enterprise that is a nonprofit trade association, now solely supported by state funding.

In line with this, TTDC staff often refer to their organization's initial $5.4 million state appropriation as TTDC's "A-round" – the "seed" work having presumably begun five years ago, while Cromwell worked for ECD, pursuing a near-identical course within state government. Also inline with the venture model, TTDC's own porfolio of programs and committees is structured in such a way that each asset could, if needed, be spun-off to the care of other associations or institutions, many of which are already active in the TTDC network.

Key TTDC staff, including Cromwell and Vice President Dan Schmisseur, who has been the draftsman for many of TTDC's current and proposed initiatives, often make pointed references to the fact that if during the next 18 months they don't win sufficient government and private-sector confidence and funding to continue TTDC's work. . .they'll be looking for new jobs.

Left unsaid is the fact that if they fail in their current attempts, they may be sharply reminded that they are not working in Silicon Valley, where they might in good times be able to walk up the block and hire-on at another startup. Earlier TTDC coverage is here.  ♦

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Tags: CalPERS, Cimarron Capital Partners, Dan Schmisseur, Diane Black, economic development, Eric Cromwell, General Assembly, Maryland Venture Fund, MB Venture Partners, Noro-Moseley, SBIC, Small Business Administration, SSM Venture Partners, Tennessee Capital Formation Board, Tennessee Technology Development Corporation, TTDC, University of California at San Diego, venture capital

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