36/86 Conference is match-making for startups and investors
Investment capital is a huge element of Chattanooga’s startup ecosystem. The recent increase in local investors and investment groups willing to invest in startups and the number of investors attending Gig Tank’s annual Demo Day are familiar markers of progress in conversations about how the city’s startup scene is developing.
Bringing regional and national investors together with local startups is perhaps even more important—after all, there’s a lot more capital outside Chattanooga than inside.
That kind of cross-border matchmaking is high on the agenda at 36/86, a June 9-10 event in Nashville sponsored by Launch Tennessee. After leading Co.Lab, Chattanoogan Charlie Brock was tapped in 2013 by Governor Bill Haslam to run Launch Tennessee, a public-private partnership to promote high-growth startups in Tennessee. The 36/86 event—formerly called Southland—is now in its third year of bringing startups and investors together for two days of networking, education and entertainment.
Out of 250 applicants, Launch Tennessee selected 36 companies from seven Southern states and the District of Columbia to make pitches for investment. Companies were required to be fairly early in their development, having raised no more than $2 million, but to be far enough along to have either customers or users.
According to Brock, at least 95 partners from 70 investment firms are attending, “representing all states of investment potential from angel to early stage to later stage private venture capital to corporate venture to mergers and acquisitions.”
Brock anticipates 700 people on each day, with entrepreneurs in search of networking and education making up the balance of attendees.
How the startup-investor courting goes depends a lot on what investors are looking for, Brock says: Are they sector-agnostic or do they fit in healthcare IT? Or is it generally tech companies they are looking for? Do they want a consumer play or enterprise play?
Investors are also looking for company valuations that suggest a healthy future return.
“That’s one reason we’re getting a lot of interest from investment firms in New York,” Brock says. “Over the last year and a half, valuations for series A companies were 42 percent less in the Southeast than they were in New York.”
Most startups will begin with early funding from angel investors. The next round is called series A investment. As the company grows and attracts more capital, later rounds are series B and C. Lower series A valuations mean the company prices are lower here.
“Investors can get more equity for same amount of investment, and the cost of living here is so much less than it is in California and New York that their money will go much longer,” he says. “It’ll take longer for the startup to spend that money, so the company will be further along by the time they need to go out for the next round. Hopefully that translates into a higher valuation, so the early investors don’t see their value diluted as much when new investors come on. That’s a really strong narrative.”
How long does it take to consummate this process?
“Typically we advise entrepreneurs to be prepared for a six-to-nine month fundraising process—and it is a courting process,” Brock says. “By getting more people under the same roof, making more connections, having more conversations, could it move to two-to-four months? We think so.”
I have to ask about the announcement that Chattanooga accounts for four of the 36 companies presenting to investors at 36/86, the highest number of any Tennessee city. Those startups are Feetz, RootsRated, PriceWaiter and Zipflip.
“It’s further evidence of how far Chattanooga has come over the last several years on the entrepreneurial front and the quality of entrepreneurs we are seeing in Chattanooga now,” Brock offers.
He sees a reciprocal relationship between the availability of investment capital and Chattanooga’s inventory of companies worthy of investment.
“You get early-stage capital, which brings more entrepreneurs,” he says. “Then as entrepreneurs grow and are successful, you get the larger capital that wants to spend more time in that market. As companies grow up in scale, money becomes more mobile. You’re not going to have California or New York firms invest in a pure-idea company in Chattanooga.”
But they will invest—and they did a few months ago—in companies like Bellhops, PriceWaiter and Feetz that have momentum.
“I think Chattanooga is on that path now, and people are recognizing it,” Brock says. “As I’m doing outreach to these large investment firms, they’re saying, ‘I hear more and more about Chattanooga. I need it to be one of my stops when I come to the South.’”
Rich Bailey is a professional writer, editor and (sometimes) PR consultant. He led a project to create Chattanooga’s first civic web site in 1995 before even owning a modem. Now he covers Chattanooga technology for The Pulse and blogs about it at CircleChattanooga.com. He splits his time between Chattanooga and Brooklyn.