Stories of Technology, Innovation, & Entrepreneurship in the Southeast

(EDITOR’S NOTE: This is the eighth article in a 10-part series capturing the thoughts of Angel and Venture Capitalists who invest in East Tennessee as they look back on 2020 and ahead as we begin 2021.)

Funds focused on underserved populations seem to be growing. Will that trend continue and how has it impacted your investment strategies?

• Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. If I interpret this as “Impact Investing,” then yes, it is here to stay. We expect to see a refining of the term and meaning of “impact,” which means different things to different people. We now consider “Impact” as an intangible advantage in our diligence processes. It will become part of our diligence reporting in 2021. “Traction” and “Impact” will be the buzzwords in 2021 in my opinion.
• Tony Lettich, Managing Director, The Angel Roundtable. We believe this increased focus has shined a spotlight on these populations and will result in the identification of additional opportunities for consumers and investors. The related markets will be more transparent and gaps providing opportunities in both the consumer and investment markets will result in stronger opportunities for all. Approximately 50 percent of our portfolio companies are led by minority and female Founder/management teams, and we expect this to increase over time.
• Kristina Montague, Managing Partner, The JumpFund. Our focus at the JumpFund has always been on women, which still receive less than three percent of all new venture investment. Women have taken an incredible hit this year, both in the workplace (juggling family issues and work from home) and as Founders since early stage investment has significantly slowed and angel groups/networks are more likely to revert back to investing in who they know/are more comfortable (with) or those in their personal networks. Going into 2020, the buzz on the importance of expanding networks and seeking out and investing in women and Founders of color was at an all-time high with major institutional investors leaning in and challenging their Limited Partners (LPs) or other investors to diversify their portfolios by gender and race. That all came to a screeching halt in March when in-person networking ceased and everyone seemed to go back to their respective corners. In June, we saw some resurgence with national protests about racism and the huge chasm in support for Founders of color (less than one percent of venture capital dollars go to BIPOC {black, indigenous and people of color} Founders). There continue to be programs and some companies that have recognized the vast discrepancy in funding for female Founders and/or Founders of color and how COVID-19 has impacted these Founders more than others. For instance, MasterCard initiated its “Her Ideas” program that incorporates networking and support platforms such as Alice with financial tech resources for female founders. And new funds and investor groups, led by women and BIPOC partners, are springing-up to specifically fund women and Founders of color, including Harlem Capital, Collab Capital, and Fearless Fund. While we are encouraged by these new resources, we know that until angel groups and later stage funders significantly change the way they do business – including recruiting more female General Partners and LPs, intentionally seeking out diverse Founders/teams, and challenging their own portfolio companies to diversify their internal leadership – the percentage of capital flowing to women and BIPOC founders will remain at less than five percent.
• Grady Vanderhoofven, Founder, President and Chief Executive Officer, Three Roots Capital. Yes, that will continue. Frankly, that has not impacted our investment strategy because that’s what we’ve been doing for the past 20 years. I expect the federal government will continue to incentivize investing and lending to underserved populations and geographies. I also believe more “traditional” investors have begun to see the opportunities that exist in that arena.
• Ken Woody, President and Partner, Innova Memphis. Defining target customers is really critical today. We have a shifting demographic in the U.S. and around the world. Who are you trying to reach? Who is the payer? What sets you apart with this population? We ask these questions several times a day. Are other investors as interested in this as we are? You don’t want to be the only one invested into a new space. Maybe you’re not as smart as you think you are.
• David Belitz, Charlie Brock and Courtney Watson, Partners, Chattanooga Renaissance Fund (CRF). Yes, we will continue to see more angel/venture funds as well as various public and private organizations offering blended capital structures to underrepresented entrepreneurs. When we started CRF, we were focused on bringing investment capital to a Southeast Tennessee region that lacked organized early stage structures for entrepreneurs and as such, we did not have a particular lens regarding ethnicity or gender. Going forward, as we consider new investment strategies, we are very mindful of how we can help address the investment and wealth gap that exists between white males and the rest of the population.

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