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Technology 2020 program helps clients access funding

by Linda Knopp

February 2006

Talk might be cheap, but growing early-stage technology companies isn’t. That’s why Technology 2020, a public-private partnership based in Oak Ridge, Tenn., has committed time, money and hard work to its Access to Capital Initiatives program for more than 10 years. Through the program, Technology 2020 helps early-stage technology companies learn how and when to approach different sources of capital as they grow, which complements the organization’s other business assistance services, including its business incubation program.

With the Oak Ridge National Laboratory and the headquarters of the Tennessee Valley Authority nearby, East Tennessee’s economy historically has been heavily dependent on federal government spending. However, when federal funding and employment projections for the area declined in the early 1990s, regional business and economic development leaders sought to lessen the region’s reliance on government spending. In 1993, the group launched Technology 2020 with initial funding from BellSouth and the U.S. Department of Energy as one of several economic development strategies designed to capitalize on the region’s various research and technology resources. Their goal was to build a strong technology business community to create new jobs throughout a 15-county region in East Tennessee.

With additional funding and in-kind contributions from a number of other big-name sponsors, including Lockheed Martin, Science Applications International Corp., and several state and federal government agencies, Technology 2020’s service area has grown larger and its program offerings have expanded. “We’ve turned over a lot of rocks,” says Tom Rogers, president and CEO of Technology 2020. “We’ve been able to establish value propositions for both public agencies and private companies in the region to help them understand why our work is important and why they should invest.”

Technology 2020 provides a number of programs to help new technology businesses succeed, including the Centers for Entrepreneurial Growth (an incubation program), the East Tennessee Technology Council (an interactive community of technology-based businesses and entrepreneurs), and Digital Crossing Networks (a world-class data center in downtown Knoxville). Each of these programs generate revenues that help support Technology 2020’s operations, which now include offices in Oak Ridge and Knoxville, Tenn., and 15 employees.

More than two-thirds of Technology 2020’s 62 client companies are affiliates that do not reside in incubator facilities, but the organization does manage four incubators in the region under contracts with local governments and the University of Tennessee. “We’re all about getting client companies through the various stages of growth,” Rogers says. “We were never really interested in the facility management aspect of business incubation, but we are now managing four facilities for those businesses that need space.”

Although all of Technology 2020’s program offerings are impressive, it was Access to Capital Initiatives that caught the attention of the NBIA Incubation Awards judges, who selected the program as the winner of the 2005 Incubator Innovation Award.

Over time, Technology 2020 has systematically developed this tool chest of capital offerings to benefit its clients and other businesses throughout the region. “It became apparent early in our existence that virtually all of our clients needed access to capital to be successful, from very early-stage funds to more mature venture capital funding,” says Rogers, who has been with Technology 2020 since its inception. Access to Capital Initiatives has three major components: the Tennessee Valley Venture Forum, Southeast Community Capital Corp. and the Southern Appalachian Fund.

According to Rogers, these capital sources have dramatically accelerated the development of successful companies in the Tennessee Valley Corridor. Over the last five years, Technology 2020 clients have created more than 1,400 jobs in the region at salaries twice the regional average. “That’s the real impact,” he says.

In 1997, Technology 2020 launched the first of its capital programs, the Tennessee Valley Venture Forum, to help local technology companies connect with potential investors. Although the first event was small, the venture forum has grown significantly over the years, making it one of the largest and best-known venture capital conferences in the Southeast, Rogers says. The Tennessee Valley Venture Forum raises about $125,000 each year from sponsors, participating companies and event registrations, which covers most of the costs of hosting the event.

Based on the early success of the venture forum, Technology 2020 set out in 1999 to help another group of entrepreneurs access the capital they need to grow firms and create jobs in the region. Through Southeast Community Capital, the organization provides loans in the amount of $25,000 to $250,000 to primarily disadvantaged businesses (firms located in low- to moderate-income areas, that hire low- to moderate-income workers, and/or that are owned by women or minorities). Although the loans are provided at – or slightly above – market rates, many early-stage companies consider them attractive, Rogers says, because they’re available to companies that might not qualify for traditional financing. In fact, regional banks often refer prospective loan clients to SCC.

Communities served by SCC loan programs – including Knoxville, Chattanooga, Nashville and Memphis – provide some operational funds and loan loss reserves for the program. Additional funding comes from loan origination fees and interest. Thanks to its certification from the U.S. Department of Treasury as a Community Development Financial Institution, SCC has raised most of its lendable funds from regional banks, which provide SCC with long-term, low-interest loans to receive Community Reinvestment Act credit.

In 2003, Technology 2020 expanded its capital offerings to include the Southern Appalachian Fund. The $12.5 million venture capital fund, established jointly by Technology 2020 and Kentucky Highlands Investment Corp., includes $7.5 million it received through the sale of debentures through the U.S. Small Business Administration’s New Markets Venture Capital program and $5 million of private capital raised by the partnering organizations. The fund makes investments of between $200,000 and $600,000 to promising early-stage companies in southern Appalachia to encourage economic development and job creation in the region – and to generate a return to its investors. “The venture capital industry is a unique club,” Rogers says. “Either you’re in it or you’re not. As a result of the Southern Appalachian Fund, we’re now in it.”

Later this year, Technology 2020 and Kentucky Highlands plan to launch another $30 million venture capital fund through the U.S. Department of Agriculture’s Rural Business Investment Program. The fund, Meritus Ventures, will fund early-stage technology businesses throughout rural southern and central Appalachia.

The Access to Capital Initiatives program doesn’t come without costs, though. Each of the capital programs initially required a significant investment of both time and money to set up, and they need experienced managers to be successful, Rogers says. “You can’t do this on a shoestring or bootstrap basis,” he says. “You should only get involved in developing loan or venture capital funds if you have the resources to attract an experienced fund manager. You need to hire people who have the skills and passion to work with early-stage companies.” Technology 2020 and Southeast Community Capital Corp. now employ eight professionals with expertise in lending and venture capital investing.

The Access to Capital Initiatives program has benefitted both small businesses in the region and Technology 2020 itself. Early-stage firms now have access to various sources of capital through one organization – an organization that can also provide business assistance services in addition to funding – while Technology 2020 enjoys a growing reputation among the venture capital and lending communities.

“Technology 2020 has matured from an organization that made occasional references for our clients to angel investors and local financial institutions in the region to an organization that has its own financial institution with over $10 million in assets and has partnered with another organization to create a $12.5 million venture capital company,” Rogers says. “We know of no other business incubation program in America that has so substantially addressed the access to capital needs of its client companies.”

2005 Incubator Innovation Award

Access to Capital Initiatives
Technology 2020
1020 Commerce Park Drive
Oak Ridge, TN 37830
www.tech2020.org

Access to Capital Initiatives Program Components

Tennessee Valley Venture Forum
www.tvvf.biz

Technology 2020 competitively selects promising companies to participate in the Tennessee Valley Venture Forum, where the firms present their business plans to potential investors from throughout the southeastern United States. Technology 2020 then helps the selected companies perfect their presentations to increase their chances of receiving funding. Since 1997, more than 100 companies have participated in the forum, including 27 Technology 2020 clients. Collectively, venture forum participants have raised more than $20 million as a direct result of the experience.

Knoxville, Tenn., life sciences company Protein Discovery, which has developed technology and services to aid in drug discovery and disease diagnosis, was already in discussions with potential investors before its first of three venture forum appearances. But CEO Chuck Witkowski still considers the experience worthwhile. “It never hurts to practice your pitch,” he says. “In fact, our investors came to see how we performed. The process also helped raise our visibility in the investment community.” Since its first presentation at the Tennessee Valley Venture Forum in 2002, Protein Discovery has gone on to receive two rounds of venture capital funding totaling more than $3 million.

Southeast Community Capital Corp.
www.sccapital.org

Established in 1999 as a subsidiary of Technology 2020, Southeast Community Capital Corp. now operates as a strategic partner to the organization. SCC provides loans to Tennessee small businesses that do not have access to traditional lending sources. As a Community Development Financial Institution, SCC has created four public-private partnerships with local governments and banks across Tennessee to provide these loans. Since 2000, SCC has originated more than 220 loans totaling more than $11 million to businesses throughout the state.

It was a $25,000 loan through the SCC program that allowed NucSafe, an Oak Ridge, Tenn., company that produces radiation detection equipment for the homeland security market, to purchase inventory to meet its first order. “That loan allowed us to take on an order that we otherwise couldn’t have taken on because of cash flow issues,” says CEO Rick Seymour. “And that order provided us the credibility to go on and get future orders.” NucSafe’s customers now include the U.S. Department of Transportation’s Transportation Security Administration, the International Atomic Energy Agency, the U.K. Department of Defense, several U.S. national research laboratories, and others.

Southern Appalachian Fund
www.southappfund.com

The Southern Appalachian Fund, established jointly by Technology 2020 and Kentucky Highlands Corp., is one of only six New Markets Venture Capital companies in the United States. The $12.5 million fund invests in companies in Tennessee, Kentucky and the Appalachian counties of Mississippi, Alabama and Georgia. To date, the fund has invested more than $4.1 million in seven companies in low-income areas throughout southern Appalachia. The fund’s co-investors have invested an additional $8.9 million in venture funding for those same companies.

Smart Furniture, a Chattanooga, Tenn.-based company that has developed a line of tool-free modular furniture for residential, commercial and trade-show customers, is one of those benefactors. In 2004, Smart Furniture closed on a $1.75 million venture capital deal with two partnering funds – including the Southern Appalachian Fund. With venture funding in hand, the company has grown quickly. “We’ve been able to fill the pipeline with good customers – and a broad variety of customers,” says CEO Stephen Culp. Smart Furniture now makes all trade-show booths for Rockport Shoes, and its modular displays are available through Staples’ Web site and catalogs. In the last two years, the company’s products also have been featured on ABC television’s Extreme Makeover, Home Edition; Discovery/TLC’s Trading Spaces; and in Oprah Winfrey’s O magazine.—LK

Keywords: capital access, in-house loan and equity financing program, partnerships -- organizational/corporate

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