Technology 2020 understands it takes money to create and run successful start-up businesses. That’s why the Oak Ridge, Tenn.-based public-private partnership began piecing together the Access to Capital Initiatives program shortly after it opened 10 years ago.
"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 Tom Rogers, Technology 2020’s president and CEO. Over time, the program has systematically developed a tool chest of capital offerings to benefit clients of its three incubators and other businesses throughout the region.
Through its business incubation and other programs, Technology 2020 provides business assistance to nearly 100 start-up technology companies throughout the Tennessee Valley Corridor. It operates incubators in Oak Ridge, Chattanooga and Knoxville, Tenn., under partnerships with the Oak Ridge National Laboratory, Hamilton County and the University of Tennessee, respectively. Technology 2020 also provides incubation services to a number of affiliate clients in the region.
Technology 2020’s Access to Capital Initiatives program has three major components: the Tennessee Valley Venture Forum, Southeast Community Capital and the Southern Appalachian Fund.
Technology 2020 competitively selects up to 20 promising companies each year to participate in the Tennessee Valley Venture Forum and helps those companies perfect their presentations. The firms then present their business plans to potential investors from throughout the southeastern United States, including venture capital firms and angel investors. Since 1997, more than 100 companies have participated, including 27 Technology 2020 clients. Collectively, those 100 firms have raised more than $20 million as a direct result of their participation in the Tennessee Valley Venture Forum.
Established in 1999, Southeast Community Capital is a wholly owned subsidiary of Technology 2020 that provides loans to Tennessee small businesses 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 made more than 185 loans totaling over $10 million to businesses throughout the state.
To maintain its certification as a CDFI, SCC must make 60 percent of its loans to businesses located in low-income areas, owned by low-income individuals, or hiring low-income employees. However, it still manages to make a significant number of loans to technology companies, including many Technology 2020 clients. Many early-stage companies consider the loans attractive — even though they are at or slightly above normal market rates — because they’re available to companies that might not qualify for traditional financing. In fact, regional banks often refer prospective loan clients to SCC. SCC considers it a success when one of its portfolio companies "graduates" to conventional funding sources, Rogers says.
The Southern Appalachian Fund, established jointly by Technology 2020 and Kentucky Highlands Investment Corp. in 2003, is one of only six New Markets Venture Capital companies in the United States. The $12.5 million fund (the partnering organizations raised $5 million of private capital and received $7.5 million through the sale of debentures from the U.S. Small Business Administration’s New Markets Venture Capital program) invests in companies in Tennessee, Kentucky, and the Appalachian counties of Mississippi, Alabama and Georgia. In 2004 the fund made four investments totaling $1.3 million in three companies — two of which were Technology 2020 clients. Those investments, in turn, attracted an additional $1.7 million in venture funding for the three companies.
"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." Technology 2020’s growing reputation among the venture capital and lending communities is paying off for both the program and its clients. The Access to Capital Initiatives program has helped Technology 2020 attract higher-caliber incubator clients, Rogers says. To better serve a growing number of businesses with its capital programs, Technology 2020 now has offices in Knoxville, Chattanooga, Nashville, Memphis and Oak Ridge, Tenn.
The Access to Capital Initiatives program helps Technology 2020 clients access the funding they need to grow more quickly. Over the last five years, Technology 2020 clients have created more than 1,300 jobs in the region. "That’s the real impact," Rogers says.
The program doesn’t come without cost, however. Each of the three initiatives within the Access to Capital program required a significant investment of both time and money. And the programs require experienced managers, 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 employs eight professionals with expertise in lending and venture capital investing to manage its funding programs.
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