[Updated] TNInvestco funds escrowed, Applicants listed

Tennessee Department of Revenue Commissioner Reagan Farr told VNC earlier this week that aggregated TNInvestco funds are being managed through the state's master escrow account. A spokesman for the State Treasurer told VNC the escrow account will be managed by Treasury staff as part of the State Pooled Investment Fund. We don't have a lot of details, but it suggests that momentarily, the six winning TNInvestco funds will be able to draw down funds for investment of at least $84MM in seed- and early-stage companies in Tennessee. In addition, TNInvestco officials, responding to a VNC request, provided a list of 117 entities that applied via the TNInvestco website, asking their names be passed along to TNInvestco finalists. Of course, in addition to the 117 who made that formal request, dozens, if not hundreds of others have plied their business plans before TNInvestco certified firms they could reach, for months. Update Jan. 7th: State ECD and Revenue issued a press release saying the six TNInvestcos raised $85MM for investment in seed- and early-stage companies, following the State's sales via TNInvestco-certified companies of $120MM in premium tax credits to insurance companies.

TNInvestco expansion likely

On Friday, Sen. Doug Overbey (left, R-Maryville) told VNC he remains optimistic that the TNInvestco capital-formation program will be expanded by the $40MM requested by the Administration to fund two more of the new TNInvestco funds. Both Tennessee Angel Fund (Nashville Capital Network) and Solidus-TNInvestco had "alternate" status in the initial round, and are hoping to get $20MM tax-credit allocations each, if the program is expanded. There's apparently less reason for optimism on the parts of two other outliers: NEST-TN and Memphis Biomed Venture Tennessee. Many policymakers (among those watching the issue) seem hesitant to go beyond the $40MM sought by the Administration; and, as widely reported, a number of candidates to succeed Gov. Phil Bredesen in January have signalled caution. State Rep. Beth Harwell (R-Nashville) told VNC on Monday that she'll hold her opinion until the expansion measure hits the House Commerce committee, which she chairs. She also said that it's her sense that a "recapture" provision sought by Advantage Capital, which would revoke tax credits sold to insurance companies that invested in TNInvestco funds that failed to meet performance criteria, is essentially dead this Session. The "clawback" proposal had been fought by the Administration and others who felt it would take the wind out of TNInvestco sails. Sen. Overbey told VNC, in fact, he was concerned that the recapture threat would needlessly divert TNInvestco-generated capital into insurance payments, as fund managers sought to mollify hard-bargaining insureco investors.

Chancellor will study TNInvestco litigation before ruling

Following about two hours of oral arguments by counsel to the parties this afternoon, Davidson County Chancery Court Chancellor Russell Perkins said he would issue his opinion in the Coleman v. Farr-Kisber TNInvestco public-records access lawsuit in about a week, targeting February 23. Although no new major themes seemed to arise during the hearing and Chancellor Perkins acknowledged the need for expedited handling of access requests, the judge said the weighty issues embedded in the case call for ample consideration. Among other things, points of interrelated state and federal laws and common law were raised. At one point in his limited give and take with lawyers, Chancellor Perkins noted the fact that Attorney General Robert Cooper has weighed-in with an affirmation of the need for State confidentiality for certain TNInvestco information. Such an affirmation is required by law. Franklin-based VC Larry Coleman demands access to TNInvestco documents, arguing that disclosure of scoring forms and other data -- with some sensitive information redacted, as necessary -- would serve to illuminate the process of picking TNInvestco winners sufficiently to determine whether or not the commissioners followed state law in executing the program. Much of the discussion today centered around whether TNInvestco scoring matrices, once redacted, would still be confidential tax documents; and, whether by mentioning their use of the matrices in selecting TNInvestco winners the commissioners had somehow waived any privileges they might enjoy related to non-release of the scoring documents. Today's hearing was in Metro Nashville's historic courthouse (pictured above). Our preliminary report on this, earlier today.

[Updated] TNInvestco tally rises

[Updated 5:24 p.m.] With the TNInvestco deadline looming at close of business today, the tally of TNInvestco applicants has risen to an even 20, posted on the state's TNInvestco site. Latest additions include: Memphis Biomed Ventures Tennessee I, LLC (Gary Stephenson); Morgan Keegan Principal Investing Group, LLC (Susannah O'Sullivan); XMi High Growth Development Fund, LLC (Jim Phillips); Martin Investco, LLC (Charles Martin); Tri-Star Technology Fund, LLC (Christopher Rand); and, Solidus-TNInvestco, LLC (Townes Duncan). The full list, which may be further updated, is here. VNC has confirmed Christopher Rand is the same person who is a key executive in Vanderbilt University's technology-transfer initiative. He told VNC this afternoon he is joined in the prospective venture by VUMC Vice Chancellor-Health Affairs Emeritus Harry Jacsobson, and by fellow VU life-sciences tech-transfer executive Brian Laden. Rand said none of the three will be affiliated with VU, if their TNInvestco proposal is accepted.

TNInvestco: Chambless speaks for NCN

Although the Tennessee Angel Fund, led by Nashville Capital Network Executive Director Sid Chambless, was named an as-yet unfunded Alernate in yesterday's TNInvestco winners announcement, the TNInvestco commissioners announced they'll be seeking additional funding from the General Assembly, come January, and the $40MM targeted could go to Chambless' and Solidus' groups. Meanwhile, Chambless told VNC yesterday, "We are pleased with the results of TNInvestco. Many of the winners already interface with our angel group so we believe NCN's stable of companies and pipeline of opportunities will have good exposure to the TNInvestco funds. Additionally, we believe the Tennessee Angel Fund is a nice complement to the other TNInvestcos and we are optimistic the additional two allocations will come to fruition." Chambless' 22 NCN board members include TNInvestco winner Council Ventures' Katie Gambill and Solidus' Townes Duncan.

Marcum TNInvestco scenario

Dan Marcum, co-founder with wife Fran of Tullahoma-based Marcum Capital, said today that he's identified two tech companies -- one in Arizona, one in North Carolina -- that he could invest in, if bolstered by TNInvestco funds; and, Marcum said the entrepreneurs involved in both ventures have already agreed to relocate their companies to Tennessee, if he invests. (MBVP's Gary Stevenson, also involved in a TNInvestco finalist fund, recently shared a similar scenario with VNC, here.) Fran Marcum (left) is lead founder of NEST-TN LLC, which is one of 10 TNInvestco finalists. Though rumors are rife that ECD-Revenue have picked the TNInvestco winners, an ECD spokeswoman denied that today, adding that the winners are still to be announced on or about Nov. 1. That timeline is the one that's been laid-out for weeks, although it is not binding on the two commissioners overseeing the award of grants. Gov. Phil Bredesen, ECD Commissioner Matt Kisber depart soon for a 12-day business mission to Japan and China, placing them back in Music City, albeit jet-lagged, just a few days before the TNInvestco announcement milestone arrives.

TNInvestco: VC joins Innova team

Jan Bouten, who, as reported by VNC, joined the Memphis Bioworks Foundation TECWorks management team earlier this year, is now a member of Innova Memphis' new TNInvestco investment team, within Innova Fund II. Innova is a subsidiary of Bioworks. Innova also told Memphis Daily News it has for some time been courting insurance companies for participation in TNInvestco. Innova is the only funded TNInvestco applicant that is also a member of the TNInvestco Consortium, which was created to seek insurecos' participation.

TNInvestco criticism from Advantage Capital

Scott Zajac, senior managing director, Advantage Capital Partners in St. Louis, was apparently emboldened by Larry Coleman's lawsuit, in which Coleman demands access to information deemed privileged by the State commissioners who chose six TNInvestco winners, in the first batch of new funds in the state's innovative capital-formation program.
Zajac told VNC today that, although he said he is not alleging "illegality" on the part of the commissioners, he thinks the TNInvestco process itself may be have been 'corrupted'.
Here's Zajac in his own words, which he sent us via e-mail after reading about Coleman's litigation in Davidson County's Chancery Court:
"Coleman Swenson is without a doubt one of the most qualified firms in the state and the idea that they were not even in the top ten is absurd and suggests a very flawed or corrupt selection process. Our firm did make a similar FOIA request through counsel for the scoring matrix immediately after the results were announced and the department immediately denied the request and made it clear that they intended to keep the selection scoring matrix secret and away from public view which seems entirely inconsistent with the transparency one would want in a program with over $100 million flowing out of the state coffers.
"I have never met Dr. Coleman but he contacted me late last year about his dismay with the process. He seemed more concerned with the integrity of government and waste of taxpayer money but I was not aware that he was taking legal action. I can't imagine why a state official would not want to have this process be open and transparent. The state should have done the first part of the selection process where they qualified firms under the statute and then let the private market pick the winners and losers based on merit versus political appointees picking based on other factors. If they had taken this path firm's like Dr. Coleman's who already had legitimate commitments from insurance companies would be pumping money into start ups today. Instead the process is bogged down and firms already going back and asking the legislature for even more money targeted at specific VC firms picked by political appointees. Ironically, one of the safeguards for taxpayers in programs like NMTC and CAPCO is the recapture of tax credits for any non-compliance the law. This feature was curiously removed from the original bill proposed in the legislature based on a request from Commissioner Farr and others. In essence, this administration is handing out money to firms they select today and the massive cost does not hit the state until the next governor is in place. If the TNVESTCO firms have not complied with the law there is no ability whatsoever to recapture tax credits. If anything is done in the legislature it should be recapture provisions for non-compliance to protect tax payers and no new earmarks for firms preselected by the administration."
By the way, Coleman Swenson's out of state partner in the TNInvestco competition was Texas Ventures, represented by Scott Crist. Other VNC TNInvestco coverage. - Ed.

TNInvestco: Bottorff says partners well-aligned

Speaking briefly with VNC this afternoon, Nashville-based Council & Enhanced Tennessee Fund Co-Founder Denny Bottorff, at left (co-founder also of Council Ventures) expressed confidence the TNInvestco program will, indeed, become a "model" for the nation, because it has extracted strengths from previous models (i.e., especially CAPCOs) and integrated them with novel features. Bottorff commended State officials for their innovativeness and management of the TNInvestco program and the associated competitive process, and said he and his partners with Enhanced felt their firms were from the outset well aligned with the TNInvestco goal of nourishing "transformational companies" that will contribute to the state's economy and to the well-being of Tennesseans. He added that while Council and Enhanced routinely work with companies and partners nationwide, the TNInvestco program will mean greater focus on Tennessee-headquartered companies. He said he and Katie Gambill will lead the new entity.

TNInvestco accepts Addison app

[5:45 p.m.] At this hour, the rumor persists that there were 25 TNInvestco applicants, but only 22 have been posted. However, VNC just received confirmation from Andrew Forsdick, a former Coopers & Lybrand manager who is now general partner with Addison Capital Advisors, that he received an e-mail today from TNInvestco staff saying that Addison's app has been approved. Addison Capital is backed by J.T. Novarese, a well known Memphis businessman whose family owned Pop Tunes, which was the oldest retail music distributorship in the U.S., but was sold to Nashville's Music City Record Distributors, in 2001. Addison Capital has investments in Park Media (digital signage), Telco Television (content aggregation for cable and IPTV), VO2 Networks (VOIP phones and related), and Energy Savings, which makes energy-saving products for HVAC and auto applications. A second supposed applicant is Pointer Capital Partners Rural TNInvestco Fund LLC, which is directed by former Bredesen Administration Deputy Governor Stuart Brunson. VNC has not determined whether or not Brunson's firm is linked to Pointer Capital LLC, based in Atlanta. Here's the State's official TNInvestco list. Here are links to search the VNC blog and VNC news site for related stories. As noted, there may also be a 25th approved application, but no word on when those two or more additional shoes might drop.

Coleman appealing TNInvestco ruling

Venture Capitalist Larry Coleman is not willing to accept Chancery Court Chancellor Russell Perkins' ruling against his Public Records Act petition for access to TNInvestco documents that might let him determine whether his firm Coleman Swenson Booth and other non-winners were unfairly left out of the money, when Gov. Phil Bredesen's ECD and Revenue commissioners announced TNInvestco winners, Nov. 6. Coleman asks the Appeals court to review the trial court's ruling, in hope of a different outcome. For the first time, Coleman makes clear in his latest petition before Appeals Court that he wants access to documents that might allow him to consider further action before TNInvestco-funded funds begin making investments and before the legislature broadens funding for the program, further. TNInvestco-certified Innova Fund has already announced one such investment. Coleman filed his notice of appeal in Chancery Court on March 9. He filed his request for expedited appeal in the Tennessee Appeals Court in Nashville, on Friday, March 19. Coleman and his attorney, Jim Bowen of Riley Warnock & Jacobson, decline to comment on the matter for this article.

TNInvestco attracts Marcum, Advantage

[11:39 a.m. Check back for updates] The latest TNInvestco postings indicate that Fran Marcum, wife of Dan Marcum, the founding chairman of Tennessee Technology Development Corporation, has applied for TNInvestco certification for NEST-TN, LLC. Dan Marcum told VNC this morning the acronym stands for 'networking, entrepreneurs, Seed capital and technology'. Both Marcums are in the venture. Both Marcums are also principals in their longstanding Tullahoma-based Marcum Capital, which invests in financial companies, technology and real estate. Also applying: S. Talmadge Singer (at left) registered for Tennessee Clean Energy Technology Fund, LP. Singer is also shown on the website of St. Louis-based Advantage Capital as senior associate in the clean-energy practice. Earlier, Talmadge and Advantage filed a TNInvestco app for Delta Capital Advantage Tennessee, giving them at least two shots at one of six certificates that'll be awarded by Nov. 1. Search TNInvestco blogposts here and VNC coverage here. Confirmed applicants appear on the State site first.

TNInvestco: Solidus ready to he'p

Solidus TNInvestco LLC didn't get a $20MM allocation of tax credits to lure investors under the TNInvestco program announced this morning; but -- looking ahead to partnering with the firms that did get allocations, and possibly looking toward a second TNInvestco round -- Solidus Partner Vic Gatto told VNC this afternoon, "As I have said from the beginning of TNInvestco, it is a great program for our state. Obviously Townes and I are both disappointed, but we wish the six winners luck and hope to work with them as they invest the capital. If there is another round of tax credits, we would certainly be interested in participating."

TNInvestco may sharpen headquarters provision

Sometime soon, the General Assembly may, as long anticipated, expand the initial round of TNInvestco, retroactively, to include two more firms. Along the way, legislators may also endorse Revenue Commmissioner Reagan Farr's request to strengthen requirements that any out-of-state ventures that receive TNInvestco funds must relocate their headquarters and principal operations to Tennessee. There'd been rumblings for months from several TNInvestcos that they were finding some out-of-state prospects very appealing. Although recruiting funds here may galvanize small-business advocates who feel there are too many incentives for non-indigenous businesses, already, the requirement would probably accelerate "jobs-creation," by transplanting jobs, rather than growing them from seed-stage. That change, in turn, could strengthen the case not only for a $40MM expansion of the program, but for yet a further increment of $40MM, bringing the total tax-credit value to $200MM. At the same time, some Republican legislators have indicated they are wary of expanding the TNInvestco program further before it has been reviewed for effectiveness, and before a new governor -- whom many think will be a Republican -- takes office in January. TNInvestco legislation has, thus far, been mainly bipartisan. Related story by Erin Lawley, in NashvillePost.

TCPR weighs-in on TNInvestco

Tennessee Center for Policy Research Interim Executive Director Clint Brewer (left), formerly editor of The City Paper in Nashville and a former national president of the Society of Professional Journalists, weighed-in Friday on what he characterizes as the State's efforts to maintain "secrecy" around the TNInvestco program, rather than simply protect the confidentiality of corporate and state information the confidentiality of which they consider crucial to state economic development efforts. Last August, Brewer also raised the spectre of inappropriate insurance-industry ties among some TNInvestco legislative sponsors. Full VNC coverage of TNInvestco here.

TNInvestco Briefing set for Aug. 11

Tennessee ECD Commissioner Matt Kisber and Revenue Commissioner Reagan Farr (L-R, at left) today announced they'll have a briefing for all interested parties about TNInvestco, Tuesday, Aug. 11, 2009, at the Metro Nashville Main Library, beginning 10 a.m. Central Daylight Time. There was no indication in the announcement that advance registration is required, nor are any fees indicated. TNInvestco program contacts are listed here. Related VNC coverage of TNInvestco and related issues is here.

Kisber, Farr comment on TNInvestco evolution

At 5:22 p.m. today, VNC received the following statement from ECD and Revenue Commissioners Matt Kisber and Reagan Farr regarding the status of TNInvestco: "In our November 5, 2009 announcement of the finalists for the TNInvestco program, we publicly stated our intention to seek two additional allocations of tax credits from the Tennessee General Assembly totaling $40 million dollars. Our goal is to award allocations to the Tennessee Angel Fund and Solidus-TNInvestco, LLC, which were both selected as alternate funds. Subsequently, we've been approached about our support for an additional allocation over and above the $40 million we intend to seek. Our position is that while we believe an expansion of the program beyond our request has merit, any additional allocation over and above our request would need to be initiated by members of the General Assembly." Our original story earlier this afternoon.

TSN on TNInvestco

The Tennessean's Getahn Ward recaps TNInvestco status, including criticism from Rutgers Assistant Prof. Julia Sass Rubin (at left), who holds the program is superfluous; Owen Prof. Bruce Lynskey, who stresses importance of true seed-stage investment; and, Belmont Prof. Jeff Cornwall, who says VC, alone, won't ignite TN entrepreneurism, and TNInvestco must be part of a broader TN strategy. That's how TTDC sees it, as well. Earlier VNC TNInvestco coverage here.. and blogposts here.

FourBridges touts TNInvestco role

FourBridges Capital Advisors does a good job in today's release explaining the firm's role in supporting the TNInvestco Consortium, which provides four of 10 surviving TNInvestco applicants help in securing participation agreements from qualifying insurance companies. FourBridges is based in Chattanooga. Related post here. Other TNInvestco coverage.

TNInvestco: ConduIT comments

Nashville-based ConduIT Corporation Chairman and Co-Founder Ray Capp, whose StartTN Fund was among the 25 initial TNInvestco applicants, but did not make the finals, told VNC yesterday his company is nonetheless "thrilled" the TNInvestco program exists and believes it'll "lift all entrepreneurial boats for many years to come." ConduIT Co-Founder and COO Mike Hassell agreed, saying in part, "We know most of the final grant recipients, and respect them highly. Many other worthy applicants weren’t awarded; the commissioners had a tough task in picking just six or eight. They seem to have succeeded in establishing a diverse portfolio..." TNInvestco winners were announced yesterday.