"Venture Capital Freeze Out"
The Knoxville News Sentinel
November 11, 2001
by Larisa Brass
Knoxville technology firm Airtuit was in growth mode last year, hiring like crazy and savoring the sweet taste of a new $ 10 million investment.
How times have changed. Terry Marsh, president of the company that sells wireless communications software to businesses, has seen customers tighten their budgets in a darker economy and has himself been forced to lay off 25 percent of his staff. Venture capital, too, is in short supply. Financial research firm Venture Economics estimated there was 73 percent less new money to spend last quarter than one year ago.
Nevertheless, Airtuit and other hopeful high-tech companies from around the region will gather in Nashville this week to ply venture capitalists with their business proposals. A lucky few may even walk away with some cash.
The event is sponsored by Oak Ridge-based Technology 2020, which has moved the annual Tennessee Venture Forum it has held in Knoxville for the past three years to Nashville. Along with Airtuit, five other local companies will participate: Atmospheric Glow Technologies, Med Images, Industrial Ceramic Solutions, Risk Management Solutions and the Whitestone Group. So far, more than 400 people have registered for the event, compared to 200 last year, including 80 institutional investors.
These days, many investors who attend such forums guard their wallets very carefully, said Don Welty, president of Tech 2020's Technology Finance Corp.
"The venture industry is in a very difficult time," Welty said. "The bottom appears to still be out there for another three to nine months. Most people that I've been talking to are not investing for the next three months."
"I think (the venture capitalists will) be very selective. I think they'll hand out cash, but they'll be very selective," said Artuit's Marsh. "There won't be any surprises, if you know what I mean."
Airtuit doesn't need cash at the moment. The company is seeking partnerships to help sell its product, he said. But businesses strapped for cash will need to present a solid business plan complete with revenues in hand.
Investors will want to know, "Are you generating revenues and how close are you to break-even?" said Welty.
Not that there isn't money to be had.
The $ 36 million TennesSeed fund, a federal Small Business Innovative Research fund managed by Tech 2020, has recently gotten the go-ahead to seek its first investment opportunities. And today's conservative climate may be conservative only in light of the past several years.
"There are people who are making investments, but they're back to where people made investments in 1996," he said. For venture funds with the cash, it's a good time to invest, said Welty. For example, companies that would have garnered high valuations and the attention of bigger venture funds are now seeking out the TennesSeed fund, he said.
Companies from Memphis, Nashville, as well as Alabama, Mississippi and Arkansas will join those making presentations along with the East Tennessee firms. In spite of the economy, they're all hoping their business niches will pique investors' interest.
Knoxville-based Atmospheric Glow Technologies, for example, hopes to fund a spin-off to manufacture ventilation systems, which filter biological and chemical agents.
Since the Sept. 11 attacks, the company has accelerated development of the product that it hopes to have ready to sell in three to six months said Kimberly Kelly-Wintenberg, president and CEO.
"I know things are relatively tough, but we feel like we have an edge in our decontamination abilities," she said, "and people are really interested in that right now."