The creation of a $1.3 million pre-seed investment fund aims to be another catalyst in developing Memphis startups.
On Dec. 18, Epicenter and Emerge Memphis announced the fund — the result of the sale of the Emerge Memphis building at 516 Tennessee St. back in February.
The buyer, Anchor Investments, plans to continue Emerge’s mission of technology company incubation.
For Emerge Memphis founder Bryan Eagle, the new Formation Fund is an answer to the long-unaddressed availability of investment capital for startups in the Memphis area.
“The entrepreneurial ecosystem in Memphis has expanded greatly in the last few years, but the one missing component has been sufficient investment capital to help establish and grow new companies in Memphis,” Eagle said.
Tennessee rose from 20th to 14th in startup activity from 2016 to 2017 in the top 25 most populous states, according to the Kauffman Growth Entrepreneurial Index. The metric measures U.S. entrepreneurship across national, state and local levels.
“There is plenty of wealth in Memphis that might be interested in connecting with early-stage companies, but they either don’t know they are here or need help evaluating the deals,” Eagle said. “We have lacked that connective tissue, but this is changing.”
While more current rankings are in progress, Epicenter CEO Leslie Lynn Smith said the trend she sees is a promising one that is sure to be bolstered by the availability of more investment funding.
“We now invite people to invest as if we will win, instead of as if we will lose, which is a subtle shift but an important shift,” Smith said. “It changes the way people make investments and the way they may engage entrepreneurs across the community.”
New companies will be able to gain capital from the Formation Fund by a referral from an Epicenter team member or one of the organization’s community partners.
About 15 new companies per year will be able to receive funding at an average of $50,000 each, though six startups have received a total of $175,000 from the fund in 2019.
Epicenter, launched in 2014, works to connect entrepreneurs to programming, capital, customers and talent for their startup organization.
To combat the high-risk nature of startup investments, education at the college, high school and middle school levels has been a growing focus for the organization and its partners, Smith said.
“There’s always room for students, for those who want to engage in the entrepreneurial movement. … We see a lot of emerging technology coming out of university partners.”
Both Christian Brothers University and the University of Memphis are partnered with Epicenter, and Smith said she wants to see the activity there continue to grow and directly contribute to the local economy.
While homegrown startups boost the confidence of Memphis investors, drawing in companies from around the country remains a priority for the city.
Hera Health Solutions, a pharmaceutical device company started in Atlanta, moved to Memphis in 2018. CEO Idicula Matthew said Epicenter has had a vital impact on their growth.
“Recently, we successfully closed a $1.25 million investment round led by Memphis-based venture capital firm, Innova,” Matthew said. “Now we are looking forward to the next stage of product development and internal company growth for Hera, with a large number of our investors, partners and advisers based out of Memphis.”
Hera is developing an innovative biodegradable drug delivery implant as an alternative to drug implants or taking pills on a daily basis.
While the life sciences, transportation and logistics sectors have been historically strong in Memphis, more variety in startups in areas such as food and music technology may be another area of growing opportunity, Smith said.
“I do think that we are flipping to the other side of seeing what’s possible in Memphis and seeing a lot of enthusiasm about investing in Memphis startups,” she said. “I think this is another indicator that we are working together across the community in unprecedented ways, and that we are really on to something.”