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Q2 2023 Tennessee Deal Report

By Evan Prislovsky, Capital Analyst

View Q2 2023 Deal Report.

Funding Recap

In 2023, venture capital funding in Tennessee startups went from the highest of highs to the lowest of lows — with a harsh ~79% drop from Q1 2023. 

This is the lowest recorded funding over the past three years since the COVID pandemic in 2020. 

While this downturn was somewhat expected, considering the overall slowdown in venture funding nationally, it is noteworthy that it follows the largest funding quarter ever witnessed in Tennessee. 

Big Picture – National venture funding trends from Q2 2023*:
Click to view Q2 2023 Deal Report

Let’s Get Granular on Tennessee

This quarter, there were 52 deals made and a total of $166M invested in Tennessee, based on publicly available data.

That’s roughly an 18% increase in the number of deals (QoQ) and a whopping 55% decrease in the amount of money invested compared to the same time last year (YoY).

The average deal size for seed stage companies increased by roughly 68% quarter-over-quarter in Tennessee, jumping from $1.3M in Q1 2023 to $2.2M in Q2 2023.

While this trend is promising, it is important to note that there were a handful of outliers that closed seed rounds in excess of $5M that contributed to this increasing average.

Interestingly, there was a slight decrease in average deal size across the Southeast Region (-3% QoQ).

As for valuations, the average pre-money valuation for seed deals clocked in at $8.7M for Tennessee and $10.5M for the Southeast Region in the first half of 2023.

Tennessee Funding Trends by Industry

Even though we’re seeing a slight increase in the number of deals, the drop in funding suggests that there are smaller bridge rounds and follow-on funding events happening throughout the market.

It also indicates a decline in valuations in Tennessee and across the Southeast.

We’re curious to see if VC dry powder — which we see sitting on the sidelines — will be deployed into the second half of 2023, as valuations adjust and become more appealing, attracting more lucrative deals for venture capitalists.

The mobility sector is grabbing a bigger piece of the pie with each passing quarter.

In this quarter alone, there were 6 mobility deals, which is quite a jump from where it was only 2% of the deal count last year and 4.5% of the deal count the previous quarter.

Currently, mobility comprises 12% of all deals in Q2 ‘23.

Notably, this trend emerges as Tennessee grows its presence of major corporate leaders in mobility such as Nissan North America, Ford’s Blue Oval City, Bridgestone, Volkswagen, and more.

Meanwhile, the medical device industry remains a fixture of Tennessee innovation, accounting for 12% of all deals done this quarter. Last year, in the same quarter, it comprised 7.6% of total deals. Interestingly, the majority of investment funding in this sector still goes to pre-seed and seed stage companies.

We also saw a significant drop in cleantech and biotech funding and the overall number of deals in 2023 compared to 2022.

However, if we take a closer look at LaunchTN’s commercialization pipeline, we’ll find that there has been a surge in federal non-dilutive funding through the SBIR/STTR Matching Fund Program.

In FY22, 54% of companies were in the fields of biotech, cleantech, and advanced energy.

This is a positive development, and hopefully, we’ll start to see more venture capital funding flowing towards these industries within the next 12-18 months.

Notable Tennessee Deals
  • Thrive Health Tech (Nashville) raised a $7M pre-seed round aimed to make health care easier and more affordable to americans
  • CircumFix Solutions* (Piperton) raised a $2.9M round, a medical device company focused on cardiothoracic technologies
  • Kythera Labs (Franklin), Healthcare platform that analyzes data and applies ML to detect behavioral patterns secures $11.7M raise
  • Whisper Aero* (Crossville), raised a  $32M Series A to develop next-gen thrust for drones, jets, and more
  • Bryleos (Johnson City), raised a $5M round to develop BNAD101, a therapeutics company
  • General Graphene (Knoxville), raised a $4.8M Series C round to further manufacture, supply, and produce industrial scale CVD graphene
  • Candescent Biomedical (Nashville), raised a $35M Series B, a medical device company focused on treating hyperhidrosis recently relocated from the Bay Area

*CircumFix Solutions & Whisper Aero are part of LaunchTN’s Impact Fund portfolio.

Click to view Q2 2023 Deal Report

Venture Fund Activity in Tennessee

While new fund formation and VC fundraising has slowed substantially, we are seeing exciting grassroots movements happening on the ground in Tennessee. 

For example, Brain Moyer, former CEO of the Greater Technology Council, is forming an Innovation Studio that focuses on Data and AI (sidenote: AI is huge right now, with 10% of all U.S. patents filed in 2022 being AI-related, a 37% increase from 2021). 

Additionally, Ten31, a fund focused on Bitcoin, is opening an office in Nashville, and collaborating closely with Bitcoin Park. These folks recently hosted the Lighting Summit in early July and are bringing the Bitcoin Conference to town next summer. 

LvlUp Ventures, an LA-based fund, investing in Fintech, Web3, & SaaS pre-seed & seed stage companies is establishing a presence in Nashville. 

Additionally, Hawke Ventures, an L.A. based fund, investing in early stage martech & adtech is building a larger team in Nashville, including the addition of Nashville-based Clark Landry as a Managing Partner. Overall, we’re seeing plenty of buzz on the ground that may not be reflected in the data until further down the road.

Notable Venture Funds Raised:

  • FCA Venture Partners (Nashville) closed a $90 million fund, investing in early-stage (Series A and B) healthcare companies.

Key Trends from Tennessee Deal Activity in Q2

  • Deal volume jumped by ~18% QoQ, an uptick driven by bridge and follow-on investments taking place in the market from existing investors
  • Tennessee funding tumbled ~79% in funding following a record breaking quarter driven by larger, later-stage rounds
  • Average check size for seed stage companies jumped by ~68% in Tennessee, with a minimal decrease of ~3% in the Southeast Region (QoQ) 
  • Later-stage deals are drying up as most of the funding went toward Seed, Series A and B rounds
  • New venture funds raised in Tennessee are currently on a downward trend, following the national pattern. Limited partners (LP) are observing the Federal Reserve and interest rates to decide when to reinvest

Lastly, you can stay up to date with Tennessee’s growing tech and entrepreneurial ecosystem by signing up for The Pitch, Launch Tennessee’s weekly newsletter. 

You can also check out our Q1 2023 Tennessee Deal Report to get a better understanding of quarterly funding trends. 

If you are a startup in Tennessee that is looking for venture funding, we’d love to connect with you. Just head over to the InvestTN website and complete our startup intake form – it’s the easiest way to get started!

If you’d like to see any specific data in the next report, please reach out to Evan Prislovsky, LaunchTN’s Capital Associate: evan@launchtn.org

Special Thanks to LaunchTN’s 2023 Visionary Supporter:

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