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The Q3 2022 Tennessee VC Deal Report

Launch Tennessee periodically publishes essays written by entrepreneurs, investors, and supporters of the startup ecosystem here in Tennessee and across the southeast region, sharing thoughtful and unique observations and perspectives on the business landscape and the challenges they’re encountering. Today on the blog, we are joined by Launch Tennessee’s very own Capital Analyst. To view or download the full report, click here.

Post By: Evan Prislovsky, Capital Analyst at Launch Tennessee

We are excited to share our second Tennessee Deal Report, encompassing all venture capital funding raised by Tennessee startups in the third quarter of 2022. To read our Q2 2022 report, click here.

Let’s start with a data point most people are aware of: Global VC funding is down, and not just down by a little. Q3 clocked in with the lowest amount of funding recorded since the first quarter of 2020. While unsettling on the surface, it gets more interesting when you break down Tennessee’s landscape.

In the past few quarters, our capital team has been tracking national data on funding trends across different ecosystems. Even though last quarter showed resistance to the national slowdown of funding, it began to make its mark this past quarter as we saw 48 Tennessee companies raise a total of $244M in funding, representing a ~33% drop from Q2 and a YoY decline of ~13%.

Despite the funding downturn, we noted the number of deals in Tennessee remained relatively steady as investors continued investing in early-stage deals.

Now, let’s look at where the money went. 

Healthcare continues to lead, reflected in healthcare startups seizing a majority of investment dollars and number of deals completed, specifically in digital health and healthtech (according to Pitchbook).

Outside of healthcare, fintech and TMT (Technology, Media, and Telecom) have been gaining momentum as fintech grew by a whopping 506% and TMT by 119% in funding quarter-over-quarter, primarily due to being tied to the largest deals of the quarter (specifically Memphis-based uLab Systems and MyBambu).

As we continue to witness the dominance of healthcare startups and sector-focused venture funds, Tennessee continues to welcome new players to the state with differentiated sector-focus areas.

  • Ridgeline Partners, based in Memphis, TN, raised a $52M fund focused on B2B companies from seed to series A
  • Valkyrie Venture, based in Brentwood, TN, raised a $30M fund focused on web3 companies

Last but not least, at the end of September, Tennessee’s 3686 Festival was reignited in-person, playing a vital role in attracting investors and founders from across the country. Over $227B in AUM attended the event, including speakers and attendees from venture funds and institutional limited partners seeking connectivity to Tennessee’s growing startup ecosystem. 

Below are a few key trends from Tennessee deal activity in Q3:

  • Despite inflation and a significant slowing of funding across most stages, Tennessee’s tech growth and investment activity have shown fewer signs of slowing down at the earliest stages 
  • The Sleeping Giant of Western Tennessee captured the majority of the funding in the state due to the two largest deals coming from Memphis
  • The majority of the local deal count went to seed-stage companies; with robust activity at this stage, the round sizes can vary significantly across industries and geographies
  • TMT & Fintech funding accelerated; the growth in both of these verticals were outliers at 506% and 119% QoQ, respectively

 

If you found this report valuable, consider giving this a share and passing it along to anyone who you think may find this relevant. If you’d like to receive future Tennessee Deal Reports direct to your inbox, you can sign up for Launch Tennessee’s newsletter.

If you have any questions or data, you want to see in the following report, feel free to reach out to Launch Tennessee’s Capital Analyst Evan Prislovsky: evan@launchtn.org

For any questions or to share data you would like to see in the next report, contact Evan at evan@launchtn.org.

Evan Prislovsky is a Knoxville native and graduate of Appalachian State University where he studied Finance and Banking. He currently serves as Launch Tennessee Capital Analyst. His prior experience includes working with nonprofits in Southeast Asia and apprenticing at a financial advisory firm that helped people spend, save and invest better. When not working, you will find Evan running, traveling or building a passive income.

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