Steve Case on the road: Just as the going gets big, the big leave Nashville

By Carmel DeAmicis , written on June 30, 2014

From The News Desk

The Nashville fireside chat is a far cry from its Rise of the Rest tour predecessors. The audience sits in a pristine carpeted room, on the 28th floor of a corporate sky rise, looking out through wall to ceiling windows on the greenery of the city. In the distance, the Titans football stadium looms.

Prior fireside chats had taken place in scrappy refurnished warehouses and little enclaves off of accelerator buildings.

Likewise, the Nashville crowd couldn’t be more different from their Cincinnati, Pittsburgh, and Detroit counterparts. In the previous cities’ fireside chats, the founders were there in droves, soaking up all the knowledge they could glean from Case’s pep-talk-cum-advisory-sessions.

But in Nashville, instead of startup founders in their best button-down shirts or company swag, the room is filled with suits. Big suits, little suits, black suits, blue suits. It is blazer and slack central, with slicked hair and a lot of men. “There’s no entrepreneurs here,” one man tells me. “But there’s a hell of a lot of money in this room.”

Sure enough, most of the people I speak with are VCs, hedge fund managers, even some consultants. One person tells me he isn't connected to the startup scene at all and just wants to see Steve Case. So a lot of suits, cash, and at least one groupie.

The fireside crowd demographic is indicative perhaps of the top down approach to entrepreneurship that Nashville has taken. It’s not that high growth tech startup founders arrived and built their companies, eventually spawning accelerators and investors to meet the need. It’s more that the City and local business leaders decided the startup scene needed more support, and put in the framework to make it happen. Nashville has always been a city that self-consciously shapes its own destiny.

The fireside chat is a chance to recognize the corporate mentors, legal firms, accountants, and investors who work -- supposedly at a big discount -- to help grow the smaller companies. Michael Burcham, a successful former founder and now CEO of the Nashville Entrepreneur Center, tells me, "We needed all those parts of the supply chain feeling like they were part of the day."

While all the “money” people are busy enjoying the fancy sky rise, Starbucks coffee, and fruits of their organizational efforts, the founders are over at Jumpstart Foundry accelerator, prepping their pitches for the startup competition or plugging away on products. They got their "Case" fill earlier in the day during the startup tour and lunch hour.

Nashville has had a thriving local economy for a long time now. Industries like healthcare and music have stayed steady drivers of tourism, companies, and wealth. But in 2008, regional investors and entrepreneurs decided if the city was going to continue to sustain its strength, it needed high growth, innovative startups in its midst. The next generation, if you will.

Public figures like Burcham began hosting town hall meetings across the city. They invited business leaders and residents out to discuss and answer the question: How do we become a startup hub?

On the tour bus, when I ask Burcham whether these efforts were just a gut reaction to Austin’s success — Nashville’s hope to be the next tech hub of the South — he scoffs at me. Jealousy was not a factor and neither was this an imitative effort.

Of course, copycat plans are never something one would readily admit.

Whatever the true motivation, the local leaders began putting the framework in place for the startups to grow. They held the first official board of directors meeting for the non-profit Nashville Entrepreneur Center in January 2010. Two years later, the state government got on board, rebranding the Tennessee Technology Development Corporation as Launch Tennessee, shifting the focus from commercializing tech research facilities to helping entrepreneurship and high growth tech startups. Launch Tennessee in turn helped set up entrepreneurship centers in other locations across the state like Memphis and Knoxville. (Disclosure: Pando partnered with Launch Tennessee on our Southland conference last month.)

The top down, business leader and government instigation of the entrepreneurial scene explains the fancy high rise and polished nature of the Nashville pitstop. But what about the startups themselves? How are they doing?

Houtan Afkhami, a startup mentor in Jumpstart Foundry, says the biggest challenge still facing Nashville companies is capital. Aside from those that invest in healthcare tech, the funds in Nashville are smaller and earlier stage. “The angel seed round is easy,” Afkhami says. “It’s the two to five million round that’s hard.” He says that causes companies to struggle and move to Silicon Valley.

In fact, that’s exactly what’s happening with, a Jumpstart Foundry company, that is facing that problem. “We’re raising half a million now, and we’ve had a challenge raising that in Nashville,” COO John Paul Bennett says. He claims the company has had bigger investment offers from coastal investors, and could end up moving to take advantage of those ecosystems.

“Our company relies heavily on tech and we had challenges with [Nashville] investors who didn’t understand the tech,” Bennett says. “The questions were about that instead of about the business.” He is quick to defend the ecosystem though, pointing out that part of the reason wanted to start in Nashville was because investors are far more willing to put in the time advising startups, opening up their rolodexes, and making introductions. But the big gun money just isn’t there yet.

It’s not a good sign for a tech ecosystem if it has infrastructure, resources, and government support, but when push comes to shove its companies are forced to leave when they need to scale.

It’s a transitional problem, but it’s real, says Michael Burcham. “My guess is if we keep doing what were doing in another three to four years we won’t have this problem," he says.

Burcham tells me that there are plans “in the works” to try to raise a much larger fund to solve that problem. It would act like a “fund of funds,” convincing other VC firms to invest in one Nashville specific fund. That hasn’t come to fruition yet though.

Despite the potential challenges, Nashville is still growing at a steady clip. During the housing crash in 2008, Nashville remained relatively insulated from the recession because the healthcare and music industry continued to thrive. As a result, people from other cities that fared less well picked up shop and moved to start their lives over again in the Tennessee capital.

Andy Chick, founder of a company called WoodGoods, is one such person. He left Boston in 2011 and moved to Nashville when he was looking for a more affordable living situation. Tennessee’s lack of state income tax appealed to him. Now, he’s running an e-commerce company with Jumpstart Foundry accelerator seed funding that builds and sells artisan, customized hardwood products.

It’s a fascinating comparison to how the economic crash impacted Pittsburgh's entrepreneurial scene. There, it was a reverse situation that ended with the same results. The city was devastated financially, and Carnegie Mellon engineering grads couldn’t afford to move to the far more expensive coasts for tech jobs. Instead, they stuck around Pittsburgh where the cost of living was low, and eventually started building startups. In contrast, Nashville stayed strong during the recession so people flocked there.

As for Steve Case’s thoughts on the Nashville scene? Well, as usual he nails the particulars. At the fireside chat, he repeats some of his now stale ideas from the other tour stops — mantras about patience and perseverance and fighting a global battle for talent. But he closes up with a music metaphor far more suited to Nashville culture. He calls them out on what their biggest problem appears to be: Just as the going gets big, the big leave Nashville.

“It’s hard to put a band together, a little harder to get into a club, harder still to get signed by a hit record, harder still to have a series of hit records,” Case says. “You have to build a brand and a following that spans decades.”

[image adapted from thinkstock]