I recently gave a presentation at the Nashville Technology Council’s 4th Annual Innovation Conference.

I noted in my presentation that there isn’t any real early stage innovation investing in Middle Tennessee outside of the healthcare space.  In fact, the truth is that most TN venture firms don’t even keep their money in-state:

Now, I’ll predict the reactions to this from the community:

1. Some will be offended and shoot the messenger
2. Some will point to all of the new initiatives going on to spur entrepreneurship in the area
3. Some will agree and try to figure out ways to change it (but not have the resources to do anything about it)
4. One or two may get involved that can make a difference and invest in new things (maybe)

Click here to read my full presentation (PDF format).  Below I’ve summarized the key takeaways.

First, the presentation wasn’t meant to be critical of any particular group. The funds that are analyzed have an obligation to their investors, not to Tennessee or particular industries. If they make good returns, they are doing their job. Enough said.

While it would be great if their money stayed in Tennessee and was used by Tennessee innovators to create new things, investing in-state is not the job of these VCs. Their job is to make money. It is true that funds in major markets (San Francisco, Boston, Seattle, DC, etc.) have a track record of making money through innovation and riskier investing. Some markets (like Nashville) make money by investing in consistent performers – even though that gets a lot less press and generates less excitement. Whatever floats someone’s IRR…

Second, the opportunities laid out in my presentation (peer to peer platforms, novel content distribution and recommendation services, and healthcare informatics) are VERY ACTIVE and TIMELY opportunities. It will be a crime if we don’t have at least one or two startups in Middle Tennessee that go after each of these opportunities.

Unfortunately, that means that somewhere between $20-100M has to go to work for them to really have a chance. It doesn’t all have to come from here, just the seed and Series A money ($5-15M of the above amount). Groups such as Sequoia Capital will place growth capital in other markets outside the Silicon Valley, just not early stage.

Therefore, we need emerging Middle Tennessee companies to be funded by angels and early stage groups with critical ties to mainstream companies.  These early investors also need ties to executives with strong track records recruited from ongoing concerns.  If we can get these kinds of early investments, then big funds will have better trust in the business development acumen of Nashville-based startups and follow-on funding will become available to help these emerging companies compete on the national and international stages

Third, we need strategic involvement and leadership from major companies in the area. We need strategic investment to go into firms such as Nissan, HCA, Ingram, MCA, and AT&T. We need executives willing to team with smart tech people and put their credibility to work to expand and grow the aforementioned emerging markets. Only by bridging experience, relationships, and innovation can we transform the Middle Tennessee economy into something that will be competitive for decades to come. That means that we need major firms to see the upside in spin-out innovation and equity/licensing strategies, not just bottom lines. This should be easier for private companies to experiment with than public ones.

Clearly every person has to do what works for them. If you are a VP at MCA or a deputy CIO at Nissan or Gaylord, you’ve got security and good personal upside. But there may be an opportunity to build something new and great with the right people and idea.

Young people in Nashville trying to do innovative things aren’t getting the backing and support they need. Many are being turned down repeatedly, often without being given a reason. Many of them get frustrated and leave. I heard this directly from numerous people after my speech. These aren’t people with sour grapes. They are bright, idealistic, passionate, and talented. And they are tired of being treated like unproven fodder by the people holding the money. If Middle Tennessee isn’t going to support them, they will go somewhere where there are a hundred options instead of five.  They’ll fall in love with one of those options, break out, and become successful.  And Tennessee will miss out on an economic opportunity in the process.

My request to executives and investors is this:  If an up-and-comer presents their idea to you, please take the time to explain your thinking whether you ultimately say yes or no. They need constructive guidance and they need to connect with people that can help them grow into leadership and teach them how to monetize their ideas.

I know that time is valuable and if you aren’t going to invest, it’s easy to just toss a group over the side and move to the next one, but after 3-5 tosses, many of these entrepreneurs will move and then they won’t be around four to five years later to give you the best deal you’ve ever seen.  Make the extra effort. It will come around to your advantage and the betterment of our whole economy in the long run.

Failing to support new ideas and entrepreneurs is not going to make the people that have money now poorer in the near term. But by not supporting innovation in Middle Tennessee now, we are sending people with talent elsewhere, to places where tremendous money is being made by backing these intelligent and ambitious people.

We can and should do better.

This is all meant as free advice for a place that I love from one of the sons of its founders (I can trace my family roots here back to the Gower family). Nashville can choose to be a hub of critical information and knowledge, entertainment, and culture in America, but it has some work to do.  Early stage innovation investing inside Tennessee would be a good start.  Suggestions on how to “get there from here” are very welcome.