Emma co-founder Clint Smith (left) is investing in BOS Framework, created and led by Sashank Purighalla (middle), along with GrowthX investor Andrew Goldner (right). They met in Nashville.(Photo: Shelley Mays/ The Tennessean)
Tech entrepreneur and business owner Sashank Purighalla had developed software in Australia, India, Alabama and Philadelphia. When it came to launching a new tech company that adds efficiency to software development, he chose Nashville.
"I saw where Nashville consistently was figuring in the top 10 cities in the country to live and work and grow," Purighalla said. "I happened to make some quick sales here, so people seemed to adapt to this new thought process. It seemed pretty progressive. I love the culture, love the weather, love the food, love the Southern feel. Why not here?"
Local investors in Purighalla’s BOS Framework include Clint Smith, co-founder of one of Nashville’s biggest tech successes, Emma, and Andrew Goldner, a tech investor with San Francisco-based fund GrowthX. Goldner moved to Nashville in 2016 to live by his fund's philosophy that companies shouldn't have to move to the coasts to attract investment. They should be able to prosper where their founders want to live.
It’s a story that startup leaders in Nashville and in Tennessee have been trying to tell for several years — that entrepreneurs can come to Nashville and connect with veteran tech founders and sophisticated investors to build a transformative software company.
The new crop of promising tech companies across the state is benefiting from the success of established entrepreneurs, both in investor awareness and in the access to area mentors, Nashville tech and health care investor Sid Chambless said.
The city's tech entrepreneurs and business leaders will gather this month at the 36|86 Entrepreneurship Festival, in conjunction with the health-focused Health:Further event. The festival is meant to spotlight growing businesses in the Southeast and make connections between regional entrepreneurs and investors nationwide.
Nashville's history as an industry hub
Nashville has long been known as a city for health care and music entrepreneurs. Health care successes date back 50 years to the origination of HCA and as recently as May, when Aspire Health, a palliative care company co-founded by former Sen. Bill Frist and backed by Google Ventures, sold to health insurer Anthem.
The pure tech successes have been more rare. Emma, the email marketing company that Smith co-founded in 2003 and sold to a New York investment group last year, is among the most significant tech exits for the city. Other standouts include Franklin-based software firm LeanKit, which sold last year to an Austin company, and Digital Reasoning in Franklin, a cognitive computing company has raised $106 million from investors including Goldman Sachs. Several other tech startups have launched in Nashville in recent years, including XOi Technologies, Takl, Made In Network and Built.
"You are seeing some successful financings drawing attention to Nashville as a tech marketplace," Chambless said. "You are seeing those entrepreneurs who have had success investing in the next generation of businesses and helping these companies be successful quicker."
While much of the city’s entrepreneurial focus has been around music and health techology, Goldner is among Nashville investors looking at other sectors. GrowthX has invested in machine learning company Preteckt, content syndication company RootsRated, both in Chattanooga, and clinical trial logistics company Slope.io in Memphis.
With BOS Framework, Goldner said he was intentional about finding local co-investors, even asking investment groups from other cities to wait to join until later investment rounds.
"We have a fairly concentrated investment community here around the obvious things. We need to diversify that," Goldner said. "Having venture-style, big wins is going to be really important here. There is nothing that will propel our ecosystem quicker and more effectively than having massive exits with local funds and local people (investing)."
To Goldner, BOS Framework has potential to join the list of significant tech companies in the Nashville area. The company provides other businesses with the software foundations that developers often spend months building for each project they work on, such as payment systems and calendars. It increases efficiency and cuts costs for businesses, much in the way that payroll services help them concentrate on their more important functions.
Connecting through the Tennessee entrepreneurial network
When Goldner moved to Nashville, he had no expectations of how many Tennessee companies might end up in the GrowthX portfolio and he had no obligations to invest in Tennessee businesses. His experience so far in Tennessee has helped validate the GrowthX theory that strong companies are not limited to coastal regions.
"Founders shouldn’t have to leave their home to build great companies," Goldner said. "Founders shouldn't uproot themselves and move away from their friends and family and away from their customers and move away from the relatively low cost of their state to sit themselves down in the most expensive rat race in America, just so they can be close to their capitalists."
For Goldner, becoming involved in the investment and entrepreneur community is what connected him to companies he would invest in through GrowthX. A local health care investor reached out to him about BOS Framework, and the three other Tennessee companies he found participated in Tennessee entrepreneurship programs, Dynamo in Chattanooga, Start Co. in Memphis, and LaunchTN's TENN program.
Venture capital investments in Tennessee reached $322 million in 2017, climbing to $194 million in the first half of 2018. Tennessee ranked 21st for venture capital vesting in the second quarter of the year, according to PwC/ CB Insights MoneyTree report.
Charlie Brock is CEO of Launch Tennessee. The state-funded nonprofit hosts 36|86 Entrepreneurship Festival Aug. 29-30. (Photo: Andrew Nelles / The Tennessean)
"There is a larger pool of really quality companies across a range of industries, not just health care," said Charlie Brock, CEO of LaunchTN, the state-funded nonprofit that leads entrepreneurship efforts across Tennessee. "On the supply side, Tennessee has become much more well known as a place for investors to look for quality deal flow."
The state's focus on entrepreneurship is an effort to create jobs and drive economic growth. While there have been numerous examples of successful businesses created in Tennessee, company founders often wrestle with the decision to stay in Nashville or move to more entrepreneurial-focused areas, such as Silicon Valley, Boston and New York.
TenantBase, a company that helps businesses find office space, launched in Nashville in 2014 but moved its headquarters to Santa Monica this year. The company had participated in a business incubator program in Southern California, whose main sponsor was the Irvine Company, a large commercial landlord, and TenantBase founders saw greater opportunity by moving to that area. In the last year, the company has doubled in size to 55 people and raised more than $10 million from investors.
"Some of our most incredible, supportive early-stage investors came from the Nashville market," TenantBase co-founder and CEO Bennett Washabaugh said in an emailed statement. "We would probably still be headquartered in Nashville if not for the opportunity that was presented in 2015 with the EvoNexus incubator and our team having such admiration for the Irvine Company."
For Goldner, who splits his time between Nashville and Palo Alto, Calif., the reasons to be in a city like Nashville are growing. The vast wealth gap between Silicon Valley's tech community and others, the inflated costs for rent, the overblown salaries paid to young tech talent and the attitudes it promulgates are among his concerns. Meanwhile, he has come to appreciate the quality of life Nashville provides, where spending time with family and friends is valued more, he said.
"Silicon Valley is what everyone thinks it is, it is the center of the universe for venture-capable founders," Goldner said. "It empirically has the largest concentration of developers and talent is flocking there, but that is all surface."
Matt Hertz, a former logistics director at New York-based BirchBox, moved to Nashville in August from San Francisco. Like Purighalla and Goldner, he had no strong Nashville ties, but saw great potential for launching a business in the city and appreciated the contrast to San Francisco, where most people he met were in software or product management. Nashville seemed more professionally diverse and culturally rich with its heavy music presence, he said.
"What I have seen evolve in the last 5 to 7 years, since I first started visiting Nashville, it is just exceptional," Hertz, 32, said.
For Purighalla, the decision to build his company in Nashville has been beneficial so far, he said. He has raised $2 million in his first funding round, hired six new local employees joining his 16 person team in India and is generating revenue. His engineering and product director are both Nashville natives.
"Nashville offers everything we need," Purighalla said. "We have the kind of investment we needed, the kind of guidance we need from someone like Clint, who has already built a company the size of Emma. We are finding the right customer base. There is the right awareness and tremendous talent pool coming here. With everything the city offers, people feel they are not going to be lost... Nashville offers the comfort of being somebody who can create an impact."
Top deals of 2018:
Aries Clean Energy, formerly PHG Energy, in Nashville: $46.4M
Digital Reasoning in Frankline: $30M
Contessa Health in Nashville: $13M
FreightWaves in Chattanooga: $13M
Top deals of 2017:
Takl in Brentwood: $27M
Built Technologies in Nashville: $21M
i3 Verticals in Nashville: $14M
MindCare Solutions in Franklin: $4M
Source: LaunchTN
Investment rates in Tennessee:
2018, first six months: $194 million
2017: $322.8M
2016: $407.3M
2015: $400.3
2014: $369.8M
2013: $344.7M
2012: $251.6M
Source: LaunchTN
36|86 conference highlights Nashville tech
Tennesse entrepreneurs and their startup companies will be showcased this month at Health:Further and 36|86. Health:Further is a health care innovation-focused event and 36|86 is a festival of entrepreneurship. Both seek to highlight business solutions underway in Tennessee and to build the startup communities throughout the Southeast. The two events have been held separately in recent years, but are partnering this year, along with Live on the Green.