Venture Capital Giants Make Inroads in Nashville

Two large, out-of-town venture capital firms have teamed up with a local angel investor with plans to invest in Middle Tennessee technology companies.

Norwest Venture Partners, a $3.7 billion fund with headquarters in San Francisco, and Sandbox Industries, a $350 million fund based in Chicago, earlier this month became sponsors of Nashville Capital Network.

Norwest and Sandbox paid an undisclosed amount to the network to land access to emerging companies in the region. Their prime target: health care technology.

Attracting national private equity firms is a key marker in Nashville’s growth, as it signifies the strength of the industries targeted. It’s also a welcome development for local venture firms who are hopeful that more money will be shuttled to their portfolio companies.

Nashville Capital Network supports early-stage investments in local companies such as Shareable Ink, PharmMD, NuScriptRx and NeighborMD. Norwest and Sandbox have a history of investing in health care technology companies and will look to do the same in Nashville.

“It only makes sense if one is going to invest in health care services to spend time in Nashville, because Nashville obviously has a highly skilled work force, a deeply entrepreneurial culture and is really the capital of health care services in the United States,” said Ryan Harris, a partner at Norwest Venture Partners.

Norwest has yet to make an investment in a Nashville-area company, but Harris said the firm is actively looking here. The firm traditionally makes venture capital investments in the $5 million to $20 million range, and growth capital investments in the $10 million to $100 million range.

Harris said Norwest is particularly looking at companies “that address critical problems in health care,” such as access to care, rising expenditures and billing problems, such as overpayments made by payers or underpayments made to providers.

“We would like to spend more time networking and getting involved with the Nashville entrepreneur communities who are leading health care innovation, because that is what we want to invest in companies that have a tremendous impact in changing and improving health care, and Nashville is the place for that,” Harris said.

Sandbox Industries has made a couple of investments in the area – InVivoLink in 2009 and Change Healthcare Corp. in 2012 – and is looking for more.

“We have built some good relationships leading up to and after those investments,” said Drew Turitz, managing director at Sandbox Industries, which is an exclusive manager for the BlueCross BlueShield Venture Fund.

Turitz said Sandbox typically makes investments in the $5 million range, but the firm has committed $1 million and less in some deals. Turitz sits on the board of InVivoLink and estimates he’s in Nashville about 10 times a year. He expects that number to increase now that Sandbox is linked with Nashville Capital Network.

“It’s great to have an entity like (Nashville Capital Network) that is welcoming to outside investors,” Turitz said.

Nashville Capital Network, which supported 14 transactions worth $8 million in 2011, is eager to help national companies scout for opportunities in Middle Tennessee, said Sid Chambless, executive director of the capital network.

“We’ve got an active angel group, and national firms see us as a place to find opportunities,” Chambless said. “Scouting the deals that our angels are funding is a good way for them to find opportunities.”

John Bass, chief operating officer of InVivoLink, said the presence of firms like Sandbox helps “infuse complimentary thoughts, ideas and values to the existing venture capital community.”

InVivoLink collects and monitors medical data to help doctors coordinate care with their patients and partners.

“These investors are interested in Nashville because they see an underserved area with a unique and supportive environment,” Bass said.

Nashville on big money’s radar screen

Norwest Venture Partners and Sandbox Industries are the latest in a wave of interest in Middle Tennessee by national private equity firms.

In January, health care equity firm Galen Partners, which is based in Connecticut and has more than $1 billion in assets under management, announced it had become the Nashville Entrepreneur Center’s health care sponsor for 2012.

Galen has invested in more than 60 companies since 1990 and is looking to invest in young companies with $5 million to $10 million in annual revenue.

Raleigh-based River Cities Capital Funds made an investment in WellNow Urgent Care, which announced Feb. 15 it was launching operations in Nashville with $35 million in committed capital.

River Cities, which has $400 million in assets under management, said it is attracted to Nashville’s growth and potential. It has made investments in the area previously, including Inspiris and Horizon Resource Group, both based in Brentwood.

“Nashville has made significant strides in growing an entrepreneurial community,” said Rik Vandevenne, director at River Cities Capital Funds. “The area has the potential to be a mini Silicon Valley for health care service and health care information technology.”