Having raised $30 million in philanthropy and individual donations, Epicenter has unlocked a $10 million challenge grant from FedEx. Memphis entrepreneurs could benefit from new programs born out of the $40 million fund as early as the first quarter of next year.
Epicenter, the entrepreneurial hub of Memphis, launched out of a Greater Memphis Chamber Chairman's Circle initiative in 2014 with the responsibility to launch 500 new companies by 2024.
Since 2015, Epicenter and partners Start Co., Bioworks, and Innova have helped launch over 60 companies, representing 139 new jobs in the startup ecosystem. Founders have raised $21.8 million -- and those entrepreneurs could soon have access to a new $25 million investment fund led by Epicenter and Innova.
The $40 million raise is a milestone in Epicenter's ultimate efforts to secure $100 million to support a ten-year strategy.
Roughly 45 percent of the $40 million pot will be used as capital to directly fund entrepreneurs with financial options ranging from microloans and grants to debt, angel investment and venture investment.
"There actually came to be a more significant gap in capital than we expected," said Leslie Lynn Smith, Epicenter president and chief executive officer.
"There were a lot of programs and resources serving entrepreneurs in 2014. Many of them needed additional resources to meet demands and scale, but companies were struggling on the other side to meet the capital outcomes they needed to launch and scale those businesses."
Related: "Memphis Money: Investment pipeline for startups has room for improvement"
Memphis' leading investment fund Innova is mostly focused on pre-investment stage funding, and local angel investors are only contributing $1 million to $2 million a year, Smith said.
An additional venture fund in Memphis would support entrepreneurs along every stage of a company’s life cycle. So far, Epicenter has raised $1.5 million to support the co-investment fund and hopes to reach $25 million by the end of the 2019 first quarter. Epicenter will host the fund with an independent investment committee and will share back-of-house support with Innova.
That $25 million venture fund, which would be distributed over the next five to six years, would be leveraged with outside investment to grow that amount by 3.5 to five percent, she said.
"We won't do a deal that's not reciprocated because the behavior change we're trying to create is other folks investing in Memphis deals, so startups are getting the right amount of money,” she said.
“Often, I think there is such a small pool of resources and in that regard, we ask startups to do more with less capital than they necessarily need."
Forty percent of the raise will be used to launch and support entrepreneur programs. Next year, Memphis will see the introduction of year-round accelerators. Currently, most of Memphis' eight start-up accelerators begin in the spring and sprint towards the Summer of Acceleration, which culminates in pitch-frenzy Demo Day.
A year-round accelerator with cohort introductions in the spring and fall would be a "huge competitive advantage for us," Smith said.
The Summer of Acceleration, which draws early-stage startups, will continue. Year-round programming would be an expansion of those accelerators and would scale companies throughout the year, Smith said.
She also anticipates launching a graduate program and Demo Day-like competition for Epicenter's Co.Starters program, which is focused on idea-stage entrepreneurs.
Epicenter is also exploring dedicated programs for entrepreneurs in the fields of food and music.
"When you think about Memphis, you think about food and music, yet there haven't been any tightly organized strategies around innovation and entrepreneurship in this side of the economy. We think that's a real big opportunity," she explained.
The remaining 15 percent of the $40 million raise will support overhead and staffing needs as Epicenter activates its next phase.
Smith said she’s deeply encouraged by local financial support. Backers of the $40 million raise include individual Memphis entrepreneurs Spence and Becky Wilson, Hilliard Crews and Jay Martin – as well as philanthropic foundations, economic development organizations and other corporations.
Related: "As part of a national entrepreneurship tour, Memphis leads the 'rise of the rest'"
FedEx’s $10 million contribution will help attract additional funding from outside of the region. The global shipping giant also sponsors the Epicenter Logistics Innovation Accelerator, which launched in 2015.
“As a vital part of the business community in Memphis, we believe in supporting local entrepreneurs to ensure that the next industry-disrupting idea that’s out there has the chance to grow and prosper," stated Richard W. Smith, president and CEO, FedEx Trade Networks, who also serves as the Greater Memphis Chamber board chairman.
“Strengthening the local resources entrepreneurs and small businesses need to scale is critical if we want to grow the economy in the Memphis region.”