Investors deciding the fate of Southeast Community Capital have voted to merge the organization with Memphis-based venture fund Delta Capital Management.
A vote count has not yet been finalized, but Southeast principal Tom Rogers said the majority of limited partners in the $10 million local fund launched as the TennesSeed Fund have approved the merger
“Now we have to work out the details of what the merger means and get the necessary approvals of the (Delta Capital) principals,” said Rogers, president and CEO of Oak Ridge-based Technology 2020, the nonprofit economic development organization through which Southeast Community Capital operates.
The fund’s 24 limited partners include private individuals and organizations such as UT-Battelle, the University of Tennessee, and SunTrust and Union Planters banks.
Delta Capital is an 11-year-old venture fund based near Memphis with $95 million under management. The firm invests in technology, telecommunications and health-care companies and is currently raising $65 million to $75 million to open a second fund.
The deal depends on approval of the merger by Delta Capital’s principals as well as Small Business Administration approval of the new fund for its Small Business Investment Companies, or SBIC, program — “the big caveat,” Rogers said.
Local investors would then need to transfer their commitments from Southeast Community Capital to the Delta Capital fund.
“If this can’t all be worked out by Dec. 31 of this year,” he said, “we’ll wind the fund down.”
Southeast Community Capital’s own failure to achieve SBIC status led to the vote for a merger. In May the Small Business Administration informed fund managers it would deny their SBIC petition. Approval would have resulted in a $2-for-$1 federal-to- private match that could have brought the fund to more than $30 million.
The denial resulted in the departure of fund manager Don Welty and last week’s vote by investors on Southeast Community Capital’s future.
After discussions with 12 regional venture groups, Memphis-based Delta Capital emerged as the prime merger candidate because it was raising a new SBIC fund, had attained SBIC status once before and was located in Tennessee, said Rogers.
The two funds had connected in one of two investments Southeast Community Capital made before operations were put on hold in May. The organizations co-invested in Boston-based Metatomix, which has a large Memphis operation.
Rogers said he’s excited about the prospects of joining Delta Capital, given the fund’s precarious future.
“From our standpoint, this is a good save,” he said.
Business writer Larisa Brass may be reached at 865-342-6318.
