Three Roots Valued Partner: Fred Tompkins

Fred Tompkins is a Distinguished Professor Emeritus at the University of Tennessee, Knoxville, and a member of the Three Roots Capital Board of Directors. With his 40+ year career at the university and supporting entrepreneurs in the greater East Tennessee region, Three Roots is proud to work with Tompkins and benefit from his experience and relationships.

“I enjoy what this organization is doing: Trying to better the lives of people in this area,” said Tompkins. “They are trying to create and support businesses, which create employment opportunities. I enjoy that we are doing something that positively impacts the lives of the people we interact with.”

As a self-described “farm kid” from Hamblen County, Tompkins came to UT to study engineering in the 1960s and, aside from a three-year stint in the military, has never moved away from the area. Originally planning to get his engineering degree and transition into industry, he received a faculty position at UTK and has remained there for his career.

In addition to his role within the engineering faculty, he has held several administrative roles, including President and CEO of the UT Research Foundation, Vice President for Research, and Dean of Engineering. He became interested in entrepreneurship through his work at UTRF and wanted to see how the community could further engage and encourage individuals to license technologies from the university or other regional institutions and work toward commercialization. Following his retirement, he became the co-founder of four early-stage technology companies.

Tompkins met Grady Vanderhoofven, President and CEO of Three Roots, when Tompkins was on the Board of Directors of Technology 2020. When Vanderhoofven was looking to form Three Roots and its board, Tompkins was an excellent fit due to his history of supporting entrepreneurship in the region and extensive career at UT.

“I’ve known Fred for close to 15 years. I knew I wanted him to be involved in Three Roots because he is a true champion for access to capital for small and young businesses in our region,” said Vanderhoofven. “I’m so thankful for his guidance and support over the years in my own career and through his work on the board of Three Roots and with the TennesSeed Fund.”

Tompkins was an early proponent for the creation of the TennesSeed Fund, dedicated to providing seed- and early-stage capital to startups throughout Tennessee. Tompkins serves as the Chairman of the Board of Directors of TennesSeed Funders, which is the nonprofit, sole limited partner of the TennesSeed Fund.

“We want people and institutions, who want to help their community, to contribute funds to the TennesSeed Fund, which in turn will deploy funds to support young companies in Tennessee,” said Tompkins. “We want to put people in a position to make a living and make a difference.”

Though Tompkins’ area of expertise is in technology, he recently was impressed with Three Roots’ role in helping turn the Brushy Mountain State Penitentiary into a tourist attraction in Morgan County. With a restaurant, distillery and other offerings, Brushy Mountain is a job-creating organization providing economic impact in an underserved community.

“Three Roots was instrumental in funding individuals who were converting that space and making it a place for tourism,” said Tompkins. “That tourist attraction is making a difference. I’ve seen it firsthand – it’s amazing.”

Reflecting on opportunities for growth in the area’s entrepreneurial ecosystem, Tompkins believes the region should focus on educating future entrepreneurs about commercialization opportunities, providing access to debt and equity capital, and advising and mentoring burgeoning entrepreneurs.

“We are a technology-rich neighborhood. There’s a ton of cutting-edge technology activity at Oak Ridge National Laboratory, UT, and the other local entities,” said Tompkins. “What I would really like to see is the community come together to help entrepreneurs work toward commercializing technology here in East Tennessee.”

High Impact Capital: Three Roots supports East Tennessee startups and small businesses

Startups and small businesses throughout East Tennessee and greater Appalachia need access to financing to enable growth, but traditional financing options have not historically been readily available. This access to capital gap has left many innovative thinkers, researchers, and business owners unable to commercialize their technology, expand their production capabilities, or otherwise grow their business in their community.

While Three Roots Capital is extremely proud of its role as a source of financing for numerous impactful real estate and economic development projects, the firm is also enthusiastic and active as a small-business investor. From its founding, Three Roots has been committed to deploying high impact equity and equity-like capital to growing businesses. To do so, Three Roots created two pools of capital: the Impact Fund and TennesSeed Fund.

Three Roots capitalized the Impact Fund by successfully deploying capital to generate retained earnings from the firm’s loans and from other economic development projects. Since 2016, the Impact Fund has grown from $0 to more than $3 million, which has enabled the firm to make the types of loans and investments that it cannot make with funds borrowed from bank partners. As Three Roots continues to increase the amount of capital available for this specific type of investing, the level of activity and level of impact will increase.

Meanwhile, the TennesSeed Fund was launched in 2019 as a seed- and early-stage venture fund. It is managed by TennesSeed Partners, which is a collaboration of Three Roots Capital, Meritus Capital, and Innova Memphis. TennesSeed made its first three investments in Active Energy Systems (AES), SmartRIA, and Entac Medical.  AES, based in Oak Ridge, previously participated in ORNL’s Innovation Crossroads program and is a current participant in the Spark Innovation Center.  SmartRIA was founded by an entrepreneur in Knoxville and continues to grow and thrive there.  Memphis-based Entac was co-founded by a University of Tennessee researcher based on intellectual property he developed, which the company licensed from UT Research Foundation.

Recently, Three Roots directly invested in two of the original TennesSeed Fund portfolio companies. In early April, Three Roots participated in the seed round financing for Active Energy Systems, alongside Clean Energy Venture Group (Boston) and Queen City Angels (Cincinnati). The new funding will allow AES to advance its business development efforts and engage partners to further commercialize its technology.  Near the end of April, Three Roots invested in SmartRIA, alongside a handful of strategic investors, which are also customers of the company.  The new funding will allow the company to accelerate growth in anticipation of a Series A round later this year.

Three Roots is extremely selective with respect to investing time and capital in young and small businesses. The firm invests in a small fraction of the companies it evaluates. In addition to AES and SmartRIA, Three Roots has invested in NellOne Therapeutics, Smart Furniture, and Southeastern Packaging Technologies.  Along with those investments, Three Roots was integrally involved in the formation and financing of Familiar Faces Home Care, which represented a big commitment of resources in participating with a minority founder in a start-up.  From providing a company’s first desk to putting “fuel” in a company’s tank to accelerate growth, these investments support the operations and expansion of regional businesses.

Members of the Three Roots team have a long history in company creation and early-stage and expansion-stage financing in high-growth companies.  The team’s experience and expertise with a combination of company creation, early-stage investing, and small-business lending is rare, especially within the region in which the firm is deploying capital. Through the team’s work with Meritus Ventures and Southern Appalachian Fund (SAF) a decade ago, they made multiple successful investments in East Tennessee. Meritus Ventures portfolio company GRIDSMART, for example, was acquired for $87 million by publicly-traded CUBIC Corporation in 2019, and the company has continued to grow and lead its industry, with a facility still located in Hardin Valley.  Similarly, two SAF portfolio companies were successfully grown and acquired in East Tennessee.  EonStreams, which was located on Market Square in Knoxville when SAF invested, was acquired by publicly traded VitalStream, and Tricycle in Chattanooga was acquired by Shaw Industries, a Berkshire Hathaway Company.

“We’re proud of our large projects and all of our loans. Those deals generate revenue for our business and create impact in our community, and we value our excellent relationships with our bank partners,” said Grady Vanderhoofven, President and CEO of Three Roots. “But this kind of investment capital for young companies and entrepreneurs and small business owners is vital. We must use this capital judiciously because it is challenging to attract and aggregate this kind of capital, but we get a lot of satisfaction out of being able to deploy it to support high-growth potential businesses that can create significant positive impacts in our community.”