Three Roots Valued Partner: Bill Malkes

Bill Malkes is a serial entrepreneur, current Chief Executive Officer of NellOne Therapeutics, and has a long history with Grady Vanderhoofven, CEO of Three Roots Capital. With decades of experience launching and leading companies, Malkes is committed to improving the community around him wherever he goes.

Prior to joining NellOne Therapeutics in April 2020, Malkes was the co-founder and former CEO of GRIDSMART Technologies Inc., a global intelligent transportation solutions business based in Knoxville, which was sold to Cubic Corporation for $87 million in January 2019. Under Malkes’ leadership, GRIDSMART became the second largest solution provider in its industry, selling products in 22 countries around the globe. Before GRIDSMART, Malkes held senior leadership and advisory roles at Health Care Solutions, ASIC International, Tradewind Technologies, and Learning Technology Systems.  Three of those companies were based in the Knoxville area.

Malkes initially met Vanderhoofven through the Southern Appalachian Fund, a New Markets Venture Capital Company Vanderhoofven helped launch in 2003. Meritus Ventures, which began investing in 2006 with Vanderhoofven as one of two fund managers, made its first investment in GRIDSMART in 2007, solidifying a lasting relationship between the two men. Meritus’ early investment in GRIDSMART supported the company’s development of its flagship product, and subsequent investments by Meritus helped to fuel to company’s rise to prominence in its industry.

“You need a trusted investor,” said Malkes. “I have walked away from funding sources before because I felt uncomfortable with the integrity of the firm. You know if Grady puts someone in front of you, they’re going to have integrity.”

At GRIDSMART, employees were encouraged to engage in service projects and give back to their community. This service-oriented company culture was, in part, driven by Malkes’ Christian faith. While most investors might be wary of working with an executive who was deeply committed to public service, Malkes said this never was the case with Vanderhoofven, who understood the importance of Malkes’ desire to make a positive impact in the community and in his employees’ lives.

“It takes a special kind of investor,” said Malkes. “It’s not just having my back and trusting me, but it’s his ability to support something like that and have a strong moral compass. Those are the things that give entrepreneurs the courage to do things like that. The courage to do the right thing.”

Serial entrepreneurs are what take communities from “A to B,” said Malkes. He is proud of his work at GRIDSMART and other companies because of the “cumulative effect” his approach has on the Knoxville region.

“We were always very liberal with our healthcare. We have very employee-friendly policies. We believe in paying everyone well with a living wage,” said Malkes. “So, when that next iteration of entrepreneurs goes out there, they start with those values, and then they improve on them. They see things that we don’t. I think that’s why your city gets better, bigger, more diverse. It has more meaning.”

Since coming to Knoxville two decades ago, Malkes has witnessed an “incredible metamorphosis” of the region, with improved access to capital and support systems for potential entrepreneurs. Looking ahead, Malkes said “it takes companies like Three Roots sitting in the center” of the entrepreneurial ecosystem to make the future better for all.

“It’s a scary thing to launch into entrepreneurism,” said Malkes. “You can have all the coaching you want, but you need someone who has been there before and who can not only provide financial resources but guide you to financial resources. But the even bigger thing is you get those relationships and that knowledge.”

“It has been an honor to work with Bill over the years,” said Vanderhoofven. “We have a shared sense of purpose and a similar view of the value of successful companies in their communities. Since I have known him, Bill has created and run a variety of companies, while I have managed numerous investment funds. One of the ‘constants’ over time has been our friendship. We have not always agreed on every decision, but a sense of mutual trust and respect has always endured. Investors invest in people first, companies second. The necessity of working with the right people is the ‘constant’ in a complex equation around company creation and financing. Everything else is a variable.”

Pioneering Advances in Regenerative Medicine: NellOne Therapeutics

Three Roots Capital is committed to working with forward-thinking organizations to help fuel their growth for future discoveries and developments. One of these companies, NellOne Therapeutics (NellOne), located in Knox County’s Fairview Technology Center, is an early-stage biopharmaceutical company pioneering advances in regenerative medicine.

In 2008, NellOne was co-founded by Dr. Cymbeline (Bem) Culiat and Tracy Warren, an investor, executive, and entrepreneur. Serial entrepreneur and valued Three Roots partner, Bill Malkes, joined NellOne as its Chief Executive Officer in April 2020.

Dr. Culiat, who serves as NellOne’s Chief Science Officer, spent a decade as a senior scientist at Oak Ridge National Laboratory. At ORNL, she discovered NELL1, a naturally occurring secreted human protein, which triggers multiple processes for tissue growth and maturation. NELL1’s basic biology and regenerative effects on tissue injury (physical, chemical, inflammation, low oxygen conditions, etc.) have been studied for more than a decade, with Dr. Culiat arguably being at the pioneering forefront in understanding NELL1. This formidable collective of attributes empowers the use of NELL1 as a prospective therapeutic for a plethora of severe injuries and disorders, including virally induced lung damage caused by COVID-19.

Malkes refers to NELL1 as a “very talented protein” that has immense potential. Malkes and Dr. Culiat feel they “have been given stewardship of this protein for a greater good and have an obligation to make it available.”

“I felt very called to be here. It’s a phenomenally important product in so many ways that needs to be on the market,” said Malkes. “Not only do we want to make a difference in the world, but we want to make this product accessible to everybody.”

In August 2020, NellOne secured a utility patent to protect its breakthrough work on creating a shorter version (NV1) of the naturally occurring NELL1 protein. This patent allows the startup to fast-forward its effort to create multiple clinical applications for the NV1 novel variant and pursue large-scale production.

Earlier in the year, NellOne filed a provisional patent application to use the NELL1 signaling protein in the treatment of respiratory viral infections, particularly COVID-19. The patent application, Methods and Compositions for Treating Tissue Damage Resulting from Viral Infections, is an extension of the startup’s current research. In November 2020, NellOne partnered with ORNL on a COVID-19 drug delivery system that is designed to transport therapeutics directly to cells infected by SARS-CoV-2, the virus that causes COVID-19.

“We were headed down a particular path when COVID broke out, but what we understood pretty quickly was that while NELL1 can’t prevent COVID, it’s a prospective therapeutic with the potential to reverse tissue damage and regulate the inflammatory response linked with COVID and other virally induced lung disease,” said Malkes.

In October 2020, Three Roots made an investment in NellOne. Three Roots wanted to put “fuel in the tank” to fund the company’s progress and wanted to create an opportunity to contribute to the company’s success by providing technical and operational assistance in areas where Three Roots can add value. This approach to investing is illustrated by the three roots of Three Roots Capital: Access to (1) capital, (2) coaching, and (3) connections.

“Three Roots is enthusiastic about supporting NellOne,” said Grady Vanderhoofven, President and CEO. “NellOne is a team of brilliant and dedicated people who truly want to make a difference in the world around them. We’ve had an awareness of the company for quite some time. We believe the addition of Bill Malkes to the team, coupled with the company’s recent advances and recent market dynamics, creates a scenario where Three Roots can help the company accomplishes its goals.”

Looking ahead, NellOne is seeking U.S.-based partners to complement their current overseas partners to help produce the NELL1 protein. They will also continue to validate their studies regarding the efficacy of the protein and conduct Food and Drug Administration safety and toxicity studies.

“I also cannot say enough of how proud I am to be a part of NellOne,” said Malkes. “It’s a company founded by two women, one of whom is a minority, and that’s where I get to work. This is not what Knoxville looked like in 2000, but it’s happening today, and it’s real. I truly believe these are the things that take a community to the next level. That’s what people should know: There’s momentum, come join us.”

Three Roots Capital Partner Spotlight: Ray Moncrief

Ray Moncrief is the President and Chief Operating Officer of Outdoor Venture Corporation (OVC) and a valued member of Three Roots Capital’s Board of Directors. With decades of experience in finance and community development investing, Moncrief is committed to doing business and supporting entrepreneurs in Appalachia.

Previously, Moncrief worked at Kentucky Highlands Investment Corporation (KHIC) in various roles beginning in 1984, retiring as Executive Vice President and Chief Operating Officer in 2014. He has worked as a consultant for KHIC since his retirement. Among other roles and ventures, he also served as the President and Chief Executive officer of Mountain Ventures, Inc., a Small Business Investment Company (SBIC), owned by Kentucky Highlands.

Despite his well-known reputation as an investor, Moncrief didn’t start out in the investment industry. Right after graduation from Louisiana Tech University, he began his career as a cost accountant for Firestone. In 1978, he was recruited by J.C. Egnew, Chairman and CEO of OVC, to become the company’s Chief Financial Officer. After five years, he got the “entrepreneurial bug” and left to start his own company, Medical Management Corporation. When he left, Egnew invited Moncrief to serve on OVC’s Board of Directors, which he still serves on to this day.

Moncrief credits Frederick J. Beste III, former President and CEO of KHIC, for putting him “on the road” to working in the investment industry. When Moncrief sold his company in 1984, KHIC recruited him, and he entered the world of “investing in small businesses with equity and debt,” where has been ever since.

“When I look back on my career, I’m satisfied with the progression that I’ve had,” he said. “I wouldn’t change the road that I traveled over the last 48 years for anything.”

Moncrief met Grady Vanderhoofven, President and CEO of Three Roots, through Tom Rogers, President and CEO of Cherokee Farm Development Corporation, when Rogers was the President and CEO of Technology 2020. Rogers introduced Moncrief to Vanderhoofven as a potential partner to launch the Southern Appalachian Fund (SAF), a New Markets Venture Capital Company. When they first met, Moncrief said their relationship “clicked instantly.” Moncrief and Vanderhoofven formed SAF in June 2003 and Meritus Ventures, a Rural Business Investment Company, in 2006.

In January 2018, not long after founding Three Roots in the middle of 2016, Vanderhoofven asked Moncrief to serve on the Board of Directors. Moncrief said it took him no time at all to say yes because he wanted to “keep on doing” what he had been doing with Vanderhoofven, and he had a high regard for the rest of the Three Roots team.

“If you’ve been in business as long as I have, you gain a lot of knowledge,” he explained. “I enjoy working with organizations like Three Roots Capital. I guess I just don’t know when to say no, and I enjoy the investment activities and operations activities I am involved in.”

Even though his daily work responsibilities are at OVC, Moncrief said he remains at the “epicenter of the CDFI (Community Development Financial Institution) world.” He is Chairman of the Board of Directors of the Community Development Venture Capital Alliance (CDVCA) and serves on the Advisory Board of Semillero Ventures. President George W. Bush appointed Moncrief to the Community Development Advisory Board of the CDFI Fund in 2008, and he was reappointed by President Donald Trump in 2017.

Moncrief referred to himself as a “do-gooder” and “fixer.” He enjoys doing anything he can “to help invest in small businesses in non-traditional geographies” and help “build businesses that create job opportunities.” He is also passionate about the problem with access to capital in the Appalachian region.

“I’ve served on various committees for the Appalachian Regional Commission on just this subject: a lack of access to capital for businesses in Appalachia,” he said. “And even on the very best day of the year — the banking community is agnostic to business formation in Appalachia.”

He applauds Three Roots’ work in providing capital and expertise to the rural and under-served greater East Tennessee region, and the work of his fellow board members, stating they are “fresh, delightful, and selfless in their intent.”

“They want to take their experience and put it back into the community, the whole East Tennessee area,” he said. “It’s exciting. Even though I have been in this for 48 years, there still is excitement about what we do.”

Revitalizing the South Waterfront District of Knoxville: Foggy Bottom Flats

Three Roots Capital supports the revitalization of the South Waterfront district in Knoxville. This effort requires increasing the number of high-quality housing options for residents and building restaurants, retail stores, and attractive job opportunities in the neighborhood. Three Roots is interested in partnering with developers and entrepreneurs to finance ongoing projects like the Foggy Bottom Flats development.

Foggy Bottom Flats is a multi-family housing development that opened for leasing in June 2020. The 14 townhomes are located only one block from Suttree Landing Park, along the Tennessee River, and a short distance from Knoxville’s 1,000-acre Urban Wilderness. Occupants are less than a mile from downtown Knoxville and within walking distance of numerous retailers, restaurants and breweries, including Alliance Brewing — a former laundromat. Brett Honeycutt, local architect, contractor, and lead developer of Foggy Bottom Flats, bought, designed, and renovated Alliance Brewing in 2015.

“As a property investor, it made sense for me to look down there,” Honeycutt explained about south Knoxville. “It was in an area that was just getting ready to kick off. … It was going to happen one way or another, so I’m not a catalyst for getting things started in south Knoxville, but what we did with Alliance helped.”

Honeycutt’s work on Alliance Brewing led to him getting involved in the resurgence of the craft beer scene in Knoxville. Over a three-and-a-half-year period, he became involved in architectural or contracting work for around 10 breweries in the area. Once his brewery projects began to slow down, he turned his sights on a final, large project on the south side before he went into semi-retirement: Foggy Bottom Flats.

Honeycutt and his wife Jan Conely originally tried to launch a multi-family, modern housing development in north Knoxville but were derailed due to the 2008 recession. In 2014, they bought the property where Foggy Bottom Flats is now located and started looking for contractors and partners in 2018.

They brought on several partners to develop Foggy Bottoms Flat due to the size of the project and not wanting to take such a large risk so close to retirement. Honeycutt’s partners include Jan his wife, Garry Ferraris, Brian Simmons, Tim Ewers, and Brian Ewers. He enlisted Dollar & Ewers Architecture to handle the design and renderings and Reagan Design + Construction for construction and design.

For financing the project, Honeycutt turned to Bryan Kilday, VP Commercial Lender at Renasant Bank, who he previously worked with on the Alliance Brewing project. Due to the nature of the Foggy Bottom Flats project, Kilday suggested Honeycutt and his team approach Three Roots Capital for financing. Three Roots provided a nearly $2 million loan for construction and permanent financing of the project.

“Three Roots is proud to partner with Renasant Bank on projects like this development that positively impact our community,” said Dennis Corley, Business Development and Community Relationships Manager at Three Roots. “Our team will continue to provide capital, connections, and expertise to entrepreneurs and high-quality developments throughout the greater East Tennessee region.”

“It’s been great working with Three Roots,” Honeycutt said. “We appreciate the assistance. I have encouraged other people to talk to Three Roots because I thought it was a great opportunity.”

Three Roots Capital Valued Partner Spotlight

J.C. Egnew, Outdoor Venture Corporation

J.C. Egnew is the Chairman and Chief Executive Officer of Outdoor Venture Corporation (OVC) and a valued partner of Three Roots Capital. As a former NASA engineer turned serial entrepreneur, Egnew is responsible for creating five manufacturing facilities and more than 1,000 jobs in McCreary County, a rural and historically economically distressed region of southeastern Kentucky.

Egnew hasn’t always wanted to be an entrepreneur. Growing up in southwestern Indiana, he graduated college with a degree in mechanical engineering. During his schooling, he was able to “get in on the ground floor” of NASA through his university’s co-op program. In 1963, he took a full-time job with the agency, first working as a rocket test engineer in Huntsville, Alabama, and later at the NASA Stennis Space Center in Mississippi.

In 1968, he decided to pursue a graduate degree in industrial management at the University of Tennessee, Knoxville, where he researched growth patterns of small businesses, featuring a local recreational camping business in his thesis work. After returning to NASA briefly upon graduation, he came back to Knoxville to serve as a vice president of manufacturing at the company he had studied during his graduate career.

After “working hard and not making any money” for a couple of years, Egnew decided it was time to start his own business. With the help of a couple of friends, he founded OVC in 1972. He began his operations in a previously abandoned building given to him by the president of the local lumber company in Stearns.

In addition to his entrepreneurial activities, Egnew is passionate about revitalizing his community. Over the years, he has actively worked to improve the wellbeing of the county, including helping bring a public library to the area, serving as the first McCreary County Chamber of Commerce President, and donating a building, which was restored and transformed into a Depot for the Big South Fork Scenic Railway. For Egnew, giving back to his community is personal.

“We’re all put on the world to make a difference for others and in a small community, it gets really personal,” he said. “It’s not like writing a check to an entity that you aren’t personally involved with. It feels good to see your neighbors and friends do better and have a better life. It’s very rewarding.”

Egnew first met Grady Vanderhoofven, Three Roots Capital President and Chief Executive Officer, more than fifteen years ago.  Ray Moncrief introduced Vanderhoofven to Egnew.  At the time, Moncrief and Vanderhoofven were partners in two venture capital funds focused on Appalachia, and Moncrief had been friends with Egnew for years and was very familiar with OVC.

“To me, J.C. is the epitome of what a successful entrepreneur can mean to a community,” Vanderhoofven said. “His economic and social impact in that county cannot be overstated. Because he chose to live in southeastern Kentucky, the entire community reaps the benefits of what he has accomplished there.  Three Roots Capital strives to support entrepreneurs and companies that positively impact their communities.”

Supporting A Rural Manufacturing Company

Outdoor Venture Corporation

Three Roots Capital supports rural entrepreneurs and companies that are dedicated to having positive economic impacts on their communities. One of our borrowers, Outdoor Venture Corporation (OVC), has a decades-long history of successful operations, job creation, and philanthropic work in McCreary County, Kentucky.

OVC is based in Stearns, Kentucky, within McCreary County. Over its 48-year history, OVC has pivoted its operations many times to meet changing consumer demands or in response to overseas competition. Originally founded as a recreational tent business in 1972, OVC is now a leading and prime supplier of critical next-generation military modular tent systems, base camp components, and military accessories.

“You have to diversify to have a long-term, sustainable business,” remarked J.C. Egnew, Chairman and CEO of OVC. “Everything has a life cycle. We diversified over the years and now have four main, different segments of our business. Rarely are they all going up or down at the same time, which gives us a lot more stability.”

Currently, OVC is collaborating with Fibrotex USA on a 10-year, $480 million contract to supply next-generation camouflage to the United States Army. As the strategic subcontractor, OVC helped Fibrotex USA establish a new manufacturing location in Stearns, which is expected to create up to 350 full-time jobs and represents a $12.1 million total investment.

“It’s not just a big deal business-wise, it’s a big deal community-wise,” Egnew explained. “If we were in a bigger city like Lexington or Knoxville, a company employing 300 people would hardly make the business page, but here, it’s very important to the community.”

Access to capital in rural regions can be complicated. Frequently, traditional lenders are less willing to make loans to businesses outside of larger cities.

“You’re looked upon as a much greater risk from a lender’s point of view,” Egnew said. “You find over time there are certain lenders that are friendly to you and that type of environment. Three Roots Capital is one of them.”

Three Roots Capital made its first loan to OVC in December 2016 and a second loan in January 2020. Both loans provided working capital to the business, and the second loan in particular helped make it possible for OVC to work with Fibrotex USA and scale up its operations.  Three Roots has had preliminary discussions with OVC about the prospect of financing the continuing growth of the business and potential additional expansion.

“As a small business, you have to have good strategic partners that can work with you in an effective way,” Egnew said.

Other industries and businesses have been hit hard by the pandemic, but Egnew shared OVC has been extremely “fortunate” to be “able to keep things going, full speed ahead” during this time.

“We’ve done everything we can to stay on our feet and move forward,” Egnew explained. “We’ve actually had three of the best months in the history of our company because of the types of essential products we happen to be making.”

For Egnew, moving to a small, rural community nearly 50 years ago was “a good decision.”

“Some people in bigger cities might ask, ‘How could you do anything in Stearns, Kentucky?’ This might not be a place for General Motors, but you need to find the right place for your business,” he said. “You have to feel good about where you are and what you’re doing. We’re very lucky. If you’ve got that, you’re great.”