Texas Venture Growth Forum Event Results -- 3

A startups fundraising strategy should have a national focus from day one.  While there is ample support for startups in Texas, the funding must be sourced from across the country.

While Texas has many Series A funds which range from $50M to $100M in size and write checks in the $2M to $5M range, there are no Series B funds.  A Series B fund is typically $300M or more from which the fund writes $5M to $15M checks to startups.  Entrepreneurs seeking Series B funding must look across the US to find Venture Capital funding.

Series B investors across the country are looking for quality deals.  Some use syndicate partners to find the deals.  Since there are no local Series B funds in Texas, outside investors have a more difficult time finding the best Texas deals.  In the 1990s, there were over 30 venture capital (VC) funds in Austin alone.  Dallas had its fair share of venture capital as well.  The Dot Com crash crushed the VC community and what came back in its place in Texas were angel groups.  Some VCs repositioned themselves as microVCs with $50M funds and invested alongside angel groups. Texas gave scant attention to the VC community for several years.  Now, fifteen years later, startups have outgrown the angel groups and need Series B funding.

In addition to financial Venture Capital there is a growing number of Corporate Venture Capital (previously called Strategics)  funds.  In the past, pharmaceuticals shifted from internal R&D to buying successful startups to fill their pipeline of technologies and products.  Today, just about every segment of the corporate world has created a venture capital arm to invest in promising startups with the intent to monitor the industry and/or acquire the company.

The Texas Venture Growth Forum brought both financial VCs and Corporate VCs to Austin for a two day conference highlighting 1:1 sessions between the VCs and Texas startups. Some of the financial VCs such as Rembrandt, Three Rivers, and Delta-V were well represented at the event.  Corporate VCs including Shell, Dell, and Microsoft also sent representatives to meet with prospective startups. Venture firms with portfolio companies already in Texas such as Revolution, SSM Partners, and Greycroft participated as well.

Venture Capital Profile on Delta-v Capital with Dan Williams

Dan Williams grew up in the Dallas area, attended Plano East High School and went to MIT and came back to Texas where now lives in Dallas and works as Vice-President of Delta-v.

Delta-v was founded in 2009 and is investing out of their 3^rd fund.Delta-v is unique compared to most typical growth equity firms.    Their strategy is to provide secondary liquidity to existing shareholders in late stage growth companies.  That could be providing partial liquidity to existing management teams, cashing out employees who left the company, or providing liquidity to other investors including angels and other venture funds.  .  Often times, people will take 10-20% off the table to pay taxes or buy a house.  As their funds have grown, they’ve expanded into primary growth capital and work on both primary and secondary investments.

They look for companies that have removed business model risk.  They typically seek $10-$20M in revenue and above. To date, they have invested in over 20 deals. Most of their investments have revenue above $20M.   They look for those who are getting towards cash flow breakeven and are growing at least 20% per year. Delta-v invest as little as $2M and up to $20M.

Delta-v invests broadly across technology sectors.  The current Delta-v portfolio includes investments in enterprise SaaS, security, consumer anddigital media, SaaS, healthcare IT and more.    

They don’t have strict requirements around taking a board seat or a target ownership percentage.  They can be the less active investor. When needed or desired, they do sit on boards and have leadership that has come from the startup industry and have a great deal o f experience.  Dan was previously with Cisco’s  Corporate Development team focused on Cloud and Analytics  and understands what strategic acquirers look for.  Delta-v understands what it takes to run a company as well as the technology behind it.  They have contacts and connections and can also help with hiring.

They were the first investors in Drilling Info. That’s the only deal they’ve done in Texas so far but want to do more.  The Dallas community is growing well.  They’re impressed with the number of companies coming up and are looking to find more opportunities outside of the coasts. 

Dan said it’s helpful to meet a company who has given you advance information.   He likes to track their progression over time.  It is still interesting to meet companies below $10M in revenue to track them over time.

Texas Venture Growth Forum Event Results -- 2

Startup funding today emphasizes the seed-stage startup seeking their first round of funding. Later stage companies find fewer funds in Texas which some call the “Series B crunch”.  While there are numerous VC funds for Series A, there are none in Texas for Series B.  Efforts are underway to build those funds, but it will take several years to put new funds in place. 

According to PitchBook, Texas-based companies raised an average of 40% of their Series B through E funding from Texas funds over the past ten years. When compared to California-based companies who raised closer to 70% of their funds instate, we have identified a funding gap in the Lone Star State.  

A key driver of funding in the past can be attributed to Austin Ventures (AV), who were responsible for over three billion dollars in funding for over 280 Texas companies, creating an estimated 50,000 Texas jobs since its founding over 30 years ago.  AV recently closed their doors as the founders sought to take their efforts in different directions.

The mission of the Texas Venture Growth Forum is to develop the funding and operational infrastructure to support Texas tech companies seeking the capital so as to keep their corporate roots planted firmly within the region.

The path forward is to attract capital to Texas companies through events that pair investors with startups in 1:1 sessions and provides an attractive setting for meeting and building relationships with Texas companies. 

See more about the Texas Growth Capital Forum coming up here.

AnatoMotion show teeth in action using real-time video technology

Shane Matt runs AnatoMotion which fills a gap in dental technology by providing dental motion analysis for fixing dental bite problems.   He needed a way to electronically store and share digital bite registrations with an anatomically correct motion of the patient. Smart wearables provided the conduit for an easy to use, affordable and scalable solution.

AnatoMotion's e-Bite system consists of wireless sensors on the teeth and software to analyze jaw function. Dental lab technicians, who make restorations and appliances rarely ever see a patient. Now they can see how a patient moves their teeth, allowing them to make more functional prosthetics. They can also correlate digital 3D files of the teeth to sleep studies to capture the correct bite for sleep apnea appliances.

Once FDA approved, AnatoMotion will be used by dentists on patients having cosmetic makeovers, TMJ (temporomandibular joint) problems, sleep apnea and a number of other issues. NXP, formerly Freescale Semiconductor has supported the effort through technical research and other resources in their Discovery Lab.

As an entrepreneur, Shane indicates it takes time to refine and distill the "why" and "how" when going from visionary to entrepreneurship. The most difficult challenge he encountered has been in presenting the product concept to venture capitalists. He’s now using Crowdfunding as it gives a broader reach to individuals that are interested in early stage seed investment.

Shane is now completing hardware development. In January, he will build the user interface software and begin the FDA regulatory process.

See more about Anatomotion here. 

Venture Capital Profile on Greycroft Partners by Will Szczerbiak

Will Szczerbiak, a senior associate at Greycroft partners recently participated in the Texas Venture Growth Forum, in October, 2015.  First, a little background.  Will came out of Georgetown in 2007, and spent three years as in investment banker and joined Volition Capital in Boston sourcing and executing deals and everything related to getting a deal done.

He went to business school at Columbia, and interned at Greycroft Partners.  Greycroft focuses on Internet and mobile-enabled businesses in a wide range of industries.   He later joined full-time and works with both Greycroft’s core early stage and growth funds. The growth fund is a $300M pool of capital which partners with eVentures and focuses on later stage opportunities.  Their core fund focuses on Series A deals.

Greycroft takes a flexible approach to investing and does not maintain a minimum check size or ownership threshold.  They also don’t require a board seat and can lead or follow via syndication. The growth fund looks for more mature companies, usually with $10MM+ in ARR and established teams.

Greycroft looks for strong syndicate partners that can continue to support the company.  They don’t want to be the only investor able to support a company if they need to do a bridge round or some other financing at a suboptimal time. 

Greycroft aligns themselves with the entrepreneur.  Their fund is purposefully small relative to other firms, meaning that exits in the $100M to $500M range can be very impactful.  Bigger funds oftentimes take the entire round and may push the entrepreneurs to pass on lucrative outcomes because they need a considerably larger exits to return their funds.  At Greycroft they want the entrepreneur to exit when it’s right for them. They’ve worked with just about every venture firm you can name and are very collaborative as they believe their approach generates better outcomes for all involved.

For the core fund, they generally look for commercial traction.  Product-market fit, compelling unit economics, and a strong team are important.  Growth is also critical, as many portfolio companies are growing >10% month over month.   They also look for companies that have gotten to that point without having to raise large sums of capital.  An ideal range is less than $2M. 

In terms of sector, Greycroft looks for anything internet or mobile enabled B2B or B2C.  They have an array of mobile gaming, pure play content, and B2B SAAS companies in the portfolio. Some in sales enablement, security, fintech, etc.  Among other areas, they are interested in digital healthcare, cybersecurity, and have made investments recently in both spaces.  

They are agnostic in terms of geography.   In Austin, they’re invested in Buzzpoints, and the B2B courier service Dropoff.

On the operational side, they have innovation days with various groups in NY and also have an office in LA in which they recently setup a demo day with Macy’s to showcase their branded ecommerce companies.  They had twenty of the top executives of Macy’s attend the event and they’ve done similar events for Alibaba, Time Inc, and others.

Every year they put on a summit in which they invite key executives from potential acquirers, customers, and partners of portfolio companies. It drives a lot of business for their portfolios.

From the Texas Venture Growth Forum, Will noted two companies – Trendkite who has built an incredibly impressive roster of clients and Seismos which has an impressive team. 

Will likes to be on the investor relations list. With Trendkite, he is staying in touch till they need another round. He proposed a quarterly check-in to see how the business is tracking and their time table to another round of funding.   The next time he makes it to New York or he comes to Austin he’ll setup a meeting.  He likes some documentation to track the company’s progress but keeping in touch personally makes a big difference.  

See more about the Texas Growth Capital Forum coming up here.