Are You the Kind of Business the Texas Emerging Tech Fund is Looking For?

By SUSAN LAHEY
Reporter with Silicon Hills News

Larry Peterson, executive director for Texas Foundations for Innovative Communities

Larry Peterson, executive director for Texas Foundations for Innovative Communities

If your company meets the criteria for the Texas Emerging Technology Fund, you may have a good shot at a $2 million investment. But don’t rush to fill out the application, says Larry Peterson, executive director for Texas Foundations for Innovative Communities.
Instead, go directly to a Regional Center of Innovation and Commercialization.
“Once you’ve figured out how you meet those requirements, come meet with us and discuss it conceptually,” Peterson said. “We will give you a punch list: Fix these things, improve these things. If you meet the state’s criteria you can go before the board without that, but you will look less ready and it’s harder to come back from that. We’ll tell you ‘Here’s what you need to improve.’” The RCIC never tells anyone to quit trying for state funds, Peterson said. But with companies at various stages of readiness they give them homework to increase their likelihood of success before the state board. Once an organization has cleared an RCIC, he said, there’s an 85 percent chance they’ll get state funding.
Peterson spoke at a meeting about the fund Wednesday at Capital Factory. About 30 people signed up to attend the meeting, which was followed by a happy hour.
Ron Lehman, executive director of TMAC, which supports manufacturing companies in Texas

Ron Lehman, executive director of TMAC, which supports manufacturing companies in Texas

The Texas Emerging Technology Fund, created in 2005, tackles the problem of Texas companies moving to the coasts because they couldn’t find local funding, said Ron Lehman, executive director of TMAC, which supports manufacturing companies in Texas.
The fund has had some successes as well as some failures. The Austin Business Journal reported Thursday in an exclusive story that since the fund’s inception 14 startups backed by $17 million from the fund have failed or gone bankrupt.
To date, the Texas Emerging Technology Fund has invested $204 million into 143 companies with the largest number of investments, 72, given to biotechnology and life sciences companies.
Last May, the Texas Legislature approved $50 million for the Texas Emerging Technology Fund. The fund is targeted at providing seed stage and early funding for startups in Texas.
“We needed to create an environment that was more welcoming to new investments,” Lehman said. A company has 30 months to use the money and can apply for another round if necessary. Most investments are $2 million, since the state considers anything less than half a million too cumbersome to administer. For its participation, Lehman said, the state takes a percentage of money at exit and returns it to the fund. Usually that’s in the form of convertible preferred stock.
Companies that meet the state’s criteria for commercialization funding of an idea include those that are seeking to commercialize an emerging technology; are connected with a state institution, such as the University of Texas or the Johnson Space Center; offer significant economic benefit to the state and have a high likelihood of receiving other funding.
Or does it?
“It seems like relatively accessible money for the right companies,” said Jason Seats, managing director of Techstars Austin. “The most complicated requirement for most companies is that it has to tie back to a direct benefit for Texas and they have very specific ways they think about that… For some companies it’s going to be very easy to connect the dots.”
Keith Casey of Casey Software, formerly of Twilio, said that, compared to other states’ emerging tech funds he’s familiar with, Texas’ is much more practical and accessible.
Peterson said the process takes between 4-and-9 months, which can be much shorter than seeking funding with private investors. The state’s due diligence, he said, also tends to be less rigorous than a private investor’s would be.
“We do collect more data so in some cases our expectations are higher,” Peterson said. For example, the state is more interested in the projections for job creation than a private investor would be. And while many investors no longer require a business plan, the state still does.
Eighteen months ago, the Austin Chamber was doing the job the Texas Foundations for Innovative Communities—started by Pike Powers and the late George Kozmetsky—now does.
“We are trying to make sure they have a really good chance of success…and I think Austin was more willing to let them sort all that out,” Peterson said. “So we’re spending more time with each company and trying to beat them into shape in a kind of tough-love way.”
The Emerging Technology Fund plans to have more meetings at Capital Factory to ensure that local entrepreneurs know about the program and the state gets the best crop of companies.

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