San Antonio startups still lack venture capital funding; Austin businesses get ahead

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San Antonio startups have raised more venture capital in 2021 than the year before — and are falling even further behind their peers in other major Texas cities in seeking seed funding.

Lew Moorman, a leader in San Antonio’s booming tech industry, is frustrated by this gap. But he is not surprised.

“Too many of us in tech are declaring victory and not acknowledging our shortcomings,” said Moorman, president of San Antonio industry group Tech Bloc and co-founder of Scaleworks, a local venture capital firm. “We have to look at ourselves carefully and ask ourselves whether it bothers us or not.”

Attracting the attention of venture capitalists – and their wire transfers – is key to growing San Antonio’s network of cybersecurity, information technology and biotechnology companies. With few deep-pocketed investors focused on businesses here, attracting entrepreneurs to the city is more difficult.

In 2021, investors invested $93.1 million in 18 deals in San Antonio, according to Crunchbase, which tracks startup investments. This was almost double the $47.1 million raised in 16 deals the previous year.

But those numbers represent only a small fraction of business investment in Texas’ other major urban centers.

Dallas startups attracted $1 billion in investments in 107 deals last year, up from $1.3 billion in 108 deals the previous year.

Houston companies grossed $1.7 billion in 136 deals, up from $475.33 million in 91 deals in 2020.

And Austin’s startups blew them all away. They secured investments totaling $5 billion in 368 deals in 2021, up from $2.2 billion in 294 deals the previous year.

Austin, home of electric vehicle maker Tesla and enterprise software company Oracle, has become one of the fastest growing tech hubs in the country, though it still lags far behind Silicon Valley, New York , Boston, Los Angeles and Seattle.

A new Brookings Institution study of tech industry growth among the 100 largest metropolitan areas in the United States has identified Austin as the smallest of eight “superstar” regions. Austin’s tech employment grew 5.5% from 2015 to 2019 to 83,000 workers, according to the Washington, DC think tank.

The number of San Antonio technicians rose 0.5% to 17,500 over the same five-year period.

“We don’t have to be Austin,” said Cat Dizon, co-founder and chief operating officer of Active Capital, a San Antonio-based early-stage investment firm. “We want to be our own city, but I couldn’t tell you the real culture yet. Are we tech? Are we just agnostic? Are we all welcome? »

VC wins in South Africa

In San Antonio, last year’s top deal belonged to Plus One Robotics, a company founded in 2016 to create software that increases the usefulness of robots. He raised $33 million in 2021.

Among other big deals, VeraDermics, a dermatology products company founded in 2019, raised $20.7 million. FloatMe, a fintech company launched in 2018, raised $16.2 million.

Overall, most investors came from outside of Texas. However, FloatMe, which gives cash advances to workers on their next paycheck, was one of the companies that attracted local venture capital funds – from Active Capital.

Biotech companies accounted for most of the other deals last year.

Seven of the San Antonio startups have raised between $1 million and $6 million.

Tech Bloc CEO David Heard said venture capital funding is “institutional money” that typically flows into metropolitan areas that build business momentum. But if there’s not enough capital investment, it’s harder to launch startups that will develop and sell cutting-edge software, apps, robots or medical devices.

“We tell a solid story to sell San Antonio as a great place for technology, but you have those sobering moments,” Heard said. “We have a long way to go.”

Some investors say many San Antonio startups are ready to invest, but most venture capitalists outside the city don’t pay attention.

Dizon said San Antonio’s tech scene has grown significantly over the past five years, and “a handful of VCs and angel communities” are investing in startups. (Angel investors are people who help fund start-ups and often advise them.) But they struggle to identify and close deals.

“Investors are struggling to find the deal flow in San Antonio,” she said. “Furthermore, the founders don’t really know how to get involved in the funding circuits. So it has a lot to do with visibility.

Like many in the city’s tech community, Dizon is a former employee of Rackspace Technology of San Antonio. As head of business operations, she helped the cloud computing company align acquisitions of small and midsize businesses. She then led Alamo Angels, a group of investors who back startups.

She is currently a board member of Geekdom, a for-profit coworking space that aims to create and nurture startups in San Antonio.

At Active Capital, Dizon said she invests in companies that develop software that deliver applications over the internet..

Since joining the company in 2017, she has noticed that entrepreneurs, investors and advisors need help finding themselves and the funds needed to start businesses.

“San Antonio is always trying to figure out how to provide resources to the founder community,” she said. “The more resources coming to San Antonio and learning about the talent, the more success we will have. But it will take time. »

She noted that Capital Factory, an Austin-based coworking space that helps connect startups to investors, will open a location in Port San Antonio on the southwest side this spring.

A growing scene

Despite the shortage of venture capital, there are more local startups and tech workers than a few years ago.

Luis Martinez, director of the Center for Innovation and Entrepreneurship at Trinity University, attributed the growth to Geekdom, non-profit accelerators such as VelocityTX and investment funds like Active Capital, MGV Capital Group and Fraser McCombs Capital.

Additionally, UT Health San Antonio and the Texas Biomedical Research Institute, a private nonprofit, have spawned a number of biotech startups.

“There are good ideas going unfunded in San Antonio, and there’s more capital chasing good ideas,” he said. “It’s about making matches with founders and investors.”

Reviewing San Antonio’s latest venture capital numbers, Martinez sighed, saying he “wasn’t surprised” to see the city at the bottom of the list of Texas’ top four tech cities.

“The Texas Miracle is uneven when it comes to startups and technology,” he said. “The state is focused on Austin and other communities trying to get oxygen. There really is a need for capital investment and early stage funds to spread throughout Texas and communities outside of Austin.

Back at Scaleworks, Moorman said San Antonio has “the potential to create critical mass,” meaning developing a group of startups that hire tech workers, attract investors, collaborate with area universities and non-profit research organizations, and hire technicians, management and marketing. consultants. The idea is that the resulting network of technicians would attract entrepreneurs and VCs to the city.

Moorman, a former senior Rackspace executive, said the company trained employees to launch their own projects. Some of them, in turn, have secured financing for their businesses and are hiring employees and moving to Port San Antonio and downtown.

“We need five more Rackspaces,” he said.

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