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Some promising tech ventures may soon get a capital injection
October 11, 2013

Cory Hallam, director of CITE at UTSA, says he was glad to see the ETF revalidated by the Texas Legislature. (Photo by Lyndsey Johnson / San Antonio Business Journal)

By Mike W. Thomas, San Antonio Business Journal

Political feuds and budget battles over the past two years nearly spelled the end of the state's Emerging Technology Fund, but now the program is making a comeback, with a fresh infusion of cash and a new local outfit in charge of vetting area companies seeking ETF funding.

The state fund, established in 2005 to promote technology development and commercialization, was replenished during the last Texas legislative session with $50 million for the next two years. The nonprofit Texas Research & Technology Foundation recently inked a contract with the ETF extending through 2014 that is worth up to $500,000. Under the pact, the Foundation will operate a Regional Center for Innovation & Commercialization (RCIC) - which will be responsible for screening candidates for ETF funding across a 26-county region in South Texas.

The Foundation, based in San Antonio, is taking over the role last performed by StarTech, the now defunct technology booster organization that shut its doors earlier this year. York Duncan, president of the Foundation, says his organization is currently reviewing deals and hopes to begin making recommendations for funding by November.

"We are pretty optimistic that we will be able to get our share of the state funding," Duncan says. "This is really a continuation of what we have been doing with T3DC (The Texas Technology Development Center)."

T3DC is the Foundation's operational arm, which helps to promote and incubate promising tech and bio-tech startup companies. It is overseen by Randy Goldsmith, who also helped to lead StarTech during its early years.

The San Antonio region has attracted about $45 million in funding through the ETF since 2005. That includes about $12 million in Research Superiority Awards for local higher education institutions and nonprofits, in addition to $33 million in commercialization investments for early-stage technology companies.

Preserving continuity
After StarTech shut down, Duncan hired David Clark, one of its key people, who helped to shepherd many of the companies that sought ETF funding over the years. Now Clark is filling a similar role at the Foundation.

"When York and Randy decided to go after the RCIC contract, I think they wanted to preserve some continuity," Clark says. "That is why I am here."

Clark notes that in addition to providing new funding for the ETF, the state set some new guidelines that should accelerate the process of distributing the money. Before, everything was tied to certain pre-determined dates when a state committee would review funding applications. If a company missed one of those dates it would have to wait months before getting its application reviewed.

But now, Clark says, the state is asking RCICs statewide to send in applications as soon as they clear them rather than waiting.

"They are now telling us that when a deal is ready to send it on and not wait," Clark says. "That is good news because cash flow is very critical for these young companies, and they can't afford to sit around and wait for long. They have payrolls to meet and other expenses that won't go away."

Clark says the Foundation already has a number of suitable companies ready to apply for ETF funding, but did not want to give a specific number.

"The deal flow is out there," Clark says. "The word is out that we are looking for applicants and there are already a number of suitable candidates."

Generating deal flow
Helping to generate some of that deal flow will be the Center for Innovation and Technology Entrepreneurship (CITE) at the University of Texas at San Antonio. CITE was established in 2006 to create a pipeline for university faculty and students to develop new technology ventures.

Cory Hallam, director of CITE, says he was glad to see the ETF received renewed support during the last legislative session.

"The future of ETF looked uncertain for awhile," Hallam says. "It is nice to see that it has been revalidated because it is definitely a big contributor to our economic growth."

Hallam says he currently has four companies incubating in the CITE program that he thinks would be ideal candidates for ETF funding over the next 12 to 18 months and more to come after that.

"The ETF provides a bridge for early-stage companies trying to bring new products to market," Hallam says. "It helps to fill a void between seed-stage funding and the later-stage venture capital funding."

Local tech entrepreneur Paul Castella has been involved with three companies over the years that have received ETF support and he says the funding was pivotal in all three cases.

"The ETF has been crucial, particularly here in San Antonio where it can be difficult to attract capital," Castella says.

Castella's first company, CardioSpectra, received $1.35 million in ETF support in 2006, which he says allowed the firm to do critical testing of a prototype that then drew the interest of other investors. CardioSpectra went on to be the first ETF-funded company to have a sucessful "exit," meaning that it was bought out by a larger company in a multi-million dollar acquisition.

"One of the important things the ETF provides is a rigorous vetting process that provides reassurances to other investors," Castella says. "That helps companies to acquire more crucial funding down the road."

Castella's two other companies - BiO2 Medical and Viroxis - were both able to achieve important milestones as a result of the ETF support, helping to set them up for the next round of funding, he says.

The reinvigorated ETF will not be alone in the quest to find promising local tech ventures. Castella is also a co-founder of the Targeted Technology Fund, a local venture capital initiative that raised $12 million for its initial round in 2009 and is now looking to raise $50 million for a second funding round. It will soon be joined by a new fund being set up by the Texas Research & Technology Foundation to be called TRTF Fund 1.

Duncan says the Foundation has set a goal of raising $10 million to $12 million for the new fund and hopes to start making investments by the end of the year.

"The focus of the new fund will be life science and technology ventures," Duncan says. "T3DC will be the fund manager. We have just started making presentations about the fund and have one corporate commitment so far."


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