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New venture capital firms investing in DFW

A trio of newly formed venture capital firms is prowling the Dallas-Fort Worth region for investments, one of the few and best signs of life in what has largely been a moribund local industry for a decade.

Observers, however, say it’s too early to say that the firms are an indication that venture is making a local comeback.

“Is this a trend or a blip? The jury’s still out on that,” said Hubert K. Zajicek, managing director-medical technology at the North Texas Enterprise Center for Medical Technology in Frisco.

Venture capital is critical for fueling high-growth, high-risk companies that have the potential to get big quickly.

The venture spigot largely shut off in North Texas after the bursting of the dot-com and telecom bubbles in the early part of the past decade. However, a smattering of Dallas-area firms, such as Sevin Rosen Funds, Silver Creek Ventures and Covera Ventures (formerly Hunt Ventures) have continued to invest in local companies. Others have popped up in recent years to take advantage of what they believe is a paucity of venture capital locally, such as Trailblazer Capital.

The new VC firms are:

n Dallas Venture Partners, which deploys capital in technology firms from two unidentified investment groups;

n Remeditex Ventures LLC, one of the few investment shops in North Texas focused on life sciences; and

n ORIX Texas Technology & Infrastructure Fund LLC, which is controlled by the Dallas financial services and investment concern ORIX USA Corp. The $200 million fund is focusing on technology companies and infrastructure projects in Texas and surrounding states.

There are two common threads behind each of the firms: One is the belief that Texas and the DFW area have good companies to invest in and not enough capital. The other is the recognition that many institutional investors that put money in venture funds, such as endowments and pension funds, have pulled back from the category because of low returns in the past decade.

“When they don’t like venture, that’s the time to invest in venture,” said Felipe Mendoza, a director of the ORIX Texas fund. “It’s almost open-field investing, in a way. There are a lot of good companies (to invest in).”

However, the lack of venture firms and funds actively investing means that there aren’t as many co-investors to participate in deals, Mendoza said. “I can’t emphasize enough how important it is to have more venture investors (in North Texas), and to have a strong technology ecosystem in Dallas.”

Texas and DFW are good fields for venture investors to plow for multiple reasons, according to John McSpadden. He does work in venture capital and private equity as managing director of the Dallas office of DHR International, an executive search firm.

The DFW area has a plethora of large corporate headquarters, a central location that makes for three-hour flights to either coast, and a wide range of industries, varying from technology to health care to logistics, McSpadden said.

“There will be more companies wanting to relocate to Dallas,” he said.

While the new firms will have homefield advantage, competition from Silicon Valley and the New York City/Boston corridor for good venture deals will continue to be intense. Venture funding in those regions has remained strong compared to the activity in DFW.

“The first-mover advantage that these communities have benefited from ... has never quite eroded,” Matt Himelfarb of Dallas Venture Partners said of Silicon Valley and the Boston areav. “For entrepreneurs that do catch the eye of Silicon Valley and Boston, they are often required to move their companies out to either area as one of the conditions for investment.”

The new crop of venture investors could lend a hand in that regard.

“If we find an opportunity outside of (North Texas), part of our investment might be, ‘You guys need to consider being here,’” said Ed Smith, vice chairman of ORIX USA. “We’d want them to be in a favorable tax environment and a good business environment.”

 

Source: Jeff Bounds. “New venture capital firms investing in DFW” bizjournals.com, Sep 16, 2011. http://www.bizjournals.com/dallas/print-edition/2011/09/16/3-new-vc-firms-investing-in-dfw.html?page=all

 

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