New Fund from Austin’s S3 Boosts Venture Investment in Texas

Austin, TX-based venture capital firm S3 Ventures has raised a $75 million fund to invest in information technology and medical device companies.

The fund is the firm’s fifth and largest to date, and is the first tech fund in Texas to announce a close in two years. “There are fewer and fewer local investors here, but we see a great opportunity to build a firm that’s going to focus on Texas,” says Brian Smith, S3’s managing director and a founder of the firm. “There are still great entrepreneurs here … and an increased opportunity along with less competition is pretty attractive.”

The new fund comes at a time when venture capital activity in Texas remains subdued. In the last several years, large out-of-state firms have shuttered their Texas outposts. Venture investments in the state declined last year to $934.4 million, compared to $1.59 billion in 2011, according to the first-quarter MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association. For the first quarter of this year, investment in Texas companies reached $533.6 million.

S3 is currently investing in 11 companies, with seven of them based in Austin. (Houston and Dallas are home to one each, with the remainder based elsewhere in the United States.) Investors in the new fund are primarily wealthy individuals.

Smith founded S3 in 2007 with a $20 million fund. So far, the firm has invested in a total of 17 companies. One investment being made out of its latest fund is in its second medical device company, TVA Medical, which is based in Austin. Smith says he expects that medical devices will eventually make up about 15 percent of the firm’s capital deployment. “There will be more opportunity over time,” he says. “It’s a learning curve for us.”

TVA Medical was founded in 2008 and received $9.5 million in Series B financing last week that was led by S3. The company develops minimally invasive therapies for end-stage renal disease, and the money will be used to do further research into the company’s endovascular technology and to complete additional clinical studies as it seeks to obtain worldwide regulatory approvals.

TVA’s technology would allow doctors to use a catheter-based system to join an artery to a vein in order to deliver blood dialysis to patients suffering from kidney failure. The technology is being studied outside of the United States and is currently not available within the U.S. TVA says it does intend to seek clearance from the Food and Drug Administration.

“The potential to significantly improve care for renal failure patients while decreasing the cost of dialysis delivery is substantial,” said Billy Cohn, TVA’s founder and director of minimally invasive surgical technology at the Texas Heart Institute at St. Luke’s Episcopal Hospital in Houston, in a press release.

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