Dallas’s Aristos Aims to Micro-Size Investment for Tech Startups

Felipe Mendoza’s first experience at a startup, Monterrey Networks, ended up with a sale to computing giant Cisco Systems.

Exhilarated by success, Mendoza says he threw himself into another startup, one that “was not bought by Cisco.” Though the second startup was a bust, Mendoza says both experiences hooked him to entrepreneurship and the challenges of building a company from scratch.

“My thought has always been there’s no downside to joining a startup,” Mendoza says. “A lot of people say it’s risky. But job security, that doesn’t exist anymore. You gotta make your own.”

In 2006, Mendoza switched from founder to funder. After six years backing tech startups with Silver Creek Ventures, he saw an opportunity in what he calls micro-venture capital investing. He founded Aristos Ventures in 2012 with a fund of about $10 million to target technology companies that need about $1 million in early stage funding.

Aristos has invested in five companies, including Nimbix, which specializes in “high-performance” cloud computing; ZenCash, which makes cloud-based accounts receivables software; and JamKazam, a live music platform and social network for musicians.

He sat down with Xconomy to talk about his transition from founder to investor, the opportunities for micro-investing, and strengths of the North Texas technology ecosystem. The following has been edited for clarity.

Xconomy: Tell me about Aristos.

Felipe Mendoza: I was with Silver Creek for six years. It was great, very much like a startup. You have a lot on your plate and every day was different. Toward the end of my tenure, there weren’t as many active VC funds and the dollar amounts that companies needed started to go down. You have the tools. Entrepreneurs don’t need to buy infrastructure. There is Amazon Web Services or Dropbox now. Startups are outsourcing a lot of the capex. A majority of the exits are sub $100 million; a lot are sub $50 million. It’s hard to get that $400 million exit. Most of the funds in Texas are not set up to work on that [smaller] end of the scale. They’re bigger funds.

I started Aristos as a micro VC fund to invest into those highly capital-efficient companies that only a need couple million. The deal flow is not lacking. Before ’95, the average venture capital fund was $30 million and the average investment was $2 million.

My investors are high net worth individuals, family offices that like to be in the tech arena but don’t have the time. My investment committee has literally made billions for their institutional investors: Jon Bayless and John Jagger, of Sevin Rosen, Alan Pierce of the Wright Family Office in Dallas.

X: What sorts of investments do you focus on? I see recently cloud computing and online jam-session software. Seems eclectic.

F.M.: It’s good having the mix. I don’t want the portfolio to be concentrated. If there’s a downturn for any reason, I don’t want it to affect the entire portfolio. I want to focus on Texas and surrounding Texas. Most of my connections are in the North Texas area. We see a lot of Austin deals as well. When it comes down to it, it’s software: different flavors of software.

X: How would you describe the North Texas startup scene right now?

F.M.: It’s great. We have a lot of these accelerators. About 20 to 25 percent of the companies that I see are coming out of those accelerators like Tech Wildcatters or Collide Village. These programs are really good for building community awareness. We wait for (the startups) to go through the program and see if they survive the first couple of months, see if they’re going to do what they say they’re going to do.

X: It used to be that startups, once successful, would have to relocate to either Silicon Valley or Boston because that’s where the critical mass was, the money was. How is Texas doing in creating its own startup ecosystem?

F.M.: It’s definitely true, though I think there’s less of a brain drain now. With coast money, one of the stipulations has been they have to move out there. And they did, because that’s where the money was. It’s always been surprising to me that there hasn’t been more money invested in startups in the North Texas region. MetroPCS was a company that started here in Dallas. It had money from the coast and Silver Creek. It went IPO and got bought by T-Mobile. There is some of that money staying around. With the IT expertise and some of the semiconductor and networking companies around, I’m surprised there aren’t more of those types of companies being started.

One argument I heard (why Dallas doesn’t have a stronger ecosystem) is that Dallas is a lot more spread out. There’s not a Sand Hill Road that builds community with a tighter geography. But the new accelerators and co-working spaces we have now are definitely improving on that.

There is definitely a lot of money here, and a lot of oil money. Historically, oil and technology have been inversely correlated which would seem to balance the holdings but it’s amazing how oil and gas really just wants to stay in oil and gas. But we’re at an interesting inflection point with accelerators and co-working spaces, the micro VC model, and just perhaps a change in where people are putting in money. It’s a good time to start a tech company, at least I think so.

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