San Antonio’s TRTF Reboots Seed VC Fund

Xconomy Texas — 

San Antonio — Funding for startups is hard to come by anywhere. York Duncan knows this, and the point was emphasized just last week when he heard someone from Austin, TX, lamenting about the lack of local capital available to the city’s numerous startups.

“I’m thinking, you outta come to San Antonio,” Duncan said in a telephone interview. “Capital is in short supply everywhere.”

In San Antonio, a city about 80 miles southwest of the state capital, Austin, Duncan is doing something to bring more funding. As the president of the Texas Research & Technology Foundation (TRTF), Duncan told The San Antonio Business Journal last week that his organization is reloading a seed fund it operates that invests in early stage bioscience and technology companies with $1 million.

The fund is called the McDermott Legacy Fund and is managed by the foundation’s subsidiary, The Texas Technology Development Center. It is a matching fund that has made six investments since 2010 in early seed rounds of funding for companies including Invictus Medicine and StemBioSys. Invictus has already received regulatory approval for a product focused on newborns, while StemBioSys is still developing its cellular matrix tool.

The intent of the funding is to provide support for entrepreneurs who may not yet have access to venture capital money because their business is still in early developmental stages.

“It’s just getting the entrepreneurs to really build up the confidence enough to start the company, and plus find the capital to do that,” Duncan says. “That’s kind of where we think our fund fits: It fills that gap of first money or almost-first money in.”

Duncan will be seeking matching funds from outside investors for any investments TRTF makes—likely three to four this year—on a minimum of a dollar-for-dollar basis. He did the same with the previous six investments, matching as much as five dollars to every single dollar TRTF invested. The money will only target San Antonio companies in order to try to build the local economy of entrepreneurs, he says.

“A huge focus of ours going forward is investing in small companies and requiring them to stay in San Antonio for 18 months to two years, three years,” Duncan says. “As they mature and move toward an exit, they may leave and if they leave, hopefully a lot of the executives might stay and start another company. That’s where we start building critical mass.”

TRTF typically invests with convertible equity notes and its previous investments have raised a combined $30 million to $40 million.

Duncan was able to raise the $1 million for the pre-seed fund by selling some of the land that TRTF owns in San Antonio. The foundation was as created as a nonprofit in the 1980s to use 1,200 acres of land that was donated by Tom and Nancy Pawel, local philanthropists and entrepreneurs, for a bioscience research park. Duncan joined TRTF in 1990 to oversee the development of the Texas Research Park, and became president of TRTF in 1996.

TRTF sold a 160-acre parcel of its land to Microsoft (NASDAQ: MSFT), where the company will house a data center, for an undisclosed price in December, Duncan says. It also sold a 13-acre plot that holds an apartment building, he says. While the price wasn’t disclosed, Duncan says he was also able to set up an endowment for TRTF that will provide enough capital for the operations to continue for three years.

This isn’t TRTF’s first foray into venture capital. TRTF started a $3.6 million fund in 1992, from which it made seven investments, but sold that fund to venture capital investors in 1996, Duncan says. While the McDermott Fund’s prior investments have largely been based in life sciences, TRTF is planning to consider technology investments, too.

“We wanted to get back into that business in realizing there’s a huge gap, at least in San Antonio, for that type of money,” Duncan says.