Coming of Age: San Antonio Startups Experience Busy Summer of M&A

San Antonio—Business leaders have been working for years to recast the Alamo City’s image, in an attempt to brand it as a hub of tech and healthcare startups as much as it is a place for tourists to visit the home of Davey Crockett’s last stand, take a glitzy River Walk, and enjoy a stellar NBA team.

Rackspace, the cloud computing giant sold to a private equity firm last year for $4.3 billion, has likely helped sprout more tech companies in San Antonio than most other businesses in the city. Many tech founders are former Rackspace employees who now rent office space in Geekdom, the downtown co-working space that was founded by former Rackspace Chairman Graham Weston and run by another ex-Racker, Lorenzo Gomez.

More businesses are rising up in the San Antonio biotech sector, too, thanks in part to efforts by the University of Texas Health Science Center at San Antonio (UT Health) to invest in programs that encourage researchers to commercialize their work. Tax breaks from the city and county governments also drew medical startups like CytoBioScience and companies that create them, such as InCube Labs. (Tech companies have received tax breaks as incentives for locating in San Antonio, too.)

Now, some results are beginning to show in the form of merger and acquisition activity. At least six young companies have either sold to or merged with businesses outside of San Antonio, a sign that San Antonio’s fledgling startups are getting more recognition. Some deals were small, such the July sales of contract manufacturer NuPak Medical and software maker eHealthScreenings.

Others gained national exposure, such as the August sale of digital marketing firm Giles-Parscale to Santa Barbara, CA-based CloudCommerce. The San Antonio business gained recognition when its founder, Brad Parscale, lead candidate Donald Trump’s digital marketing efforts during the 2016 presidential campaign. Other deals, such as CellRight Technologies’ planned $30 million sale to U.K.-based Tissue Regenix this month, show the reach San Antonio startups have gained. In June, UT Health also licensed two experimental drugs to China-based CSPC Pharmaceutical Group for $4.5 million upfront. CytioBioScience acquired one competitor and then merged with another company in the last year.

“Mergers and acquisitions can potentially be good for San Antonio provided the new owners leave the existing operations and jobs in the community and invest in expanding such operations,” Ed Davis, executive director of the San Antonio Economic Development Corporation, wrote in an e-mail to Xconomy.

San Antonio has always had big companies with big aspirations, such as Ilex Oncology, which sold to Genzyme for $1 billion in stock in 2004, and Acelity, the sprawling medical device company that has been a part of multiple billion-dollar deals in the past decade.

Even so, San Antonio’s startup culture had always played second fiddle to other Texas cities such as Austin or Houston, particularly on the tech side.

“Austin is like the younger brother that was stronger, that was the quarterback of the football team and got all the dates,” Gomez, the CEO of coworking space Geekdom, told Xconomy late last year.

Gomez worked with Weston, the former Rackspace chairman, and others in the city to develop a mission that might start changing that mentality. The key was to find out what San Antonio was good at, develop a mission around it, and stick to that mission, Gomez said in December. Given the work Rackspace does, helping companies handle the infrastructure of their computing, San Antonio seemed primed for tech startups with a more technical focus.

“Don’t try to be the next Silicon Valley or next Austin, because you’re not going to be,” Gomez said in December. “The next Facebook won’t come out of San Antonio. You need to figure out what you’re a specialist in and double down on that. We have infrastructure tech.”

That focus on infrastructure technology—or as Gomez calls it, the plumbing of the Internet—has indeed helped bolster Geekdom and the overall view of San Antonio startups. More investment money is in town, with VCs such as Geekdom Fund, Scaleworks, and the RealCo seed financing program helping bolster startups. And industries such as cybersecurity are growing, with organizations such as Port San Antonio providing newly built office space for companies in the industry.

On the healthcare side, UT Health is pushing for new incubator space that might help fulfill the city’s desire for more medical device and biotech startups.

San Antonio has indeed been getting more recognition from other cities and groups around the state. Its new angel network hosted a state-wide conference for early stage investment groups this year, and UT Health San Antonio signed a collaboration deal with MD Anderson Cancer Center in Houston to share resources.

Perhaps most notably, Austin-based Capital Factory’s co-founder Joshua Baer included San Antonio in a blog post last week, in which the startup incubator discussed its goal of encouraging more collaboration among Texas’ top startup cities. Since Capital Factory is the epitome of chic Austin startup culture, perhaps it’s a signal that San Antonio’s startup scene is finally coming of age.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at [email protected] Follow @xconholley

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