San Antonio startups still fall short on venture capital funding; Austin companies jet ahead

Attracting the attention of venture capitalists — and their wire transfers — is key to building up San Antonio’s web of cybersecurity, information-technology and biotechnology companies. With few of deep-pocketed investors focused on companies here, it’s harder to lure entrepreneurs to the city.

In 2021, investors plowed $93.1 million into 18 deals in San Antonio, according to Crunchbase, which tracks investments in startups. That was almost double the $47.1 million raised in 16 deals in the year before.

But those numbers represent a small fraction of the investment hauls of companies in Texas’ other major urban centers.

Dallas startups attracted investments of $1 billion in 107 deals last year, down from $1.3 billion in 108 deals the previous year.

Houston firms brought in $1.7 billion in 136 deals, a jump from $475.33 million in 91 deals in 2020.

And Austin startups blew them all away. They secured investments totaling $5 billion in 368 deals in 2021, up from $2.2 billion for 294 deals the year before.

Austin, headquarters city of electric-vehicle maker Tesla and enterprise software company Oracle, has become one of the country’s fastest-growing tech hubs — though it remains far behind Silicon Valley, New York City, Boston, Los Angeles and Seattle.

A new Brookings Institution study of technology industry growth among the 100 largest U.S. metro areas identified Austin as the smallest of eight “superstar” regions. Austin’s tech employment increased 5.5 percent from 2015 to 2019 to 83,000 workers, according to the Washington, D.C., think tank.

The number of San Antonio tech workers inched forward 0.5 percent to 17,500 in the same five-year period.

“We don’t need to be Austin,” said Cat Dizon, a co-founder and chief operating officer of Active Capital, a San Antonio-based early-stage investment firm. “We want to be our own city, but I couldn’t tell you the true culture yet. Are we tech? Are we just agnostic? Do we welcome all?”

VC wins in S.A.

In San Antonio, the top deal last year belonged to Plus One Robotics, a company founded in 2016 to make software that increases the utility of robots. It raised $33 million in 2021.

Among other large deals, VeraDermics, a dermatology-products company founded in 2019, took in $20.7 million. FloatMe, a financial technology firm launched in 2018, raised $16.2 million.

Across the board, most of the investors were from outside of Texas. However, FloatMe, which makes cash advances to workers against their next paycheck, was one of the companies that attracted local venture dollars — from Active Capital.

Biotech companies accounted for most of the other deals last year.

Seven of the San Antonio startups raised $1 million to $6 million.

Tech Bloc CEO David Heard said venture-capital funding is “institutional money” that usually flows into metro areas that are building business momentum. But if there’s not enough capital investment, it’s harder to launch startups that will develop and sell cutting-edge software, apps, robots or medical devices.

“We tell a robust story to sell San Antonio as a great place for tech, but you do have these sobering moments,” Heard said. “We have a long way to go.”

Some investors say plenty of San Antonio startups are investment-ready, but most out-of-town VC firms aren’t paying attention.

Dizon said San Antonio’s tech scene has grown substantially over the last five years, and “a handful of VCs and angel communities” are investing in startups. (Angel investors are individuals who help finance early-stage companies and often advise them.) But they’re struggling to identify and seal deals.

“Investors are having trouble finding the deal flow in San Antonio,” she said. “Also, founders aren’t quite sure how to get involved in the circuits that are funding. So a lot of it has to do with visibility.”

Like many in the city’s tech community, Dizon is a former employee of San Antonio’s Rackspace Technology. As its head of business operations, she helped the cloud-computing firm line up acquisitions of small-to-midsize companies. She later led Alamo Angels, an group of investors who back startups.

She’s currently a board member of Geekdom, a for-profit, co-working space that aims to create and nurture startups in San Antonio.

At Active Capital, Dizon said she’s investing in companies that develop software that delivers applications over the internet.

Since joining the firm in 2017, she’s noticed that entrepreneurs, investors and advisers need help finding one another and locating the dollars to build out businesses.

“San Antonio is still trying to figure out how to offer resources to the founder community,” she said. “The more resources coming into San Antonio and learning about the talent, the more successful we are going to be. But it’s going to take time.”

She noted that Capital Factory, a Austin-based co-working space that helps connect startups with investors, will open a location at Port San Antonio on the Southwest Side this spring.

An expanding scene

Despite the dearth of venture capital, there are more locally based startups and tech workers than there were a few years ago.

Luis Martinez, the director of Trinity University’s Center for Innovation and Entrepreneurship, attributed the growth to Geekdom, nonprofit accelerators such as VelocityTX and investment funds like Active Capital, MGV Capital Group and Fraser McCombs Capital.

Also, UT Health San Antonio and the private nonprofit Texas Biomedical Research Institute have spawned a number of biotechnology startups.

“There’s good ideas going unfunded in San Antonio, and there’s more capital out there chasing good ideas,” he said. “It’s about making the matches with founders and investors.”

When looking over San Antonio’s latest venture-capital figures, Martinez sighed, saying said he “wasn’t surprised” to see the city at the bottom of the list of Texas’ four major tech cities.

“The Texas Miracle is uneven with regards to startups and tech,” he said. “The state is focused on Austin, and other communities are trying to get oxygen. There’s really a need for early-stage capital investment and funds to be spread throughout Texas and in communities outside of Austin.”

Back at Scaleworks, Moorman said San Antonio has “the potential to build critical mass” — that is, to develop a cluster of startups that hire tech workers, attract investors, collaborate with area universities and research nonprofits, and hire technical, management and marketing consultants. The idea is that the resulting web of techies would draw entrepreneurs and VCs to the city.

Moorman, a former senior executive at Rackspace, said the company trained employees to kick-start their own projects. Some of them, in turn, have secured funding for their ventures and are hiring employees and moving to Port San Antonio and the downtown area.

“We need five more Rackspaces,” he said.

eric.killelea@express-news.net