RICHARDSON, Texas – High-tech business accelerator STARTech’s newest vehicle, STARTech Seed Fund II, held a third close on $22 million at the end of April, said Matt Blanton, chief executive officer. The vehicle was launched during the first quarter of this year and has a target of $25 million to $30 million, he added. STARTech is aiming for a final close by the end of the summer, he said.
Founded in 1997, STARTech focuses on funding seed-stage telecom, software, semiconductor, e-commerce and health-care companies. The accelerator prepares them for a first round of institutional venture funding. Blanton anticipates that Seed Fund II will back approximately 30 to 35 companies with a typical deal size of $660,000. To date, STARTech has only backed companies located within Texas, though Blanton said his company is open to the idea of working with companies located outside of Texas. The fund has a 2.5% management fee and 80%/20% carried interest structure. Blanton declined to say how much STARTech itself had invested in the fund.
STARTech currently has 20 limited partners, whose ranks include nationally known venture capital firms and a corporate venture capital group. “Our limited partners have a tendency to do larger investments and have moved away from seed funding, so this makes us a good partner for them,” Blanton noted. STARTech’s LPs have first crack at the accelerator’s portfolio companies, he added. “Our objective is to get these companies a first round of funding, so we work to get funds as limited partners who have an interest in the space these companies are in,” he said.
The fund’s LP’s are: Austin Ventures LP, Capital Southwest Corp., CenterPoint Ventures, Crescendo Ventures, InterWest Partners, James M. Hoak & Co., Sevin Rosen Funds, Silicon Valley Bank, SSM Ventures, Arkoma Venture Partners, eHealth Technology Fund, Goff Moore Strategic Partners, Hunt Capital Group, Hunt Ventures, Imperial Bank, NextBand Venture Partners, Silver Creek Technology Investors and Texas Instruments Inc.
The accelerator’s stakeholder partners, 31 high technology companies and service providers ranging from Alcatel to Hewlett Packard Co. to law firm Akin, Gum, Strauss, Hauer & Feld LLP, provide expertise and assistance to STARTech’s portfolio companies as they prepare themselves for future rounds of fundraising. The stakeholder partners each pay a $25,000 yearly fee, which STARTech uses to meet operational expenses. The stakeholder partners do not participate in the fund but benefit from seeing deal flow and identifying possible strategic partnerships, Blanton said.
STARTech also maintains a mentor network of entrepreneurs and recently retired executives who work with its portfolio companies and may even step into executive positions, if a business needs to shore up its management team. The accelerator has also recently acquired a space in which it can co-locate up to 10 of its portfolio companies. “We won’t require any of the companies to move in with us, but we think they might benefit from being together and being able to gather around the water-cooler,” he said.
The firm’s freshman effort, the $4.2 million STARTech Seed Fund I closed in September 1998. It is now completely invested in 14 companies, with an average deal size of $330,000. Five of the companies have already received their first round of venture funding, for a total of more than $20 million, Blanton said.