Startup Houston

A few weeks ago I had the chance to have coffee with Blair Garrou of DFJ Mercury. For those of you who do not know Blair, you should. Blair was one of the individuals instrumental in the formation and development of both the Houston Angel Network and the Houston Technology Center where he served as Director of Operations from 1999-2000. Blair has been a part of several venture capital groups in Houston, first with Genesis Park and now with DFJ Mercury. In between those VC jaunts, Blair was the CEO of Intermat, Inc., a software development company located in Houston up until its sale to IHS in 2004. He is also an adjunct professor of management at the Jones Graduate School of Business at Rice University.

Today, Blair spends most of his time on a number of boards of directors for both DFJ Mercury portfolio companies and local organizations, while trying to manage, with his partners, DFJ Mercury’s portfolio of assets. DFJ Mercury is a $20 million, Texas-based, seed and early stage venture capital fund that invests in companies that are addressing large market opportunities in information technology, applied materials and life sciences. DFJ Mercury is part of the global intelligence network of Draper Fisher Jurvetson funds.

Here are some excerpts form our chat:

Josh: What more do you think can be done to help foster the Houston I.T. and Web 2.0 startup community so that it attracts more investment from funds such as DFJ Mercury and others?

Blair: I believe that we need more “showcases” of young, exciting IT and web-based companies in Houston. Rice and HTC have provided solid forums to date for these companies, but we can always do more. I think more organizations and information resources like your own, BarCamp, StartupWeekend, and other events allow community to be built and the word to be spread that there are some really exciting ideas and companies launching in our city.

Net, net, though, I believe we need a few Houston-based software and web-based companies to be acquired by well-known, west coast technology companies in order to build legitimacy with both the entrepreneurial and the investment community. We need to prove that you can, indeed, build successful Houston-based IT businesses and make money for your investors. This has happened in various pockets of the software industry – most specifically security & systems management (BMC, Bindview, Mission Critical, Pentasafe). It also happened (on a personal level, without outside investor participation) with Victor Koosh selling his company Meedio to Yahoo! a few years back. Success begets success, and those entrepreneurs who learn valuable lessons from early deals continue to innovate and pass on their key learnings to new generations of managers.

Josh: What is the biggest challenge that you feel small and startup technology companies in Houston face in attracting funding?

Blair: I believe that it’s a numbers game. What I mean by that comment is that there aren’t many funding sources in Houston for start-ups, and it is almost impossible for a Web-enabled business to find venture or angel funding. A few deals will get funding, but from the deals I am seeing, there should be dozens more. This is primarily due to the perception by outside funding sources that you can’t build a sustainable, high-growth technology business in Houston. We battled this notion back in the early days of the Houston Technology Center, and Walter Ulrich, Marc Nathan and others are still fighting those same battles today.

I think the problem lies in the fact that it is very difficult to recruit tech talent in Houston and/or to Houston, and therefore there isn’t the amount of venture capital in Houston that one would expect for a city of our size and resource capabilities. This has more to do with the “critical mass” problem that plagues every part of the country except California and Massachusetts, but it is heightened in Houston since our town is not perceived as a “destination city.” It’s a terrific place to live (I’ve been proud to call Houston my home now for 10 years), but it is not a place visited by the outside world unless you are in the Energy industry.

Continue reading ‘Interview with Blair Garrou, Managing Director with DFJ Mercury’

I had an opportunity to catch up with Kala Marathi, Managing Director of the Houston Angel Network recently. Here are some excerpts from our chat:

Josh: Can you give me a little history behind the beginnings of HAN to today?

Kala: The Houston Angel Network was founded in 2001 by prominent angel investors and business leaders in alliance with the Houston Technology Center.  We have grown, with the help of our members and alliance partners, to become the largest and most active angel investor network in Texas.

Josh: What are the typical deals the HAN members prefer to invest in?

Kala: Our members prefer deals that meet the following criteria:

1. The Company must be based in Texas or must be willing to re-locate to Texas;
2. The Company must be raising between $250K and $3.5M in equity or debt with an equity component (i.e. convertible debt);
3. Our members tend to focus on companies in the IT, Life Science, Energy, and Consumer Products sectors; and
4. Companies raising more than $1M must secure a lead investor for their raise before going through the HAN deal flow process.

Josh: What is the general process that HAN has prospective companies go through before presentation to the HAN general assembly?

Kala: One of the biggest challenges I have is to find interesting investment opportunities to share with our members.  I would like to invite entrepreneurs with companies that meet our criteria (listed in the question above) to contact me if they are interested in learning more about our investment screening process.   The application process usually starts with a conversation with the entrepreneur.  This way, we can determine if there is a fit between our members’ interests and the entrepreneur’s company before the process starts.  If there is a fit, I will request that the entrepreneur fill out our application and submit an executive summary to us.  The Company is reviewed by our members, who then select 3 companies each month to give 10 minute investment presentation at our monthly meetings.  I will work with the entrepreneurs who are invited to present, to fine tune their presentation for the HAN audience.  After the presentation, if HAN members are interested in learning more about the Company, they will approach the entrepreneur and request a follow-up meeting or additional information. Continue reading ‘Interview with Kala Marathi of the Houston Angel Network’