Startup Houston

This past Friday morning I had the pleasure of getting out of bed early (again) to attend the Houston Technology Center’s Education Seminar Series on Raising Capital in Texas Today. Today’s session was entitled, “Raising Funds for Growth: Series B and Beyond“. The moderator for the event was Scott Crist of Aegis Texas Ventures. Our panel of experts for this seminar were:

• Kemal Farid, CEO of Merrick Systems;
• Daniel S. Parsley, Chairman and CEO of SalvageSale; and
• David Ferdman, President and CEO of CyrusOne.

You can read through the presentation at the link above but here is an overview of what was discussed:

1. The three represented a nice variety of business capitalization history: venture funding (SalvageSale), self-funding (CyrusOne) and bootstrapping (Merrick Systems).
2. Merrick Systems’ need for additional capital was to accelerate growth in both organic and new markets. Rather than look at an equity solution, Merrick Systems put together a senior credit facility with Silicon Valley Bank. This is something that many small business startups fail to look into mostly due to a lack of understanding of this segment of the market. The majority of the startups that I have been involved with were able to secure quality credit from the “venture tech banks” like Silicon Valley Bank, Comerica (through their Technology and Life Sciences team), Square1 Bank and Bridge Bank (if you need any introduction to one of these lenders, send me an email).
3. SalvageSale’s recent financing seemed more like a leveraged MBO than growth capital, although the new investment from Spire Capital is likely a good way to both recapitalize the company and partner with a solid fund with a track record in successful buyouts.
4. CyrusOne effectively sold the company to a private equity group but still has a very active management. Abry Partners has a history here in Houston with their purchase of Caprock back in 2006. What is nice about what Dave Ferdman did was recapitalize the existing investors and provide an infusion of additional capital to fund CyrusOne’s continued growth in data center development.

The biggest takeaway from me is how important your early rounds are in the long term outcome of the company. As in most things, the early decisions tend to have a more material impact on a company’s velocity than do the latter ones. Merrick Systems was able to grow without much of any dilutive impact and is now poised to further grow through senior debt, the second least costly capital next to public debt. SalvageSale confessed to seller’s remorse with their early stage investors but were able to break through and now have a bright road ahead of them. CyrusOne recognized that the future required deeper pockets and made an excellent decision to partner with a long term investor rather than sell out to short term needs for liquidity.

All in all, the three gentlemen were excellent presenters and provided attendees with another quality HTC educational event.