Thursday, May 22, 2014
How LiveOak Hopes To Take Texas Venture To The Next Level
There's a new venture fund in town--LiveOak Venture Partners (www.liveoakvp.com)--one of the first, large funds to close commitments in many years here in Texas. The new fund is headed by early stage, technology investment veterans, including Ben Scott, Krishna Srinivasan, and Venu Shamapant, who have all spent a lot of time in the Texas market. We caught up with two of the fund's General Partners, Krishna Srinivasan and Venu Shamapant, to learn more about the new $109M fund and its goals--plus how the fund views the potential of Texas and its startups.
Tell us about your team and new fund?
Krishna Srinivasan: We are a team with an experienced track record of investing in early stage, Texas startups. It's a team that has worked together for almost fifteen years, and has a lot of experience in the Texas market, predominately in the early stage and seed stage investment area. With that investing style, we have put together a successful track record of $1.5 billion in enterprise value, created over those fifteen years. We created the fund because of the obvious technology market and opportunity this is. We characterize the Texas market as one of the most supply rich, yet capital constrained markets in the country. We believe Texas has all of the fundamental building blocks in place, for this to be a great center for entrepreneurship. The market is growing very well, and the technology industry is the second largest employer in the state. We also have lots of great institutions here, with among the top patent filing and invention disclosures nationwide. The DNA for startups exists here, and it's clearly one of the top centers for startup activity, but it's significantly capital constrained, particularly for the early stage market. That said, it's easy for a Bay Area or other investor to invest in a deal, provided there is a local lead investor to nurture and tend to startups. That's the role we have had throughout a history of success here as a part of the entrepreneurial ecosystem.
Venu Shamapant: I'd like to add to that, and talk a bit about or strategy. At the high level, our strategy is driven by four things. First, we are investors in technology and technology enabled services. We are an early stage investor, and like to be the first institutional investor in the company. We're focused geographically on Texas and the Southwest market, and also have a very active investment style, taking board seats on companies that we invest in. In our first year, we did five deals. Two of those deals were seed deals, and three were traditional, Series A investments. Our smallest investment was $250,000, the largest was $4 million. If you fast forward to what we expect to get done with the fund, we hope to invest in between fifteen and seventeen companies in our portfolio over three to five years, investing an average of $6M to $8M in each company over the life of the deal.
Are there any specific sectors you are looking at?
Krishna Srinivasan: There are several sectors where Texas really has the ability to build great companies. The good news, is Texas is very diversified. Austin is pretty well represented across all aspects of IT here, and Austin is also particularly strong in segments such as the enterprise software market. Other markets like Dallas and Houston are equally great entrepreneurship centers, with a slightly different twist. Dallas is a combination of enterprise, wireless, and the healthcare industry. If you move to Houston, the role of IT in the energy market is very robust. Between those three cities, Austin, Dallas, and Houston--plus San Antonio--we have a lot of local areas of expertise, and where we can build companies who are globally dominant in those categories.
Venu Shamapant: Our goal is to be the venture capital company that entrepreneurs will first call in this market. There are broadly, a few things we won't be doing. We're not a classic healthcare investors, and are not into medical devices, pharmacology, and if you're in energy exploration we're probably not the investors for your deal. We like to invest in startups that overlap with information technology. Other than that, we're driven by the local talent in the geography.
What is your approach to syndication of deals?
Venu Shamapant: We have a history of investing with both other local investors, as well as with coastal investors--firms like Sequoia Capital, North Bridge, Redpoint Ventures, and others. That will continue to be a big emphasis for us. In our five companies, many of them also are in active syndication with traditional institutions and corporations. Those also play a role in not only bringing capital to companies, but also bringing a multiplier of 5x as coinvestors, on what we expect to achieve over the life of our fund.
Given your experience as investors in this market for a long time, what big piece of advice would you give entrepreneurs here?
Krishna Srinivasan: What Texas entrepreneurs have been doing a good job of in most recent times, versus fifteen years ago in the boom era, is they have been making tremendous progress on very little money. They're building very capital efficient companies, and making real progress on small amounts of capital. That's good for investors, and it's good for entrepreneurs. We want to encourage entrepreneurs to keep looking for those capital efficient levers, so they can make as much progress on as little investment as possible.
Venu Shamapant: We tell entrepreneurs here in Texas to aim big. There's a lot of activity in this market, and there have been some good, attractive exits, but there's also a lot of potential to win the next, multiple billion market. We like to back entrepreneurs who understand that, and have the right attitude to get that company built.
Texas has quite a few successful exits and IPOs, yet does not seem to get the attention it deserves. Why do you think that's the case?
Krishna Srinivasan: I think there's been some evolution in relative terms to the bigger market, which is Silicon Valley. California, obviously, is a much bigger market, and because of that gets a disproportionately larger share of the mindshare. But, what is changing, is the word is starting to get out. As we see right now, more entrepreneurs are moving from California to Austin in particular, and Texas in general, to start companies. Another piece of this, is venture capital has always been a neighborhood store. It' much easier for someone to know an entrepreneur in your neighborhood. It's always been harder for investors outside of this geography to appreciate the activity going on here. That's precisely the role we're trying to fill with this fund, to help get the attention of the bigger market. We like to get involved in companies early, to help put them on the national landscape and get them the attention they deserve.
All of you were at the big guys in venture capital across town, at Austin Ventures. What kind of relationship do you have there?
Krishna Srinivasan: The reality is, the three of us worked there for over ten years, and gained the vast set of our knowledge while working in this market. We strongly believe that the Texas market is much bigger than what is needed to have one or two very successful firms. In in a testament to our relationship with them, our first deal as a firm was syndicated with Austin Ventures, at Veros Systems. They're a great partner, and we'll continue to make investments with them.
Finally, what's the big goals for the firm in the near future?
Krishna Srinivasan: We're hoping to do three or four investments a year. We very much have an open checkbook for backing the next interesting companies
Thanks, and good luck!