S3 Ventures closes $250 million for its Fund VII to invest in Texas-based tech startups

We first covered S3 Ventures about three years ago after the venture capital firm co-led an $8M Series A funding in Houston-based tech startup and cognitive healthcare platform BrainCheck. A lot since then. The Austin, Texas-based firm has grown exponentially with assets under management now exceeding $900 million.

Today, S3 Ventures announced a $250 million Fund VII to invest in Texas-based tech startups. The fund is the largest venture capital fund focused on the state of Texas, making S3 Ventures the largest VC firm that primarily invests in Texas-based startups.

S3’s 7th fund is representative of a decade-long acceleration in startup funding across the state — concentrated in Austin, Dallas, Houston, and San Antonio. The rapid growth of local capital sources in recent years has enabled hundreds of Texas startups to raise multiple rounds in their home state — rather than rely on coastal firms for financing.

Since its founding in 2005, S3 Ventures has been backed by one limited partner — a highly philanthropic family with a multibillion-dollar foundation focused on addressing social inequities. With its single-LP structure, the firm is undistracted by fundraising and unencumbered by many of the constraints faced by traditional VC firms, thereby providing patient capital that better aligns with a founder’s long-term vision.

“In our first 17 years, we have been fortunate to partner with truly visionary founders who have transformed the way we work, live, and heal,” said S3 Managing Director Brian R. Smith. “We look forward to working with many more in the years ahead.”

S3 Ventures makes initial investments from $500,000 to $10 million in seed, series A or series B rounds with the capacity to invest more than $20 million throughout the life of a company.

S3 has made more than 50 investments since its inception seventeen years ago, with more than 25 active portfolio companies and more than 20 exits. S3 portfolio companies have raised nearly $2 billion in total financing.

A Texas-sized Track Record of Success

S3 has made more than 50 investments to date, with more than 25 active portfolio companies and more than 20 exits. S3 portfolio companies have raised nearly $2 billion in total financing.

Recent exits include:

• 2021 — Initial public offering by Alkami Technology (Nasdaq: ALKT), a Plano-headquartered digital-banking fintech company;
• 2021 — $500-million acquisition of Levelset, an Austin and New Orleans-based construction-payment company, by California-based construction management software business Procore Technologies (NYSE: PCOR);
• 2020 — $160-million+ acquisition of Acessa Health, an Austin-headquartered developer of a minimally invasive treatment for fibroids, by Massachusetts-based women’s health medical-technology company Hologic (Nasdaq: HOLX);
• 2020 — acquisition of Live Oak Technology, an Austin-headquartered remote financial transaction platform, by San Francisco-headquartered DocuSign (NASDAQ: DOCU)
• 2018 — acquisition of Favor Delivery, an Austin-headquartered on-demand delivery service company, by San Antonio-based grocer H-E-B;
• 2018 — acquisition of TVA Medical, an Austin-headquartered developer of minimally invasive procedures for chronic-kidney disease patients, by New Jersey-based Becton, Dickinson and Co. (NYSE: BDX)

Alkami Technology co-founder and Chief Strategy & Product Officer Stephen Bohanon attributes S3’s patient-capital model as contributing to the company’s success.

“S3 was an investor during the full lifecycle of the company, from seed stage to IPO,” Bohanon said. “They supplied early capital, guidance, process and governance. They also attracted growth-stage investors by leveraging their network, which helped us rapidly scale-up to our public offering.”

Texas Set to Become Second-largest U.S. Tech Ecosystem

“We believe that by 2030, Texas could be the second-largest technology ecosystem in the country,” Smith said. “That growth is being driven by long-term demographic shifts and broad-based economic strength of not just Austin, but also Dallas, Houston and San Antonio.”

The firm’s portfolio focus underscores its vision of the Lone Star State becoming the nation’s No. 2 premier tech hub. To date, S3 has made 36 investments in Austin, four in Dallas and six in Houston.

Current Texas-based portfolio companies are spread across the state, with:

• 14 Austin investments — including UpEquity, a real estate startup democratizing the home buying process; Atmosphere TV, a cable alternative that provides free-streaming TV for businesses; and Interplay Learning, a provider of 3D simulation-based training for the skilled trades;
• 3 Dallas investments — including Alkami Technology, a digital banking platform; NoiseAware; a provider of automated noise monitoring and resolution systems for property managers; and IFM Restoration, an online marketplace that connects contractors with owners of single-family rental homes;
• 3 Houston investments — including BrainCheck, a provider of interactive cognitive assessment and care planning technology; Saranas, an early bleed detection system; and BuildForce, a construction labor marketplace.

S3 Ventures’ Deep Stable of Investment Experts

Smith founded the firm with a $20 million first fund 17 years ago. An electrical engineer who began his career at IBM, Smith previously founded Austin-headquartered Crossroads Systems in 1994, leading it as CEO through five rounds of VC funding, an IPO and beyond. He now leads the firm’s team of eight investment professionals, all based in Austin.

General Partner Charlie Plauche, who has led over a dozen of the firm’s investments and multiple exits, started as an intern and joined full time in 2011, after earning an MBA from the McCombs School of Business at the University of Texas at Austin. Plauche previously worked at Alabama-based Harbert Private Equity.

The firm’s newest partner, Eric Engineer, joined in 2018, after serving as CEO of Invodo, an S3 Ventures portfolio company acquired that year. Engineer previously worked at Sevin Rosen Funds in Dallas; Microsoft in Redmond, Washington; and, Trilogy Software in Austin. Engineer earned an MBA at Harvard Business School, a master’s degree and a bachelor’s degree in computer science from Rice University in Houston.

Aaron Perman is a principal at S3 Ventures and has worked with the majority of S3’s portfolio companies. A graduate of the University of Southern California, Perman joined the firm in 2013 from Los Angeles-based hedge fund Western Standard. Perman also served as CEO of New York-based Qualia Media prior to its acquisition.