S3 Ventures LLC, one of the biggest and longest-standing venture capital firms in Austin, announced March 9 it has a new $250 million fund. It is the firm's seventh fund, and it follows one announced in 2016 that grew to about $200 million.
S3 is somewhat rare among VC firms in that it has raised its funds from a single limited partner: an unnamed multibillionaire and philanthropic family that has been backing the firm since its start in 2005. That, the firm said, frees it up to focus on working with startups at times it might otherwise be raising capital.
S3 also stands out as a firm that has dedicated itself to investing almost purely in Texas-based technology companies. It has invested in successful startups such as Favor, acquired by H-E-B, and Liveoak Technologies, scooped up by DocuSign. With its new fund, the firm plans to continue to pour money into startups, largely in Austin, Dallas, Houston and San Antonio.
"I just think amazing people are moving here — technical talent, as well as experienced entrepreneurs and business folks," said Eric Engineer, an S3 partner who joined the firm in 2019. "Part of it is founders ... people are attracted to the state and are moving here early in their lifecycle and are looking for local partners. That's one trend. And the other one is all the big technology companies that are setting up shop here."
Both Texas and Austin are familiar with big tech. But companies such as Oracle Corp., Google LLC, Apple Inc. and Meta Platforms Inc., the parent company of Facebook, have been growing their presence in the Texas capital in recent years.
"The big difference from five or 10 years ago is those aren't just like sales and marketing offices," Engineer said. "Those are real engineering teams. And you have people who are solving problems kind of at the frontier."
And that gives Austin and the rest of the state more of the technical talent needed to build big companies — something that for years has largely been the realm of Silicon Valley.
S3 plans to write initial checks of $500,000 to $10 million in early-stage funding rounds. It invests up to $20 million throughout the life of a company, and said it has latitude to go beyond that if warranted.
The firm now has more than $900 million in assets under management across 50-plus deals. It has also logged 20 exits, which typically bring strong returns back to firms. A couple of its recent wins include an initial public offering by Plano-based financial technology company Alkami Technology and the $500 million acquisition of Austin- and New Orleans-based construction payment company Levelset by publicly traded construction software maker Procore Technologies Inc.
The firm, which plans to announce a couple of investments soon, could face a slightly different market in the months ahead.
"Obviously, the IPO market has definitely cooled off a little bit, if you look at the stats year to date, because valuations have just taken a hit," S3 Managing Director Brian Smith said. "There's been some multiple compression and those markets ebb and flow. We don't let that play too much into how we're thinking about investing in the early stage because we have a very longterm horizon, and so you're really wondering what is the market going to be in 2030 when we might be exiting an investment we're making today."
S3 Ventures' new fund gives it one of the biggest investment war chests in Texas. But it's among a rising tide of firms raising larger and larger funds. In 2020, Silverton Partners announced it had raised a $144 million fund dedicated to making new investments mostly in Texas startups.
In November, Austin's LiveOak Venture Partners announced a $210 million fund, which is also targeting Texas-based startups. Then in December, Next Coast Ventures filed paperwork with the U.S. Securities and Exchange Commission showing it plans to raise a $175 million third fund, along with a $50 million fund called NCV Select I LP that might be for follow-on investments or something else.
Adding to that are big funds that have recently moved to Austin, including 8VC and Mithril Capital, as well as local offices from Breyer Capital and Moneta Ventures.
But S3, like other firms Inno has interviewed, said more firms and funds represent more opportunity than competition.
"This is a great market opportunity. We want to see it grow," Smith said. "So the fact that others are coming is beneficial for the community. We've done a lot of deals with a lot of those partners that you're talking about and actively want to co-invest with them, whether we lead or co-lead or join a syndicate. There's a lot of benefit to that ecosystem growing."
