$25 million raised in bid to draw new investors

Houston Exponential has received commitments for half of a $50 million fund it hopes will help attract venture capital money to Houston, the organization announced Thursday.

The nonprofit, tasked with marketing and connecting Houston’s various innovation initiatives, is creating a “fund of funds.” The idea is to collect money from Houston corporations, invest that money in the funds of venture capital firms across the U.S., and then build connections between those two entities to help a third group: Houston startups struggling to find growth money.

“The VCs very much want to be engaged in Houston,” said Gina Luna, chair of Houston Exponential, “and they want access to the companies that are our limited partners.”

Houston Exponential announced the first closing of HX Venture Fund with $25 million in commitments from nine companies: Insperity, Chevron Corp., Royal Dutch Shell, Quanta Services, Westlake Chemical Co., the Plank Companies, PROS, HE-B and Camden Property Trust.

Insperity, which provides human resources and a host of other business services, is the anchor investor of the fund with a commitment of up to $5 million. It is also funding the HX Venture Fund operations during its formation and fundraising phase.

Luna said the HX Venture Fund is modeled after a similar fund in Michigan, where some $75 million from corporations in two separate funds was used to attract more than $1 billion from venture capital firms.

There was a spike in venture capital dollars invested in Michigan after its fund was introduced, but that spike only lasted two years, said Ed Egan, the former director for the McNair Center for Entrepreneurship and Innovation at Rice University's Baker Institute.

In the first half of 2018, Michigan ranked No. 17 based on the number of its startups receiving venture capital, the number of new deals and the dollar amount invested to help startups grow. Texas, for comparison, ranked No. 6.

Egan, now a professor at the McDonough School of Business at Georgetown University, questioned whether $50 million would be enough to attract top-tier venture capital funds, along with their assistance in professionalizing firms, hiring the correct team, finding new customers and getting a potential acquirer.

Without knowing the details of the fund, he couldn’t say how large the fund would need to be. But Egan said it’s unlikely that $50 million “comes close to the threshold needed.”

“If you want to create the best companies in the world,” he said, “you need help from the best VCs.”

Luna, however, said the investments in venture capital funds would spur new relationships and business opportunities – even if HX Venture Fund isn’t providing huge chunks of money.

She cited arecent annual meeting of the Renaissance Venture Capital Fund of Michigan that attracted more than 700 people from corporations, investment firms and startups.

“That’s really what we expect will happen,” Luna said.

Luna is optimistic that Houston Exponential can raise the additional $25 million soon. The fund is targeting $50 million but could go up to $70 million if there’s enough interest, she said.

At $50 million, the HX Venture Fund could invest in 10 or 12 venture funds.

Brad Burke, managing director of the Rice Alliance for Technology and Entrepreneurship, expects the first fund to be followed by others. And while Houston has an increasing number of angel investors to provide companies with seed funding, he said the fund of funds could help attract venture capitalists to provide the needed second or third round of funding.

“Key to a startup’s success is to have sufficient funding,” Burke said. andrea.leinfelder@chron.com twitter.com/andrearumbaugh