Injury Sciences Breaks from Parent

Scott Palmer, former chief executive of San Antonio-based database developer Biodynamic Research Corp. (BRC), put his money where his mouth was late last year when he sought funding for the company’s applications service provider subsidiary. He relinquished his role with BRC to become chief executive of Injury Sciences LLC, which, concurrent with its spinoff, raised $3 million in its first round of venture capital financing.

“The product was developed while under my tenure, and we figured the equity financing opportunity would be more attractive to outside investors if I ran the new venture,” Palmer said. “If you are not willing to take personal and financial risk, then how can you expect investors to put up any money?”

BRC led the round, allowing it to retain a substantial equity stake in its former subsidiary. External investors include First Capital Group of Texas and STW Interests Ltd., both of San Antonio. No placement agent was used for the deal.

Since 1984, BRC has developed and maintained a database that analyzes injuries incurred during automobile collisions. The company licenses the database to insurance companies that need to evaluate specific automobile accident claims and have the ability to detect insurance fraud. Upon Palmer’s arrival in 1997, BRC established a division to further enhance and commercialize the database. An application was developed that constantly updates the database to the needs of each individual customer.

“We soon recognized the capital requirements to commercialize our software were greater than what the parent company could afford,” Palmer said. “The private placement was the first time I worked to raise money. It was an educational experience.”

Jeffrey Blanchard, founding general partner at First Capital Group, said Injury Sciences has the capability of licensing its technology for other uses, but will focus on assessing the effects of auto collisions in the near term.

“The technology is pretty specific as far as how the user inputs the damage caused by vehicles,” Blanchard said. “But the way the software allows for upgrades over time might apply to other areas.”

First Capital invested from the $30 million First Capital Group of Texas II, which is approximately 70% committed. Blanchard said the firm is in the process of marketing its fourth investment vehicle, targeted for $50 million, and expects a first close in the next few months. As an SBIC, Blanchard said matching commitments from the government will bring the total capital for that fund to as much as $150 million.

First Capital invests in early-stage and growth-oriented companies based primarily in Texas and the Southwest. The firm will also invest in buyout opportunities. A typical venture investment for the firm is between $1 million and $1.5 million throughout the life of a portfolio company. Consistent with the resources of the region, the firm invests in software, telecom and business-to-business e-commerce.

Blanchard and two partners currently manage Fund II, which has an 80%/20% carried interest split and 2.5% management fee. Blanchard said the firm, which recently opened an office in Austin, Texas, is seeking additional investment professionals.