New Opportunities Launched in Texas

While top tier venture outfits like Benchmark Capital and Draper Fisher Jurvetson continue to expand their business practices overseas, a number of smaller firms have recently sprouted up with intentions of providing capital to a domestic market which many of the big boys have traditionally overlooked: businesses owned or operated by women and minorities.

The latest entry into this increasingly popular field is the North Texas Opportunity Fund (NTOF), a Dallas-based vehicle that plans to hold a first close on July 6.

“Venture capitalists tend to invest in deals that they know, and a lot of them don’t know too much about women- or minority-owned businesses,” said Gregory Campbell, partner with NTOF. “We’ve studied things like New York Investment Fund and Cleveland Tomorrow and we’re going to take some of those lessons and put a Texas spin on them.”

The fund was originally shopped with a $25 million target capitalization, although that figure will most likely be upped as existing commitments have already topped $20 million with about six months of fund raising yet to go. In addition to providing capital, prospective limited partners are also being asked, albeit not required, to do business with companies that are part of the portfolio and to help source deals if possible.

“We have a dual bottom line of good rates of return for our investors and general economic development,” Campbell said. “But we are, first and foremost, a return-driven fund rather than a charity or contribution-based fund.”

Average investments will fall between $2 million to $4 million and, once fully invested, the NTOF portfolio is expected to be home to around seven companies.

NTOF has yet to make its first investment, but it has four term sheets outstanding and expects to announce its first completed deal in conjunction with the fund’s first close. The upcoming transaction will probably be in a women- or minority owned or operated business, but NTOF will also be making some investments in companies which are headquartered within a fifty county area that Campbell termed “North Texas.”

Not only has this physical investment area helped Campbell and fellow partners Luke Sweetser and Arthur Hollingsworth name their fund, but it has also influenced their more general investment strategy.

“We have no specific industry target,” Campbell said. “Any private equity guy who is worth his salt is looking to cover as much ground as he can and we’ve already confined ourselves geographically so we see no reason to do it industry-wise as well.”

Campbell added that, if successful, he could foresee raising a second fund in the relatively near future. The current vehicle is being marketed with a 20% carry fee.

In related news, private equity giant Safeguard Scientifics Inc. is in the midst of prepping a fund which will also target women- and minority-owned businesses. Unlike NTOF, though, the Safeguard offering will be capitalized at over $100 million, have a national focus, and be aided by recently-retired professional football coach Dick Vermeil.