Texas Emerging Technology Fund

Last updated
Texas Emerging Technology Fund
Government
Industry Private Equity
Founded 2005
Headquarters Austin, Texas, United States
Products Venture Capital
Total assets $500 Million
Number of employees
~ 8
Website www.emergingtechfund.com

The Texas Emerging Technology Fund (often abbreviated as TETF or ETF) is a technology investment fund created by legislation in 2005 at the urging of Governor Rick Perry to provide Texas with an unparalleled advantage in the research, development, and commercialization of emerging technologies. The enabling legislation (Texas HB 1765 of the 79th Legislature) launched the ETF with $200 million to help create jobs and develop the economy of Texas. [1] Legislative revisions during the 2007 and 2009 sessions have expanded the total funds under management to approximately $500 million.

Rick Perry American politician

James Richard Perry is an American politician who is the 14th and current United States Secretary of Energy, serving in the Cabinet of Donald Trump. Prior to his cabinet position, Perry served as the 47th Governor of Texas from December 2000 to January 2015. A Republican, he was elected Lieutenant Governor of Texas in 1998 and assumed the governorship in December 2000 when Governor George W. Bush resigned to become president. Perry was the longest-serving governor in Texas history.

Commercialization or commercialisation is the process of introducing a new product or production method into commerce—making it available on the market. The term often connotes especially entry into the mass market, but it also includes a move from the laboratory into commerce. Many technologies begin in a research and development laboratory or in an inventor's workshop and may not be practical for commercial use in their infancy. The "development" segment of the "research and development" spectrum requires time and money as systems are engineered with a view to making the product or method a paying commercial proposition. The product launch of a new product is the final stage of new product development - at this point advertising, sales promotion, and other marketing efforts encourage commercial adoption of the product or method. Beyond commercialization can lie consumerization.

Emerging technologies are technologies whose development, practical applications, or both are still largely unrealized, such that they are figuratively emerging into prominence from a background of nonexistence or obscurity. These technologies are generally new but also include older technologies that are still controversial and relatively undeveloped in potential, such as preimplantation genetic diagnosis and gene therapy. Emerging technologies are often perceived as capable of changing the status quo.

Contents

As of October 2010, the program has given a total of $173 million to 120 companies as well as $161 million to educational institutions. [2]

Governor Greg Abbott signed a law ending the Texas Emerging Technology Fund on June 4, 2015. [3]

Greg Abbott 48th Governor of Texas

Gregory Wayne Abbott is an American lawyer and politician who has served as the 48th Governor of Texas since January 2015. A Republican, Abbott previously served as the 50th Attorney General of Texas from 2002 to 2015. He is the first governor of any U.S. state since George Wallace to permanently use a wheelchair.

Fund administration

Investment Focus

The ETF focuses on three main investment areas:

ETF's first investments were executed in May 2006. By October 1, 2009, the ETF was the single largest pre-seed investor for emerging technology companies in the entire United States. [4] As of June 6, 2011, the ETF had invested $196M in 132 commercialization investments. Approximately 1/2 of ETF's commercialization investments have been made within the biotechnology and life sciences industry. [5] 2014 has witnessed a slowdown in all three versions of ETF awards at the same time a special Texas House subcommittee explores incentives programs ahead of the 84th Texas regular legislative session.

Deal Sourcing

The ETF established seven Regional Centers of Innovation and Commercialization (RCICs) to foster technology commercialization throughout the entire state of Texas and act as an efficient deal sourcing mechanism. In addition, a statewide Life Science Regional Center of Innovation and Commercialization also was formed. The RCICs act as the regional agent to identify, evaluate, and submit promising proposals from their respective regions to the ETF Advisory Committee. The ETF Advisory Committee makes recommendations to Trustees who make final decisions on awards. RCICs work closely with applicants in assisting with ETF proposal development, post-proposal debriefings, and commercialization activities. In addition, RCICs are a strong focal point to increasing cooperation and spurring collaboration between industrial, financial, and academic entities. [6]

Accolades

The ETF has been recognized nationally as the most active early-stage technology venture funds in the country. [7] The fund estimates that portfolio companies and awardees have raised close to $1B in follow-on investment and private funding following ETF investment yet this is self reported information and has not been audited . [8] Cardiospectra, Inc., an ETF portfolio company, was acquired by Volcano Corporation in December 2007 for $25M in cash with an additional $38M available upon the achievement of specific milestones. [9] ETF's return on investment on the Cardiospectra deal was 216% as of January 2011. [10] Several ETF companies have been acquired and there has been one Initial Public Offering since the fund's inception.

Return on investment (ROI) is a ratio between the net profit and cost of investment resulting from an investment of some resources. A high ROI means the investment's gains favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. In purely economic terms, it is one way of relating profits to capital invested. Return on investment is a performance measure used by businesses to identify the efficiency of an investment or number of different investments.

Christopher Banas of Palmaz Scientific, Cardiospectra and now Pryor Medical, and Paul Castella (Texas Technology Fund, Austin) filed the following lawsuit, "BANAS v. VOLCANO CORP.CASE NO. 12-CV-01535-WHO"........"Banas and Castella initiated this action against Volcano seeking millions of dollars. It would be patently unfair to hold that Volcano waived its contractual right to attorneys' fees because it appropriately required Banas and Castella to plead the basis for their standing to assert breach of contract.6 Cf Johnson v. Myers, 2014 WL 2214045, at *2 (N.D.Cal. May 28, 2014) ("it would be inequitable to limit defendants' attorney's fees recovery to the assets of a single plaintiff when every litigant was

[47 F.Supp.3d 965]

invested in the outcome of the action and aspired to win money"). If Banas and Castella have an arrangement with other former CardioSpectra shareholders, or the dismissed defendants, regarding indemnification for attorneys' fees, that is their business. However, there is no question that, as plaintiffs, Banas and Castella are liable for attorneys' fees in the first instance...."

Banas and Castella then appeal.....and file an affidavit of inability to pay.

.......Yet they say nothing about any efforts they have made in recourse to those institutions, and dozens of other individual and institutional former shareholders, to seek help in securing the required bond pursuant to their indemnity rights as Shareholder Representatives. (Mot. at 4–5). The sincerity of Plaintiffs’ invocation of the State and University of Texas is specious on its face, as neither institution was a party to any of the three complaints filed by Plaintiffs. Ezer Decl., Ex. A (Complaint); Ex. B (First Amended Complaint); Ex. C (Second Amended Complaint)...."

Fund Management

The ETF is housed within the Economic Development and Tourism division of the Texas State Government. Terry Chase Hazell currently serves as the TETF Director and is considered the most private equity experienced director to serve. Prior TETF Directors include Jonathan W. Taylor, Mark Ellison, Alan Kirchhoff and interim director Patrick Boswell. You can visit the TETF website at: http://www.emergingtechfund.com ETF has consistently maintained an extremely low analyst to project investment ratio.

Debates and commentary about funding

The internal rate of return (IRR) of the ETF s very low and comparable to investing in U.S. treasuries. Therefore, questions have arisen about the ETF's required rate of return and performance against benchmark.

Under the U.S. Securities and Exchange Commission's Rule 501 Regulation D, TETF does not fall under any of the eight definitions of accredited investor, affecting TETF's participation in follow on offerings.

An October 2010 article by the Dallas Morning News editorial board argued for fundamental reform in how the fund works. The board stated, "The way Texas doles out money... raises such serious questions about the role of political donations in the fund's operation that the governor and the Texas Legislature should revamp it." Although the board considered it "a valuable program", it remarked that "other states have tried to keep politicians at arm's length from the selection and funding process... Texas needs to do the same". [2]

In response to criticisms, Governor Perry has said that it "is a pretty rare occurrence" for him to know that political supporters have connections to firms that receive funding. [2] One such rare occurrence was Convergen Life Sciences, now called Genprex. The CEO, David Nance, was a donor and his company received a $4.5 million ETF award.

Many involved in the ETF process firmly believe the implications and criticisms of the press, most notably the Dallas Morning News , to be "inaccurate and ignoring the hundreds of individuals around the state that freely devote their time, energy and efforts to the process to ensure that Texas is pushing the technological envelope that will lead to scientific breakthroughs and a stronger economy." [11] Despite criticism by the press, a majority of the ETF's 140 investments since 2005 are still operating as of February 2013. [12]

Many of the jobs created by the fund have been outside Texas and several of the companies have left the state. By government accounting standards the fund has lost $25 million so far. but a separate valuation of the fund for legislators produced a significant gain in fund value. [13]

Texas government code 490.102 (a) (1) specifies a 50% allocation of legislative appropriations for ETF to Incentives for Commercialization Activities awards, though Trustees have discretion to vary the allocation of legislatively appropriated funds to Incentives for Commercialization Activities, Research Award Matching, Acquisition of Research Superiority awards each and every legislative biennium. Some critics cite large awards to Texas A&M University for Research Award Matching afforded by this statute.

Texas government code 490.153 (b.) institutes a 2% limit on funding for Regional Centers of Innovation and Commercialization. Upon review of 2013 ETF annual report to the Texas legislature, ETF has exceeded allowed amount for awards to Regional Centers of Innovation and Commercialization in excess of 4.5 million dollars as of August 31, 2013.

Example calculation: Texas legislature appropriated 50M USD for ETF during the fiscal year 2014 and 2015 biennium. Therefore, $500,000 is available to fund RCICs for the FY 14/15 biennium (50M * 50% * 2%). However, ETF may have already exceeded this limit with awards for five or more RCICs. These awards have been announced in newspaper reports and by the RCICs, but have not been formally announced by ETF manager as recommended by state auditor.

Transparency concerns have dogged the fund since inception. Nevertheless, the state legislature has consistently funded the ETF, even as some legislators express concerns over the fund's true performance in the areas of job creation and return on Texas taxpayers' monies.

The Texas state auditor's report of 2011 was not complete, in that job creation and valuation methodology remain opaque up to the present day.

See also

Related Research Articles

An index fund is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can track a specified basket of underlying investments. Those rules may include tracking prominent indexes like the S&P 500 or the Dow Jones Industrial Average or implementation rules, such as tax-management, tracking error minimization, large block trading or patient/flexible trading strategies that allows for greater tracking error, but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria.

A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. Unlike open-end funds, new shares in a closed-end fund are not created by managers to meet demand from investors. Instead, the shares can be purchased and sold only in the market, which is the original design of the mutual fund, which predates open-end mutual funds but offers the same actively-managed pooled investments.

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.

The Permanent University Fund (PUF) is a sovereign wealth fund created by the State of Texas to fund public higher education within the state. A portion of the returns from the PUF are annually directed towards the Available University Fund (AUF), which distributes the funds according to provisions set forth by the 1876 Texas Constitution, subsequent constitutional amendments, and the board of regents of the University of Texas System and the Texas A&M University System. The PUF provides extra funds, above monies from tax revenues, to the UT System and the Texas A&M System which collectively have approximately 50 percent of state public university students. The PUF does not provide any funding to other public Universities in the State of Texas.

A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A fund of funds may be "fettered", meaning that it invests only in funds managed by the same investment company, or "unfettered", meaning that it can invest in external funds run by other managers.

Supreme Court of Texas the highest court in the U.S. state of Texas

The Supreme Court of Texas ("SCOTX") is the court of last resort for civil appeals in the U.S. state of Texas. A different court, the Texas Court of Criminal Appeals, is the court of last resort for criminal matters.

The SPDR S&P 500 is an exchange-traded fund from State Street Global Advisors that tracks the S&P 500. For a long time, the fund was the largest ETF in the world. As of August 2012, it is the largest exchange-traded product in the world, and also the most actively traded.

SEMATECH

SEMATECH is a not-for-profit consortium that performs research and development to advance chip manufacturing. SEMATECH has broad engagement with various sectors of the R&D community, including chipmakers, equipment and material suppliers, universities, research institutes, and government partners. The group is funded by member dues.

iShares family of exchange-traded funds (ETFs) managed by BlackRock

iShares is a family of exchange-traded funds (ETFs) managed by BlackRock. The first iShares ETFs were known as World Equity Benchmark Shares (WEBS) but have since been rebranded.

State Street Global Advisors (SSGA) is the investment management division of State Street Corporation and the world's fifth largest asset manager, with nearly $2.8 trillion (USD) in assets under management as of 31 December 2017.

The Texas Enterprise Fund is a business incentive fund that was created by legislation in 2003. The fund, which had an initial $295 million investment, is used for ensuring the growth of business in Texas. One of Texas’ most competitive recruitment tools, these funds are used primarily to attract new business to the state or assist with the substantial expansion of an existing business as part of a competitive recruitment situation. Sources indicate that since 2003 the Fund has yielded up to $6.3 billion in capital investment in Texas by out-of-state companies.

Sovereign wealth fund state-owned investment fund

A sovereign wealth fund (SWF) or sovereign investment fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank. By historic convention, the United States' Social Security Trust Fund, with US$2.8 trillion of assets in 2014, and similar vehicles like Japan Post Bank's JP¥200 trillion of holdings, are not considered sovereign wealth funds.

SPDR funds are a family of exchange-traded funds (ETFs) traded in the United States, Europe, and Asia-Pacific and managed by State Street Global Advisors (SSGA). Informally, they are also known as Spyders or Spiders. SPDR is a trademark of Standard and Poor's Financial Services LLC, a subsidiary of S&P Global.

Samuel Philip "Phil" Wilson was the Texas Secretary of State, the state's chief elections officer, from 2007 to 2008. He was appointed effective July 1, 2007, by Republican Governor Rick Perry. Wilson was the 106th person to hold the position and the fifth individual to have served since Perry assumed the governorship in December 2000. On June 11, 2008, Wilson announced his resignation, effective July 6, to "pursue other opportunities." Wilson became senior vice president for public affairs for Luminant, an electric energy company.

Teacher Retirement System of Texas

Teacher Retirement System of Texas (TRS) is a public pension plan of the State of Texas. Established in 1937, TRS provides retirement and related benefits for those employed by the public schools, colleges, and universities supported by the State of Texas and manages a $147.4 billion trust fund established to finance member benefits. More than 1.5 million public education and higher education employees and retirees participate in the system. TRS is the largest public retirement system in Texas in both membership and assets and the sixth largest public pension fund in the U.S. The agency is headquartered at 1000 Red River Street in the capital city of Austin.

Corporate venture capital (CVC) is the investment of corporate funds directly in external startup companies. CVC is defined by the Business Dictionary as the "practice where a large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise; the objective is to gain a specific competitive advantage.

The Utah Science Technology and Research Initiative (USTAR) is a technology-based economic development agency funded by the state of Utah. The organization works to develop ideas and research into marketable products and successful companies through its competitive grant and entrepreneur support programs. USTAR facilitates the diversification of the state’s tech economy, increases private follow-on investment, and supports the creation of technology-based start-up firms, higher paying jobs and additional business activity leading to a statewide expansion of Utah’s tax base.

AdvisorShares Investments is a US-based investment management firm based in Bethesda, Maryland which offers actively managed exchange-traded funds (ETFs) through the AdvisorShares Trust. The firm launched its first active ETF fund in 2009.

Lee Thomas Kranefuss is an American businessman, investment manager, corporate adviser and entrepreneur.

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world. SPDR is a trademark of Standard and Poor's Financial Services LLC, a subsidiary of S&P Global. The ETF's CUSIP is 78462F103. The fund has a Net Expense Ratio of 0.0945%. The value of one share of the ETF is worth approximately 1/10 of the cash S&P 500's current level. On April 9, 2013 the average daily volume was 117 million shares, the highest volume in any ETF. The sponsor is SPDR Services LLC, a wholly owned subsidiary of American Stock Exchange LLC. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.

References

  1. Texas Emerging Technology Fund Website https://web.archive.org/web/20110623151551/http://governor.state.tx.us/ecodev/etf. Archived from the original on June 23, 2011. Retrieved June 24, 2011.Missing or empty |title= (help)
  2. 1 2 3 "Editorial: It's time to fix the Emerging Technology Fund". The Dallas Morning News . October 4, 2010. Retrieved August 23, 2011.
  3. Texas Gov. Abbott Abolishes Rick Perry's Emerging Tech Fund http://www.govtech.com/state/Texas-Gov-Abbott-Abolishes-Rick-Perrys-Emerging-Tech-Fund.html
  4. White Paper on the Texas Emerging Technology Fund (PDF) https://web.archive.org/web/20131105233504/http://www.horne-llp.com/media/169867/white%20paper%20tx%20emerging%20tec%20fund_041211.pdf. Archived from the original (PDF) on November 5, 2013. Retrieved November 5, 2013.Missing or empty |title= (help)
  5. ETF Dashboard "Archived copy" (PDF). Archived from the original (PDF) on 2011-08-20. Retrieved 2011-06-24.2011-06-06
  6. Texas Emerging Technology Fund Website - https://web.archive.org/web/20110604004640/http://governor.state.tx.us/ecodev/etf/etf_rcics. Archived from the original on June 4, 2011. Retrieved June 24, 2011.Missing or empty |title= (help)
  7. Governor Perry's 2009 State of the State https://web.archive.org/web/20130615153630/http://governor.state.tx.us/sots2009/ecodev/. Archived from the original on June 15, 2013. Retrieved February 20, 2013.Missing or empty |title= (help)
  8. White Paper on the Texas Emerging Technology Fund, Horne CPAs & Business Advisors, 2011-04
  9. Volcano Announces Agreement to Acquire CardioSpectra. "Archived copy". Archived from the original on 2012-03-26. Retrieved 2011-06-24.2011-12-10
  10. Annual Report to the Texas State Legislature on the Texas Emerging Technology Fund 2011-01-01
  11. Texas Coalition of Capital http://www.texascapital.org/newsroom_10_15_10.html
  12. Controversial Texas Startup Fund Proves Its Value http://www.bizjournals.com/dallas/controversial-texas-startup-fund.html?ana=lnk&page=all
  13. WEBER, PAUL J. (24 July 2014). "Texas governor's startup fund is not all it seems". www.kansascity.com. Associated Press. Archived from the original on July 26, 2014. Retrieved 24 July 2014.

https://www.eventbrite.com/e/seattle-investment-advisor-seminar-tickets-25497699305