Golden Section Studios will support early-stage B2B software companies as they grow and scale. Photo via Getty Images

The team behind Houston-based Golden Section Technology and Golden Section Ventures is introducing a new concept called Golden Section Studios to focus on advancing and supporting early-stage software companies.

"The Studios is a holistic ecosystem that aims to be a growth partner of early-stage companies in order to help them build their company strategically and efficiently, build out operational procedures, and help them find mentors and advisors," Studios Director Kristen Phillips tells InnovationMap.

The new concept, which launches officially today, June 8, will work off of the lessons learned by GST over the years to guide pre-seed and seed-stage B2B software companies as they scale. GSV, an early-stage fund launched in 2019 that now has over $20 million under management with eight current portfolio companies, will also contribute up to $500,000 in rounds less than $1 million.

"At Golden Section, we are good at learning from our mistakes and the list is 121 and counting," says Dougal Cameron, co-founder, Golden Section, in a press release. "These mistakes are core to our value add and enable us to transport founders through decades of experience. They come from our own experience as founders and of selling more than $350M in B2B software and partnering with more than 400 software founders at all stages. The result is less risk and less capital consumed, and a better outcome for founders, customers, employees, and investors."

Phillips explains the concept of GSS is something new and different from what accelerators and incubators do, but also goes beyond just an investment.

"We wanted to be different from what's out there in the Houston ecosystem. We wanted to be more value adding," says Phillips.

GSS's first startup in residence is Austin-based Swoovy, a volunteer matching platform that connects nonprofits, companies, and volunteers. Swoovy is launching in the Studios on June 14 and will be focused on the buildout of their enterprise level software.

Kristen Phillips leads Golden Section Studios. Photo courtesy of GSS

In the golden age of software companies, here's what SaaS entrepreneurs need to focus on to thrive. Getty Images

Local investor shares how Houston SaaS companies can stay afloat amid the pandemic

guest column

The COVID pandemic has created a macro environment that is similar to that of the 1918 Spanish Flu and the 2008 downturn and B2B software-as-a-service companies, like Salesforce, found the 2008 downturn an advantageous environment for cheap revenue growth — I've discussed this in a previous column. Now, I'd like to explore how B2B SaaS founders can position their businesses to capture this opportunity and better prepare themselves for the $400 billion of private equity looking for IT investments.

A prolonged recession due to the global response to COVID-19 provides opportunities for smart founders. Talent and partnerships from non-tech industries are likely to be much easier to access in a recessionary environment. Widespread adoption of technology is likely to result in a much more open and fruitful sales environment. And robust exit opportunities mean that this over performance will be rewarded.

So, how should smart founders operate given this opportunity? Here are a few implications that are congruent with our research.

Know your sales performance data

Many companies forsook effective KPI management while growing. Now is the time to home in on metrics so that you can discern the payoff of different tactics. Knowing sales performance metrics will help founders deploy capital wisely. Good quality and frequent data will also help you assess whether this thesis is working out for your firm.

Get whatever funding you can — and fast

In 2008, funding dropped by 20 percent, valuations by 20 to 25 percent and check sizes by 35 percent, and the current environment could be more drastic. This is paradoxical given the incredible opportunity for B2B SaaS right now, but it is in line with the human urge to run from risk. Despite claiming to be risk-seeking and long-term focused, most venture firms will pull back in this environment. Get what you can and be flexible on valuation. A smart founder who sees the opportunity can overcome additional dilution now.

Hire expert sales talent

The urge to cut back on salaries and freeze pay is high right now. Don't make that mistake, especially not in sales. There will be many firms that make this mistake, giving you the opportunity to hire expert sales talent. Pay them at the top of market, give them uncapped commission plans, and capture the growth opportunity.

Create a survival plan and set limits

This growth opportunity might not materialize. Fortunately for most B2B SaaS, there is operational flexibility built into the cost model. You can cut back on aggressive sales growth and pull expenses within your recurring revenue. Once you have a cash floor in mind and a downside plan of what you will do if either 1) you get to your cash floor or 2) the sales metrics are not proving attractive, you are safe to charge ahead. Armed with compelling acquisition data and a stable customer base, it would be easy to find additional capital.

Prepare for inflation in you customer contracts

While most B2B SaaS investors love long term contracts, the unprecedented level of fiscal and monetary support in the wake of a global shutdown will likely lead to above average levels of inflation. Current inflation expectations are muted (measured by the spread on the 10 year TIPS and the 10 year treasury). Inflation may not take off, but it is wise to prepare for it and include annual increases on multiyear contracts or a CPI price adjustment each year.

Be nice

Most companies are beating up on their vendors right now, if for no reason other than this is 'what you do during a downturn.' It is worth exploring what your vendors can do for you, but this should be a partnership driven discussion. Invite your vendor in and explore how to reach a win-win during this time. Communicate often and clearly and try to their point of view. Larger companies have programs in place to help where smaller ones might not have as much flexibility. This downturn will pass, but how you treat people will have consequences.

Build flexibility into your growth plan

This environment is a great opportunity to add flexibility and optionality into your cost profile. Leveraging flexible development resources from a firm like Golden Section Technology can get you expert talent and execution with month-to-month flexibility. This will help you scale down if your survival plan kicks in, but it will also help you ensure the product keeps up with a successful sales push.

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Dougal Cameron is director of Houston-based Golden Section Venture Capital.

While everyone always looks to Silicon Valley as the model of the ideal startup ecosystem, Houston is forging its own path. Getty Images

Houston isn't Silicon Valley — and that's a good thing, according to these experts

Houston Voices

As WeWork's fall from grace continues to dominate the headlines and we monitor the slew of layoffs and dipping share prices afflicting this year's Silicon Valley darlings, we reflect on Houston's own startup ecosystem. How are Houston startups and investors similar to and different from Silicon Valley early-stage deals? What are the drivers and factors that may be unique to Houston and how do they influence outcomes?

Jamie Jones, executive director of Lilie, sat down with early stage investor and Rice Business alum, Dougal Cameron of Golden Section Technology Venture Capital (GSTVC), to discuss the Houston startup and funding ecosystem. From that discussion, a number of key features emerged:

From Cameron's experience, Houston investors have historically focused on unit economics and profitability, in addition to top line growth, as their key performance measures. As an enterprise software investor, he notes that an indicator of a healthy venture that warrants early stage investment is one where profitability can be achieved as the venture reaches the $1 million revenue mark. Cameron, like other early stage investors in Houston, are interested in ventures that produce sustainable growth not only growth for growth's sake.

While early stage investment capital in Houston does flow, it does not do so at the same check sizes and the same velocity that you may see in Silicon Valley. Analysis of Pitchbook data indicates that Houston firms raised $28.1M in seed and early-stage funding in Q3 2019 versus $2.86B for Silicon Valley based ventures. The belief is that the density of the capital network in Silicon Valley means that if you get one $500,000 check then you will very likely to get others. Cameron noted that he believes the effects of loss aversion are on full display — no firm wants to be the one that passes on the next Google.

However, in Houston, entrepreneurs must be scrappy to pull together funding and ensuring they hit milestones along the way in order to drive scarcer investment into their ventures. From Cameron's perspective, Houston entrepreneurs own their cash balance and strive to keep their overhead low by working out of cheaper spaces, leveraging friends and family to contribute to the venture in its early days, etc.

With fewer investment dollars flowing in Houston, the use of Simple Agreements for Future Equity (SAFEs), which are common in Silicon Valley, are rarely used in Houston. Why? Cameron believes that using unpriced and loosely binding agreements may work in an ecosystem where startups are pushed for rapid top-line growth and may be burning through tens-of-thousands of dollars per month and will need to raise capital quickly, which will drive a pricing event. However, in Houston, investors may prefer arrangements that provide some downside risk.

Examples include convertible notes that include a lien on assets, which would be virtually unheard of in Silicon Valley, or through priced fundraising rounds. Without broad and deep capital networks and the pressure of rapid top-line growth, near term pricing events are not guaranteed, pushing Houston investors to prefer other deal structures.

While everyone agrees that Houston and the robust startup ecosystem that is growing across the city needs more cash to catalyze growth, Cameron firmly believes that new capital coming into the city must be the right type of capital. Capital that will not negatively distort the ecosystem by driving early-stage entrepreneurs to strive for top-line growth that is not sustainable through a profitable business model. This type of capital will not offer exorbitantly-sized seed rounds removing the entrepreneur's need to be scrappy and cost conscious.

We must understand that many Houston entrepreneurs seek to build businesses that have lasting impact and are not only "growing to close," the model Silicon Valley seems to have embraced over the past 7 to 10 years. Cameron is nervous that first big checks that come from outside Houston will push unprofitable businesses forward and will sour the market for local investors that are starting to engage in startup-investing.

While everyone always looks to Silicon Valley as the model of the ideal startup ecosystem, Houston may offer a look into the model of the future — one that is focused on building durable, profitable businesses by right-sizing growth over the venture's life-cycle. For Houston-based entrepreneurs, this means the opportunity to access capital that emphasizes sustainable, smart growth.

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Jamie Jones, executive director of the Liu Idea Lab for Innovation & Entrepreneurship at Rice University, and Dougal Cameron, managing director of Gold Section Technology Ventures and 2013 Rice Business alum, wrote this article for LILIE.

This article originally appeared on Liu Idea Lab for Innovation & Entrepreneurship's blog.

The new, Houston-based GSTVC fund will dole out $20 million to scalable SaaS companies. Photo by rawpixel.com from Pexels

Houston startup consulting firm launches $20 million venture capital fund for early stage software companies

Follow the money

A new venture capital fund has launched in Houston to serve seed-stage, software-as-a-service companies. The $20 million fund plans to make its first investment by the end of the third quarter of this year.

The fund is launching under Golden Section Technology, a Houston-based software consulting firm focused on demystifying technology and providing training and counseling for entrepreneurs. Managing director, Dougal Cameron, says he and a small group of investors made investments in some of the companies that GST has worked with over the years.

"Along the way, we've had the opportunity to invest in some businesses that were our clients," Cameron tells InnovationMap. "A couple years later, we realized that we've invested $8 million — the majority being in Houston-based startups."

Most of these investments saw successful exits, Cameron says, and now, with interest from other investors, Cameron wants to expand the company's reach and contribution with the GSTVC fund.

The GSTVC fund will invest in $500,000 to $750,000 increments and will have a strong presence in each of the portfolio companies.

"Where most capital wants to be hands off, we are going to be incredibly hands on and view that as an augmentation to the management team," Cameron says.

The hands-on approach isn't surprising, considering GST's specialty since its founding in 2011 has been helping scale its client companies. During the early stages of company growth, GST helps its clients make the right growth-centered decisions, and as the company scales up, the firm continues to provide C-level support and trained development teams.

Combining the $20 million of capital with GST's years of entrepreneurial and upscale expertise makes for a fund unlike anything else available in Houston.

"We have done things a bit differently than the traditional investment fund as we supply far more than just working capital," says Isaac Shi, managing partner at GSTVC, in a release. "We have the full strength of our software development company, Golden Section Technology, as well as deep experience in early stage B2B Sales and Marketing. The combination of our experience, capital and hands on approach has the potential to substantially decrease the risk for our investment companies and increase the return for our investors."

One of the GST clients that has already received an investment is QMSC LLC, a Houston-based, B2B SaaS company that enables cloud technology and analytics to help businesses lower operating costs. QMSC has already seen the benefit of GST's funding and consulting working together.

"The world doesn't need one more B2B investment fund like all the others, but there is surely room for one which reduces the risk of execution and accelerates product development in the manner that GSTVC can," says Marshall Williams, founder of QMSC, LLC, in a news release. "They are doing something very different."

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Houston innovator joins VC world to increase her social impact

Q&A

Kelly Avant didn't exactly pave a linear career path for herself. After majoring in gender studies, volunteering in the Peace Corps, and even attending law school — she identified a way to make a bigger impact: venture capital.

"VC is an awesome way to shape the future in a more positive way because you literally get to wire money to the most innovative thinkers, who are building solutions to the world’s problems," Avant tells InnovationMap.

Avant joined the Mercury Fund team last year as an MBA associate before joining full time as investment associate. Now, after completing her MBA from Rice University this month, Avant tells InnovationMap why she's excited about this new career in investment in a Q&A.

InnovationMap: From law school and the peace corps, what drew you to start a career in the VC world?

Kelly Avant: I graduated from Rice University with an MBA, starting scouting for an investment firm in my first year, and by the summer after my first year I was essentially working full-time interning with Mercury. But, I like to tell people about my undergraduate degree in gender studies and rhetoric from a little ski college in Colorado. If you meet someone else in venture capital with a degree in gender studies, please connect us, but I think I might be the only one. I’ll spare you what I used to think — and say — about business students, but I have really come full circle.

I always thought I would work in a nonprofit space, but after serving in Cambodia with the Peace Corps, working for the National Domestic Violence Hotline, and briefly attending Emory Law School with the intention of becoming a civil rights lawyer.I found that time and time again the root of the problem was a lack of resources. The world’s problems were not going to be solved with my idealism alone.

The problem with operating as a nonprofit in a capitalism is you basically always pandering to the interests of the donors. The NFL was a key sponsor of The National Domestic Violence Hotline. The United States has a complicated, to put it lightly, relationship with Cambodia and Vietnam. It became pretty clear that the donor/nonprofit relationship was oftentimes putting the wrong party in the driver’s seat. I was, and still am, very interested in alternative financing for nonprofits. I became convinced that the most exciting businesses were building solutions to the world’s problems while also turning a profit, which allows them to survive to have a sustainable positive impact.

VC is an awesome way to shape the future in a more positive way because you literally get to wire money to the most innovative thinkers, who are building solutions to the world’s problems.

IM: What are some companies you’re excited about?

KA: There are a couple super interesting founders I’ve met directly engaging with . To name a few: CiviTech, DonateStock, and Polco.

I’m very proud to work on mercury investments like Houston’s own, Topl, which has built an extremely lightweight and energy efficient Blockchain that enables tracking of ethical supply chains from the initial interaction.
I’m also excited about mercury’s investment in Zirtue, which enables relationship based peer to peer lending to solve the massive problem of predatory payday loans.

We have so many awesome founders in our portfolio. The best part about working in VC is meeting passionate innovators every day. I get excited to go to work everyday and help them to build better solutions.

IM: Why are you so passionate about bringing diversity and inclusion into Mercury?

KA: I love working with exciting, highly capable, super smart people. That category includes so many people who have been historically excluded. As an investment team member at Mercury, I do have a voice, and I have an obligation to use that voice to speak highly of the best people in rooms of influence.

IM: With your new role, what are you most focused on?

KA: In my new role, I am identifying and researching high potential investments. We’re building out a Mercury educational series to lift the veil of VC. We want to facilitate a series that gives all founders the basic skills to pass VC due diligence and have the opportunity to build the next innovative companies. My goal is ultimately to produce the best returns possible for our investors, and we can’t accomplish that goal unless we’re building out resources to meet the best founders and help them grow.

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This conversation has been edited for brevity and clarity.

Houston college system plans to open $30M resiliency-focused center

to the rescue

Houston’s initiative to protect the city from catastrophes is getting a big boost from Houston Community College.

The college is developing the Resilience Center of Excellence to aid the city’s resilience campaign. At the heart of this project is the 65,000-square-foot, $30 million Resiliency Operations Center, which will be built on a five-acre site HCC’s Northeast campus. The complex is scheduled to open in 2024.

HCC estimates the operations center will train about 3,000 to 4,000 local first responders, including police officers and firefighters, during the first three years of operation. They’ll be instructed to prepare for, manage, and respond to weather, health and manmade hazards such as hurricanes, floods, fires, chemical spills, and winter freezes.

According to The Texas Tribune, the operations center will include flood-simulation features like a 39-foot-wide swift water rescue channel, a 15-foot-deep dive area, and a 100-foot-long “rocky gorge” of boulders.

The college says the first-in-the-nation Resilience Center of Excellence will enable residents, employers, civic organizations, neighborhoods, and small businesses to obtain education and certification aimed at improving resilience efforts.

“Our objective is to protect the well-being of our citizens and our communities and increase economic stability,” Cesar Maldonado, chancellor of HCC, said when the project was announced.

Among the programs under the Resiliency Center of Excellence umbrella will be non-credit courses focusing on public safety and rescue, disaster management, medical triage, and debris removal.

Meanwhile, the basic Resilience 101 program will be available to businesses and community organizations, and the emergency response program is geared toward individuals, families, and neighborhoods.

HCC’s initiative meshes with the City of Houston’s Resilient Houston, a strategy launched in 2020 that’s designed to protect Houston against disasters. As part of this strategy, the city has hired a chief resilience and sustainability officer, Priya Zachariah.

“Every action we take and investment we make should continue to improve our collective ability to withstand the unexpected shocks and disruptions when they arrive — from hurricanes to global pandemics, to extreme heat or extreme cold,” Mayor Sylvester Turner said last year. “The time is now to stop doing things the way we’ve always done them because the threats are too unpredictable.”

In an InnovationMap guest column published in February 2021, Richard Seline, co-founder of the Houston-based Resilience Innovation Hub, wrote that the focus of resilience initiatives should be pre-disaster risk mitigation.

“There is still work to be done from a legislative and governmental perspective, but more and more innovators — especially in Houston — are proving to be essential in creating a better future for the next historic disaster we will face,” Seline wrote.