How Port San Antonio brought Capital Factory to its campus and what it seeks to accomplish there

In the Tech Port Center + Arena on the South Side, Joshua Baer, founder and CEO of Austin-based startup accelerator Capital Factory, was talking Tuesday with enthusiastic supporters about his organization’s new office space in the $70 million, 130,000-square-foot facility that opened in April.

Baer, 46, carried Stormey, a Maltese mini poodle, in a backpack draped over his chest as Capital Factory hosted its most recent San Antonio Open Coffee event that morning, joined by millennials in T-shirts and pink jeans and gray-haired techies with ponytails and sunglasses.

“Tech Port is a draw,” Baer said. “It’s the reason people are coming down to San Antonio. It’s why I’m here.”

Since Baer launched Capital Factory in 2009, it has provided finance and mentorship to startups and entrepreneurs in Texas. In 2017, he wrote “The Texas Manifesto,” a tech insider manual in which he called on Austin, Dallas, Houston and San Antonio “to connect together entrepreneurs, investors, customers, talent and press in meaningful ways.”

Since then, Capital Factory’s 85 employees have stretched out into offices across the state, expanding into Houston in November and more recently pushing into Dallas. And in mid-April, Capital Factory installed three full-time employees in San Antonio to work in a 5,000-square-foot office at the Tech Port Center + Arena — across the hall from what will become a showroom operated by the San Antonio Museum of Science and Technology, along with the 3,200-seat arena for esports competitions

Capital Factory plans to bring its Center for Defense Innovation program, created in 2019, here to further its mission to build partnerships between the private sector and the Defense Department. It is also interested in working with businesses in gaming and the world of esports — the Tech Port Center + Arena has drawn thousands of gaming fans and investors to live events this year.

Q: What is Capital Factory?

Baer: Capital Factory is the center of gravity for entrepreneurs in Texas. We started in Austin, but we’re now working across the state. We have “The Texas Manifesto,” which speaks to the entrepreneurs and tells them to treat all of Texas like one big city. And if they do that, Texas can compete with any other city, any other state, really any other country in the world. Texas is kind of like a country, and it’s one of the best places for startups. That’s why everyone is moving here, for the talent and the quality of life, and that’s where San Antonio brings a lot to the table.

Q: Where do you sit financially?

Baer: To me, what’s most interesting is that we’re the most active early-stage tech investor in Texas since 2010, according to Pitchbook. In the past 12 months, we made 53 investments, which means we invest in a company pretty much every week across Texas.

Right now, most of those aren’t in San Antonio. Some of them are: Easy Expunsions (a legal service that helps clients remove criminal offenses from their records), and Allosense (a computer hardware manufacturer that makes sensors). But certainly, part of us being here and having a presence here is that we expect that to grow.

The courting

Since becoming president and CEO of Port San Antonio in 2018, Jim Perschbach has led its charge to become a hub for tech companies, with an eye toward fostering their collaboration with other industries, such as aviation.

“To do that, you got to find people who are creative, who have new ideas, who aren’t stuck looking at things in the same box,” said Perschbach, who used to work as a lawyer for Bracewell LLP representing defense contractors, specifically in military aviation, in San Antonio, Houston and Washington, D.C. “But you also have to have people who understand the underlying industry and technology.”

Perschbach knew about Capital Factory’s CDI program. “But nobody was ever thinking about coming down here,” he said Tuesday while visiting the coffee event.

For Baer’s part, he “didn’t know much about what was happening here at Port San Antonio.”

So Perschbach tapped Will Garrett — the Port’s 37-year-old vice president of talent and technology development and integration, who had previously led CyberSecurity San Antonio at the San Antonio Chamber of Commerce — to change that.

Garrett had help getting Capital Factory’s attention.

Baer recalled that in early 2021, Lew Moorman — co-founder and chairman of TechBloc and co-founder of Scaleworks, a local venture equity firm — reached out to him and asked: “What’s it take to get Capital Factory more plugged into San Antonio? We want to get more plugged into what’s happening across the state.’”

Also, Illeana Gonzalez, who had just moved from TechBloc to Capital Factory at the time, was among those in San Antonio who helped Baer understand the local tech scene. Gonzalez, who now works from San Antonio for Colorado-based accelerator Techstars, told him that the Port was the “up and coming” site for tech companies and that Perschbach was focused on building out Tech Port.

So Baer came to San Antonio in the early summer for “a fact-finding trip.”

“I give credit to Joshua himself for coming to San Antonio and meeting with all the right people to try to decide where to place Capital Factory,” Garrett said.

Baer looked at properties downtown, talked with commercial real estate development company Weston Urban and fell in love with the Pearl District.

He also toured the Tech Port Center, which had only some concrete walls built at the time.

“It was hard to see the vision,” Baer said, laughing. “The rest of it was kind of an old base, you know. But fortunately, Jim helped sell us. He was so passionate on what this is for and how it’s going to be great for the community. And Will is a great partner.”

Perschbach recalled the day that Baer and Capital Factory staffers — including Jorge Manresa, vice president of industrial capacity expansion and federal programs — came to the Port one day “in a big party bus” and sat with him and Garrett for about two hours.

“It became really apparent,” Perschbach said, “that if you bring these two groups of people together — the innovative, kind of hip crowd that they represent and the kind of boring old short-sleeved shirts with ties that I represent — that you start to make magic happen.”

Q: Why did you open an office in San Antonio?

Baer: San Antonio has a lot to offer. It’s not the place that has the most startups yet. If you measure who gets the most funding out of the four largest cities, San Antonio is fourth. But we are working with lots of great companies here, and we’re bringing companies from Dallas, Houston and Austin here to plug into the things going on here. And we’re also bringing in corporate partners, and they’re all very interested in what’s going on here.”

Q: How did Port San Antonio convince you?

Baer: It’s funny. They brought us in because of the CDI, because of all the military and defense connections, because that’s all the companies that are here, right — Northrop Grumman, Boeing and Deloitte. But the cool factor of what’s happening here is the esports and gaming, and that’s super big in military. The business of gaming is military. There’s video games, and then there’s simulations.

The Center for Defense Innovation program

The Defense Department’s ability to create and adopt tech has lagged behind the private sector. And for years, the military has courted Austin tech companies and academics to help it with research and development.

With that in mind, the military created the Army Futures Command in 2018 to focus on ways to speed up the pace of developing weapons and getting them into soldiers’ hands. That summer, the Army Futures Command announced it had embedded itself in the University of Texas System building in downtown Austin. And the Army Applications Laboratory, part of the Futures Command, moved into Capital Factory to act “as a concierge service” in furthering the military’s efforts to unlock the city’s tech potential.

The following year, Capital Factory launched its Center for Defense Innovation, which Baer called “an unprecedented public-private partnership” when lauding its first year as a success in May 2020.

Capital Factory thought it set an ambitious goal to have three companies receive government funding in 2020. But in the end, 31 companies took home more than $63 million through government and defense innovation programs. The success spurred Capital Factory to introduce companies to DoD programs, launch an SBIR Accelerator to connect startups with the defense industry, and replicate defense innovating programs across Texas.

Incorporating San Antonio into such efforts was a no-brainer, Garrett said.

“In a one-mile radius, you have a thousand military personnel, and most of those mission partners have an innovation sell of some sort,” he said. “Just having Capital Factory here for those airmen, soldiers, sailors, Marines to get out and interact and meet with startups and nontraditional companies, it made total sense for Capital Factory to expand here.”

In September, the Port announced that Capital Factory planned to expand its CDI at the Tech Port Center + Arena.

Perschbach said the CDI program can help connect tech companies to the city’s large defense communities, particularly those on Port San Antonio’s 1,900-acre campus, which has an established network of major cybersecurity, aviation, biomedicine, military intelligence and logistics companies. The Port is also home to the Air Force Medical Operations Agency, and it is adjacent to Joint Base San Antonio-Lackland, where the Air Force Civil Engineering Center and the 16th Air Force, known as Air Forces Cyber, are located.

Perschbach believes Capital Factory can find a bountiful supply of Defense Department tech contracts aimed at tackling problems beyond how to speed weapons development, such as environmental, energy and health issues.

“Sometimes people say, ‘Jim, you come out of the defense world. All you care about is breaking things and killing people,’” he said. “That’s completely not true. If you can make the world better, that’s how you’re going to provide global security.”

Q: Will San Antonio’s CDI program replicate the one in Austin?

Baer: It’s not that we’re replicating what’s happening in Austin and San Antonio. There’s one thing happening, and we’re connecting all together across the state. If you’re a startup, you don’t care where the investor is. You just don’t get investors in San Antonio or Dallas. And if you’re hiring, you’re recruiting from all over the place. And if you’re looking for customers, where are the big companies in Texas? Most of the Fortune 500 companies are headquartered in Dallas, and all the energy companies are in Houston.

Q: Geekdom, the coworking space downtown, is trying to bring in tech companies and hire in San Antonio. Are you wanting to do the same?

Baer: We’re friends with Geekdom. We invited them here today. They have a table out there (nodding toward Geekdom staffers nearby). Their focus is really on economic development of the downtown core by creating small businesses and startups that are going to stay there and grow there. That’s an awesome thing.

That’s not our focus. We don’t try to get anybody to move anywhere. We don’t try to get anybody to move to Texas. We don’t try to get anybody to move from one city to another. Everybody is already moving here. This is the fastest-growing state in the country. These are the fastest-growing cities in the country. … We don’t have to convince anybody. We just find the people who are already moving here that want to get involved in tech, that want to transition from other industries and help them all together.

Closing the deal

After their sit-down, the Port “joint-ventured and partnered” with Capital Factory, as Perschbach put it.

Under that partnership, Capital Factory isn’t paying rent for its space at the Port.

“It’s not a lease,” Perschbach said. “We’re sharing in the expenses. We’re sharing in the revenues on this.”

“They’re going to … accelerate the startup community and the entrepreneur community in Texas,” he said. “And we’re going to … find opportunities for people to make our existing industries better and stronger. So everybody is absolutely happy.”

Garrett said the Port’s board of directors is “tripling down on this opportunity” with Capital Factory.

“If they are successful and are able to acquire the technology and talent that they need and continue to expand,” he said, “that at the end of the day creates a successful model for us to redevelop and invest.”

Baer visits often — three times so far in June — and plans to continue doing so to meet with private sector and military leaders interested in collaborating on tech.

He’s also been to several events at the Tech Port Center + Arena. Last month, he saw the band Smashing Pumpkins perform and brought his 12-year-old son to the Overwatch esports League gaming competition featuring the Houston Outlaws and Dallas Fuel.

“The Port made us feel at home,” he said.

Q: So, coming to San Antonio is an extension of your manifesto?

Baer: That’s exactly right. It’s what value do we bring to San Antonio. It’s not that we walk in here and brought all of these San Antonio investors. No. What we bring is the rest of Texas to San Antonio, and we want to connect in what’s already happening here and help elevate it, help give them get exposure to other angel investors, to other entrepreneurs, to be part of a bigger community that will just help them grow and bring in more resources.

Q: What does growth look like?

Baer: That means bringing startups from the rest of Texas here to plug into the cool stuff happening here and to be kind of role models and examples. That means finding the startups here that are growing and bringing them not just from San Antonio but investors and talent from other places.