Austin VC Surge in 1st Quarter
Capital Surge - Austin-area VC numbers jump in first quarter
(The following article is a reprint from the Austin American Statesman by AAS Business journalist Sebastian Hererra. Sebastian has been covering the Austin and VC business scene for the past two years.)
April 15, 2019 - Late last year, CS Disco CEO Kiwi Camara got the call he anticipated: Georgian Partners, a venture capital firm from Toronto, said it wanted to invest in the Austin-based legal industry software com-pany, eventually offering a deal worth $83 million. Like other companies in Austin that have landed big investments in recent months, Disco for years had worked to mature itself into a business worthy of such investor trust.
Since debuting in 2013, it had built its corporate customer base up to about 400 and its staff count to more than 200. The company was pre- pared for its next phase, Camara said, and the investment from Georgian could take it there.
“In Austin, you have this critical mass of inves- tors now that are used to the market, and the talent that’s relocated here makes it easier to build and grow a company in Austin,” Camara said. “The market is moving. You’ve had a series of good (investment) outcomes.”
Disco is one of a handful of companies in Austin that have led a robust start of VC activity in 2019.
In the first three months, Austin-are companies raised about $704 million, a $99 million — or 16.3 percent — increase from the same period last year, according to research firm PricewaterhouseCoopers, which tracks VC activity in the United States.
The funding in Austin carried a statewide amount that totaled $1.16 billion during the first quarter, almost $400 million more than during the same period in 2018. For both the Austin metro area and the state, the investment figures to start the year are the most since the dot-com boom era in 2000.
In Austin, there were fewer deals, but more of them were higher-valued — driving up total investment — a recent trend that has been happen- ing across the country. The result, experts say, shows that although Austin is far from achieving the VC activity in larger tech hubs, it’s made up a lot of ground.
“What we have seen is the trends we see nationally and in California replicate themselves in a smaller scale here in Austin,” said John Cummins, an Austin-based partner at PricewaterhouseCoopers. “What ends up happening over time is we have entrepreneurs here locally that are successful, and they are turning around and being mentors (to the next generation). The cycle continues.”
At least 10 locally head- quartered companies have raised $20 million or more this year, the most of any Texas city, PricewaterhouseCoopers reported. Some of the larger deals include soft- ware firm Magnitude’s $179 million private equity round in March, Siete Family Foods’ $90 million round in February and energy industry marketplace RigUp’s $60 million deal in January.
The strong first quarter continued a venture capital trend for Austin companies that started in 2018.
Last year, metro-area companies saw a total of $1.33 billion invested, the most since 2000 and $500 million more than in 2017. Austin accounted for more than 60 percent of Texas’ $2.12 billion in total investments. Local companies reached the total amount even though there was only one more deal completed in 2018.
For Austin and Texas to reach the levels of activity in Silicon Valley and other major tech cities, experts say more success stories will need to take place, and eventually, the region will have to cultivate a better ecosystem for later-stage funding firms.
In 2018, the average VC deal in Texas was $9.98 million. In California, it was $53.02 million; North Carolina: $37.18 million; Massachusetts: $22.73 million; and New York: $19.4 million.
Part of the difference is those hubs have larger and more longstanding VC and private equity firms feeding into the local tech scene, which itself has churned out mature com- panies typically deserving of later-stage funds.
Austin is starting to get there, said Ryan Merket, a former Silicon Valley investor who in March joined Kansas City-based Firebrand Ventures as an Austin-based partner.
Merket, who has invested in 16 start- ups during the past five years, including locally based cybersecurity firm Treatcare, said recent funds raised by Austin- based VC firms shows promise that the city’s investment growth will continue.
This month, Austin- based LiveOak Ventures announced it had raised $105 million to fuel future deals. That followed a $108 million fund raised last year by Silverton Partners, one of the area’s most recognized early-stage investment companies.
Austin investors “are raising larger rounds now, so they will be able to write large checks. That’s a new power that the Austin VCs didn’t once have,” Merket said. Doing even more “will just come with time, as you prove yourself and get even better funds. We’re right around the corner of that.”