Texas 4th in Venture Investing?

BLOG: Can Texas Boast About Being Fourth in Venture Investing in the U.S?

February 28, 2019 - In 2018, venture capital investing in the U.S. neared $100 billion. According to a U.S. News and World report 80% of the VC investing occurred in four states in the following order – California, Massachusetts, New York then Texas. In fact, California eclipsed Texas so much that Texas businesses received “roughly 1/28th of money invested in California businesses.”

Welcome to Texas.

Welcome to Texas.

As a Texas investor association and Texas bred, we’re not happy with anything but being number one. Especially when it comes to money, business and investment. The only thing that could eclipse Texas pride of being number one is football but that’s a whole different article. But come to think about it, football is all about money, business and investment so the parallel still exists.

The number four ranking though is all about perspective as Josef Merrill from Sputnik ATX and Linden Group of Venture funds explains. He astutely cites VC investing is not about quantity but quality.

“As a venture capitalist, I’m OK with Texas ranking number four. Here in Austin, we are #1 or #2 in the Kauffman index for entrepreneurial activity in the past two years so it shows we have a healthier valuation and a healthier ecosystem.”

The Kauffman Index of Entrepreneurship is a series of annual reports that measures U.S. entrepreneurship across national, state, and metro levels. Rather than focusing on inputs, the Kauffman Index focuses primarily on entrepreneurial outputs—the actual results of entrepreneurial activity—such as new companies, business density, and growth rates. 

In fact, according to the Kauffman Index, three Texas cities rank in the top 10 – Austin, San Antonio and Houston with Dallas nudging closely at number 11. Ironically Miami not San Francisco or L.A. ranks number one. L.A. and San Diego rank numbers 3 and 4 with New York City at number 7. Boston is number 21. I guess those Harvard business degrees don’t match up to U.T.s.

Even more ironic, San Francisco dropped 10 spots to being number 14. Is that why we have seen so many satellite offices being opened in Austin from California? Or just flat out moving to Texas? Here at IITI, with our boots to the investment and VC ground, we definitely feel the California presence in both VCs and businesses looking for investment.

“Shutdown rates are the same as California and the other states yet we invest much less but in smarter and quality start-ups. We don’t have crazy money chasing deals that come back to haunt them,” concluded Merrill.

So in this instance, I guess we can’t use our slogan that everything is bigger in Texas just everything is better in Texas.

Joe Merrill and Dr. Oksana Malysheva are the co-founders and partners of Sputnik ATX and the Linden group of venture funds based in Austin, Texas.