Hayden McCarty
Research Analyst | ECR

A recent MoneyTree report produced by Pitchbook and the National Venture Capital Association shows a 25% drop in VC money secured by Austin startups, between Q1 2016 and Q1 2017. Austin Business Journal recently detailed that this was a drop from $251M in Q1 2016 to $188.9M Q1 2017, while the number of investments remained relatively unchanged.

Highlighted in a recent Austin Inno newsletter, VC funding has slowed nationwide, not only in Austin. According to Steve Guengerich’s blog IT Innovation Today, when it comes to securing significant chunks of capital, legacy energy (i.e. fossil fuels) has attracted the most VC dollars. Second and third largest recipients of VC capital are currently communication and clean energy.

The three largest investments in Austin were in the tech sector; Uship raised $25 million, TurnKey Vacation Rentals raised $21 million and data.world received $18.7 million. Most of Austin’s VC firms focus on early stage opporunities, usually less than $10 million, classifying these three outliers as expansion stage deals.

According to Guengerich, in a 12-month period the Austin market had just under $6B invested across 593 deals, Dallas had $6.97B invested across 403 deals and Houston had $5.92B invested across 217 deals. It’s worth noting that Houston has slightly less invested overall, but the amount invested per deal is almost three times that of which Austin companies receive. This variance in money invested per deal helps explain that while tech startups receive a lot of attention from VC dollars, it is oil and gas that drive much of the big time investment in Texas.

VC executives have expressed the Austin market needs more capital, and one of the ways to accomplish this is to complete more $10-20 million expansion-stage deals. Austin witnessed an uptick in VC funding in the month of May; Opcity received $27M and High Brew Coffee $17M. Several other startups secured investments closer to the $10M mark, revealing that investors are becoming more optimistic and actively looking for proven startups to fuel.

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