Austin Q1 2017 VC Numbers Slip, But Local Players Remain Optimistic

Austin is perhaps best known for its annual tech-heavy SXSW conference, but it’s also made headlines as a haven for startups that are attracted to the city’s hip culture, talent pool, relatively affordable real estate, and growing tech ecosystem.

But if Austin’s funding performance in the first quarter is any indication, there’s still room for improvement in the Texas capital’s investment environment.

Put simply, Austin startups raised dramatically less in Q1 2017 than the same period last year. In fact, it is the weakest first-quarter showing the city has seen in more than five years:

Specifically, twenty-five companies raised $139.68 million in Q1 217, according to Crunchbase data. That’s less than half of the 54 companies raising $343.55 million in Q1 2016. Q1 2017 is even less than Q1 2013 by a hair. In Q1 2013, 41 Austin companies raised $140.44 million. (But hey, at least the deals themselves appear to be bigger.)

Traditionally, Austin is known for its strong software sector. So it’s no surprise that shipping software maker uShip brought in the biggest venture capital haul for Austen during Q1 2017 with a $25 million Series D raise.

Despite the lower numbers, industry insiders do not appear worried about the weak first-quarter performance. The Austin venture scene remains a healthy one, venture capitalists and company leaders believe, with it just being a matter of time before the numbers bounce back up.

Investors’ Continued Optimism

Indeed, one of the city’s most active investors – Silverton Partners – is in the process of raising a $100 million fund. LiveOak hasn’t announced a new fund since its $109 million raise in 2014, but the firm is rumored to be raising money soon for a new fund. Next Coast Ventures, another Austin-based firm, closed its $85 million debut fund in early March.

LiveOak Venture Partners Co-founder and General Partner Krishna Srinivasan wouldn’t comment on rumors related to a new fund; however, he did note his firm conducted several follow-on financings in the first quarter. Of the 17 companies in LiveOak’s portfolio, 13 are Austin-based. Looking ahead, he is optimistic that the macro climate in the second quarter will be more positive “and more indicative of the robust market.”

Srinivasan also predicted that Austin will receive continued migration of top tech talent from around the country.

Tom Ball, co-founder and managing director of Next Coast Ventures, believes deal flow in the Texas capital is at an all-time peak, regarding quality and quantity. Previously, Ball was a general partner at Austin Ventures before it folded in 2015.

Next Coast has invested in eight companies since its inception in March 2016. Of those eight, five have Austin headquarters. Although the firm did not close on any new deals during Q1 2017, it did lead a $4.5 million Series A investment in Austin-based software startup LeanDNA that closed last week.

“Here in Austin, the firms are a little smaller than in places like Silicon Valley, or New York, both in terms of dollars and number of partners, so when a firm is fund-raising, the partners are usually up to their elbows in it,” Ball said.

An Entrepreneur’s Take

Richard Lebovitz, CEO and co-founder of LeanDNA, said his company was raising money in the first quarter but didn’t really have a hard time securing capital. The startup makes supply chain data analytics software for factories.

“We had quite a bit of interest,” he said. “It was more about getting the right partner than difficulty in raising money.”

In general, Lebovitz believes the startup ecosystem in Austin just continues to get stronger.

“Startups here are creating a lot of talent,” he said. “And the companies are only getting better.”

Aziz Gilani, partner at Mercury Fund, also takes the first quarter results with a grain of salt. He points out that 2015 “was such a crazy up year” that it’s hard to sustain that sort of peak. Plus, his firm did not close any first quarter deals in Austin.

“I think it’s one of those ebb and flow situations. We’re not seeing companies fume out of cash and I don’t remember seeing any companies struggling to raise money during the first quarter,” Gilani told Crunchbase News. “I don’t see any blood on the streets or anything like that.”

To Gilani, the fact that he has a hard time finding real estate for his Austin-based portfolio companies is a sign that there’s a lot of growth in the city.

“When VCs are talking to architects and developers to find a place to put in an office, it’s clearly a very healthy market. I’ve been investing here since 2009 and saw a drastic run-up from then through 2015,” Gilani elaborated. “We’re still way ahead of where those numbers were.”

Featured Image via Flickr user Jeremy Keith under CC BY 2.0. Image has been cropped.