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Austin Reaches Top 10 In US Venture Markets With Record Funding In 2019

2019 was a good year for Austin.

Companies, big and small, continued to flock to the city in droves. Several venture capital firms based in Austin announced nine-figure funds, a new unicorn was born, and venture funding hit record numbers. Plus, those venture rounds included more global investors than ever.

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So as the year and decade have officially drawn to a close, we thought it would be a good time to quantify some of the recent growth Austin has experienced. When I asked our data guru, Jason Rowley, to pull some numbers, I had a few hunches about what he’d find. And I’m pleased to report that I was right.

Let’s start with the numbers.

Venture funding in Austin totaled $1.84 billion for the year. That’s up 19.5 percent compared to the $1.54 billion raised in 2018 and an impressive 87 percent compared to $983 million in 2017. As is typical, Dallas-Fort Worth- and Houston-area startups trailed far behind the Texas capital when it came to venture dollars raised during the year.

Even though it sometimes feels like it, Austin is not the only Texas city bringing in venture dollars it’s just the largest (for now). Area startups brought in 61 percent of the venture dollars raised (a total of $3 billion) in the Lone Star state last year. Dallas-Fort Worth came in a fairly distant second, with Houston not far behind it.

To put Austin’s record figures in context, I asked Jason to rank Austin’s funding last year to other major tech markets in the U.S. What we found is that in 2019, Austin officially broke the top 10 when it comes to recipients of known venture capital funding. (There’s always reporting delays so these figures will most certainly change.) While the amount of dollars raised ranked significantly less than that raised in San Francisco (no big surprise), it was still respectable enough to rank No. 10.

Austin was also the only city in the top 10 to be located outside the historically largest recipients of venture capital markets of the Bay Area, Seattle, Boston/Cambridge and New York.

It also ranked seventh in terms of number of deals.

Another thing I suspected was that the Austin startup scene was maturing and our data proved that theory. The city has historically been known for its emerging startup scene, but that’s slowly changing. As you can see below, in 2015 seed/angel rounds made up more than half (56 percent to be exact) of the venture rounds closed. By 2019, they made up just 43 percent. Meanwhile, early-stage rounds ticked up by 10 percent and late-stage rounds by 3 percent.

Drilling down

Austin both started and finished the year on a strong note, while in between was on the slow side. In the fourth quarter in particular, Austin startups raised a combined $575.4 million, up 89.4 percent from $303.7 million from Q4 2018. Deal volume was down – the money was raised across 34 deals in Q4 2019 compared to 48 in Q4 2018, another indicator of a maturing market.

A new unicorn was born during that three-month period that we (of course) covered. In October, RigUp, a marketplace for on-demand services and skilled labor in the energy industry, raised a $300 million Series D round led by Andreessen Horowitz (a16z). The round values the company at $1.9 billion, according to The Wall Street Journal. It also marked the largest funding round raised by a Texas company in all of 2019, according to Crunchbase data. The round also represented more than half of all venture that was raised in Austin during the fourth quarter.

That round took place just days after AI startup SparkCognition’s $100 million Series C, which was led by March Capital Partners and included participation from Temasek, among others.

The three largest rounds in the state in 2019 weren’t all in Austin, at least. Dallas-based Peloton Therapeutics raised a $150 million Series E in February before getting acquired by pharma giant Merck in May. And, Houston-based biopharmaceutical company AlloVir (formerly known as ViraCyte) announced $120 million in Series B funding, which Jason covered in May. SparkCognition’s raise marked the fourth largest in Texas as a whole for the year.

VCs weigh in

LiveOak Venture Partners in April 2019 announced the close of its second fund, topping it out at $105 million. The 6-year-old venture firm primarily invests in early-stage startups with a focus on the Texas market. I talked with co-founders and partners Venu Shamapant and Krishna Srinivasan to get their thoughts on what went down in 2019.

The year was “definitely a blockbuster,” Srinivasan said. LiveOak signed 10 new investments in 2019, and of those 10, seven were in Austin. The activity was “indicative of a tremendous surge in really high-quality company formation underway in this market.”

Austin has historically been known for its large number of software startups. I’ve also noticed a serious uptick in real estate-related companies here, which made me curious about which sectors the LiveOak team has seen emerging. That’s when Srinivasan introduced me to a new acronym: Firetech — finance, insurance and real estate.

“We’re seeing a lot of activity in those industries,” he said. Indeed, during the year, SaaS fintech startup ScaleFactor raised a $60 million Series C just seven months after closing its $30 million Series B, and just over a year after closing its $10 million Series A. Another example lies in real estate startup (and LiveOak portfolio company) Homeward’s July 2019 close of $25 million in debt and equity financing.

Meanwhile, Shamapant agreed the Austin market is maturing.

“Years ago, people asked us why there were so many large financings in the Bay Area and not in Texas,” he said. “We always told them it was just a question of time. The companies that could raise those big financings just started getting funded four to five years ago. Now the Austin market is finally to the point where there are plenty of companies that have seen that kind of maturity. I think we are finally there now.”

S3 Ventures Partner Eric Engineer said he believes the growth of so many large tech companies in Austin (such as Apple and Google) is having a direct impact on the startup scene.

“Their presence is bringing a lot of talented folks here, both technical and business talent, who end up either working for a startup or founding one,” he said.

Additionally, people are flocking to Austin from both coasts (but particularly the Bay Area). I examined the trend in this story and this one for Forbes. The city’s (relatively) lower cost of living, among other factors, is significant.

S3 Ventures’ Engineer has also observed that more VCs are looking at Texas.

“More firms in general are identifying Texas as a geography in which they want to invest,” he said. “There’s been a real structural change where more VCs are including Texas as a stopover they make on a regular basis.”

In 2018, Austin-based S3 Ventures (which also focuses on Texas startups) saw six exits. In 2019, it was focused on investments and put $50 million into 17 companies, with three of those being new investments. Eighty percent to 85 percent of its portfolio is based in Austin.

Meanwhile, Silverton Partners’ Roger Chen believes that Austin’s record funding is in line with the enthusiasm and bullishness of the overall economy in 2019. For those who are unfamiliar; 16-year-old Silverton Partners is Austin’s most active venture firm and is in the process of raising a targeted $120 million sixth fund. In 2019, Silverton made 20 investments, including five new ones. It also saw a nice exit in TrendKite being acquired by Cision in January for $225 million. (Just last week, it had another exit in women’s shaving startup Billie being acquired by P&G, which we covered here.)

He believes that overall record fund sizes have led to increased competition which in turn has led to “many late-stage venture investors in search of value in new geographies like Austin.”

Chen also acknowledged Austin’s overall growth as a city and tech hub. As mentioned above, Austin, and Texas more broadly, has been a primary beneficiary of the talent flight out of the Bay Area.

Chen said he sees it firsthand.

“I receive emails nearly every day from startup founders and employees asking for tips on Austin,” he told me.

When it comes to trends, Chen pointed out that Austin’s startup scene is also gaining momentum in two other important areas.

For one, marketplace and aggregation platforms are raising large sums of capital (digital health startup EverlyWell’s April 2019 $50 million raise is one example). Secondly, 2019 saw startups that use artificial intelligence in their software bring in large rounds. Examples include SparkCognition and ScaleFactor.

Chen said: “Austin has been a great market for these businesses to achieve more efficient growth with a concentration of specialized talent and the benefit of a labor cost arbitrage against the Bay Area.”

Methodology

The data presented in this report is based on a snapshot of Crunchbase data from early January 2019. Re-running the numbers in the future may yield slightly different results for Q4 2019 and prior quarters as new data gets added to Crunchbase over time. Funding round data for private companies is often subject to reporting delays, particularly affecting seed and early-stage rounds. For more information about Crunchbase News’s methodology, check out the Methodology page.

Illustration: Dom Guzman

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