Austin-based Silverton Partners is staying true to its home base.
The 12-year-old venture capital firm—one of the most active in Texas—just closed on its fifth fund, raising $108 million in an oversubscribed round of funding. About 70 percent of that will go to Austin startups, estimates General Partner Morgan Flager.
While he did not disclose the actual LPs, Flager did say that more than 90 percent of the capital came from institutional investors, including several top-tier university endowments and foundations.
The fund marks Silverton’s largest to date. Previous funds raised $75 million in 2006 and 2013. But 2018 has been a big year for Silverton beyond just raising a new fund.
Made In Austin
Since the beginning of the year, the firm has seen full or partial exits valued at a combined $1.1 billion. All involved Austin-based companies and most involved private equity buyers.
Silver Lake Partners took a $250 million stake in WordPress platform WP Engine. Boston private equity firm Cove Hill Partners took a majority stake in self-storage software startup SpareFoot. Vista Equity Partners took a stake in YouEarnedIt, an HR SaaS company. Favor, a delivery service, was acquired by Texas grocer HEB.
“$1.1 billion is great affirmation for Austin and how productive it is to invest here,” Flager told Crunchbase News. “By demonstrating performance and returning capital to the Austin ecosystem, we’re working to keep the wheels turning in terms of capital flowing back into the Austin market.”
Going For Growth
Currently, Silverton manages more than $250 million in capital and is run by four general partners: Flager, Kip McClanahan, Adam Chibib, and Mike Dodd. Silverton focuses on early-stage investing in the enterprise and consumer technology sectors.
Johnny Kelly, managing partner at Austin-based J9 Partners—which was formed to connect Austin startups and venture capital funds with capital on the coasts—said news of the new fund is good for both the firm and the city’s startup scene.
It’s a known fact that Austin entrepreneurs have had a long-standing need for growth capital.
“The problem Austin has traditionally faced is what happens to these companies post-seed funding. There has been a huge void when it comes to growth capital,” (Johnny) Kelly said.
Austin has done “a fantastic job” of launching and incubating companies, and attracting top talent from the coasts, according to Kelly. But it had trouble helping them maintain momentum.
“This [fund] is exactly what Austin needed,” (Johnny) Kelly noted. “It gives Silverton the unique ability to ensure they can make their early-stage investments self-fulfilling success stories. While other local VCs allocate their early-stage capital and then keep their fingers crossed, Silverton has the capacity to effectively double down on their best performing early-stage investments.”
“More local investors may increase competition for good deals and push local VCs to back riskier ideas that they wouldn’t otherwise. This can help solve Austin’s problem of ambition—too few investors, all looking for that ‘sure thing’—means we’ll never have any home runs,” (Joe) Kelly told Crunchbase News. “It’s this frustration that’s led to many of Austin’s most talented entrepreneurs to raise money elsewhere.”
Silverton Partner’s Strategy
Moving forward, Flager, Silverton’s general partner, said that the firm’s strategy will not change much.
Silverton Partners will continue to focus primarily on early-stage investing in software and consumer goods investments. Flager predicts 20-25 deals out of the latest fund with an average deal size of between $5 and $7 million.
“We see a bit of disruption going on in the consumer goods category,” Flager told Crunchbase News. “There’s been a realization among some larger consumer brands that they are not able to innovate and keep pace with the market as much just by doing what they’ve been doing all along. So they are realizing that acquisitions of younger upstart brands have to be part of their strategy to stay relevant.”
Other sectors that Silverton is not as bullish about include crypto and blockchain.
“A lot of people just want to stick that tagline on their business and think it will get them funding,” he said. “And we’re focusing on what is creating tangible value for customers. So far we haven’t seen anything in the space, but we continue to look pretty aggressively at that market.”
Another hyped sector, AI, is one that Silverton is treading upon cautiously.
To Flager, the revolutions that are supposed to happen as a result of AI are a long way off.
“Sometimes something new comes out, and it generates momentum and reaches a fervor,” he said. “But then reality sets in. And people realize maybe these things aren’t going to change the entire world at once. Some other things have to happen first to create real value for customers. After that, the sectors start to bottom out and build back up as technology becomes more proven.”
Flager—who previously worked with FTVentures in San Francisco—continues to dismiss comparisons to Austin with both coasts.
For example, he notes that, on the West Coast, there’s a lot of investment capital sitting on top of opportunities. This creates a lot of supply so prices increase. But in markets like Austin, the number of investors isn’t as large; however, there’s still a number of opportunities so prices are not as high.
“I don’t expect it to catch up to the Bay Area anytime soon, but I continue to see very experienced entrepreneurs who are tired of paying state income taxes move here,” he said.
There’s no question that a $100-plus million fund in Austin can only be a good thing for the startup ecosystem. LiveOak too is expected to announce one in the near future. How all this new capital gets invested will be fun to see, as Austin startups will certainly have more options.