Two Austin-based VC Firms Are Each Raising $100M Funds

Texas startups will soon have two new sources for capital.

Crunchbase News has learned that two Austin-based venture capital firms, ATX Seed Ventures and Quake Capital, are in the process of each raising $100 million funds.

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The news comes off a period in which the Austin tech scene saw a number of wins. Tech giants Apple and Google recently committed to expanding their presence in the Texas capital in a big way. And, venture investing in the city is picking up at an impressive pace. In January alone, Austin startups raised nearly as much as was raised in all of the 2018 fourth quarter.

While both firms have different investment strategies, they share some similarities: they’re both trying to fill what they perceive as an early-stage gap in the Austin market, and they both are naturally bullish on the region.

First let’s discuss what ATX Seed Ventures has planned.

The firm only just recently closed its second $32 million fund and is already busy raising money for its third fund, which has a target of $100 million. It’s expecting a first close as soon as May, and a final close later this year.

While that might seem like a big jump, the five-year-old firm’s partners – Managing Director Chris Shonk, COO Danielle Allen, and Brad Bentz – explained to me today that the firm actually has more than $60 million under management so the larger fund size may seem more dramatic than it actually is.

“We put a significant amount of capital to work outside of our primary fund with co-investments….” Shonk said. “But we’re excited to have investors not just doubling down, but tripling down. It’s a strong sign of investor confidence.”

ATX Seed Ventures launched its first fund at SXSW 2014 in which it deployed $17.25 million worth of capital. The firm currently has 26 portfolio companies and has already seen four exits: Incent Games (also known as FantasySalesTeam) was acquired by Microsoft; RideScout was acquired by moovel Group, a subsidiary of Daimler; Set.fm was acquired by VNUE Inc.and Unbill by Q2ebanking.

Per its name, ATX Seed Ventures started by primarily investing in Austin-based companies. It has since branched out to investing in other Texas cities and is now considering “surrounding” markets.

Despite its name, the firm doesn’t just invest in the seed stage although that’s when it most prefers to get in.

“What we really came into the market trying to do was institutionalize seed by leading rounds, taking a board seat and structuring terms,” Shonk told Crunchbase News. “We like being a company’s first institutional round and bringing in what we think of as Series A and B rigor and discipline at the seed valuation stage.”

One of the things the firm likes most about being the first institutional check is that it can “control valuation a bit.”

“Valuations have kind of gone nuts, especially in later rounds,” Shonk said. “So this way, we’re not inheriting someone’s prior complexities.”

Bentz agrees.

“In terms of valuations, they’re not as out of control here in Texas as they are in some markets,” he said. “So, on a risk-adjusted basis you can still make some really good deals here.”

As for sectors, ATX is particularly focused on B2B—which Austin is known for—with a SaaS business model. But it’s also interested in supply chain/manufacturing, real estate tech, and energy-related businesses.

“We try to run the races we think we can win,” Bentz said. “So we focus on our own areas of expertise as well as that of our LPs so that we can add strategic value, and not just put money into deals.”

Another Quake

Meanwhile, Quake Capital – which moved its headquarters from New York to Austin last July – is also in the process of raising a $100 million fund.

Founded in January 2016, Quake started investing in early 2017 out of a $4.65 million fund. It invested in 31 companies out of that fund. Jim Brisimitzis, managing partner of Quake’s Seattle office, noted that Quake’s second fund was capped at $15 million “by request” of its LPs. That fund closed in December. Overall, the firm currently has more than 110 companies in its portfolio.

As part of what it describes as its increased commitment to the region, the firm has hired a new managing director, Jason Fernandez, to run its Austin office. As part of his new role, Fernandez will oversee Quake’s ATX accelerator program as well as the firm’s investor and advisor network. Most recently, he worked as an operations and finance partner at BASE Equity Partners.

“We believe Quake is coming into the Austin market at the right time,” Fernandez said. “We see a real opportunity to participate in this early stage/seed category as most of the existing VCs seem to be moving up the food chain a bit and investing at later stages.”

Brisimitzis reiterated Quake’s confidence in the Austin market.

“We see a tremendous amount of growth in this ecosystem and want to be a part of it,” he told Crunchbase News.

As Austin’s startup ecosystem continues to grow, there’s no doubt two new nine-figure funds will be welcomed with open arms.

Photo credit: Logan Fahey Photography