Texas Startup Funding Declines, Led By Dip In Austin-Area Investment

In startup circles, it’s popular to predict that funding to smaller innovation hubs will rise and that Silicon Valley will lose some of its dominance. In reality, however, that’s not how things are playing out.

Certainly, at least, that’s not what’s playing out in Texas. Funding to Lone Star State startups in 2024 is on track to decline year over year, even as overall U.S. venture funding has been perking up, driven by record investment around artificial intelligence.

Per Crunchbase data, Texas companies have raised just over $3 billion in seed through growth-stage financing so far this year. Of that, less than half has gone to companies in the Austin metro area, which has also seen funding weaken.

As shown in the chart below, recent funding levels are well below the heights reached in 2021 and 2022, trending closer to prior years.

Funding to startups in the Austin metro area, which frequently accounts for more than half of statewide investment, has followed a similar pattern.

AI underperforms, but big deals come together in other spaces

To date, Texas hasn’t been a powerhouse in generative AI. Since that’s the focus of U.S. startups raising the largest funding rounds in recent quarters, this could explain some of the state’s relative underperformance.

Per Crunchbase data, less than 10% of Texas funding this year went to companies associated with artificial intelligence. Most of that went to a single deal — a $175 million Series B for Saronic, a developer of AI-enabled autonomous sea vessels.

Beyond AI, however, Texas-based companies did raise a number of pretty big rounds this year. Standouts include:

Fervo Energy, a Houston-based provider of carbon-free geothermal power, secured $244 million in a February financing.
NinjaOne, an Austin-based endpoint security platform, landed $232 million in a Series C round led by Iconiq Growth.
Island, a Dallas-based enterprise browser developer, picked up a $175 million Series D at a $3 billion valuation led by Coatue and Sequoia Capital.
Solutions by Text, a Dallas-based company that allows its customers the ability to conduct an array of financial services over text, raised $110 million in a May growth financing led by Edison Partners and StepStone Group.

Reasons not to read too much into the funding drop

While funding to Texas startups is down, there’s no particular reason to expect this will be a long-term trend. On the contrary, there’s room for optimism that higher investment lies ahead, particularly as the most promising startups funded during the peak scale their businesses and seek fresh rounds. And if the IPO market really does make a comeback, we should start seeing pre-IPO financings as well.

Additionally, companies in other parts of the country can and do relocate headquarters, and often to Texas. This is particularly the case for companies associated with Elon Musk, who relocated Tesla’s headquarters from California to Texas in 2021 and is reportedly planning to do the same for SpaceX and X.

Given that the largest early-stage funding recipient this year was another Musk startup — xAI — it wouldn’t be shocking to see that company moving to Texas at some point either.