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There鈥檚 been a lot of hype around Austin lately. More firms and startups are relocating or setting up shop here. Furthermore, Apple has announced plans to build a $1 billion new campus in the city.

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As a reporter who鈥檚 been covering the Texas VC market for a while, I鈥檝e been waiting for the city to catch up to the hype. While it鈥檚 not there yet, we鈥檝e got some encouraging numbers for the fourth quarter and 2018 as a whole to share.

It looks like after a bumpy third quarter, funding in Austin rebounded in Q4 and the Texas capital can continue wearing its unofficial crown as 鈥渒ing of Texas VC鈥� for another year. Houston had a relatively good end to 2018 as well, topping Dallas鈥� reported funding amounts for the second quarter in a row.

Let鈥檚 get into specifics.

The nearly $300 million in reported venture funding raised by Austin startups was the highest Q4 total since 2014, clocking in 45 percent greater than the $206.2 million raised in 2017鈥檚 final quarter, according to 附近上门 data. Notably, the number of reported deals, though, was far lower: 39 in Q4 2018 compared to 61 in the 2017 fourth quarter.

Apparent deal volume declines may not be cause for alarm, though. There is a historical pattern of reporting delays for private-market investment transactions. Especially in the case of seed and early-stage deals, which may be small in check size but great in number, it can sometimes take several calendar quarters for details of those transactions to surface publicly and ultimately get added to 附近上门.

Higher VC dollar volume signals that Austin鈥檚 venture ecosystem must be maturing as we clearly saw larger deals. It was also a big improvement (82 percent higher to be exact) over the $165 million in reported venture funding that Austin startups brought in across the 2018 third quarter.

Mobile edtech startup $47 million marked the quarter鈥檚 largest deal.

On an annual basis, Austin companies raised at least $1.29 billion in 2018. Because of reporting delays, that number is likely higher, but nonetheless that鈥檚 28 percent higher than the $1.01 billion raised in 2017. SaaS provider s $64 million was the city鈥檚 largest known raise in 2018.

I talked to Austin-based co-founder and partner to get his thoughts on the local funding scene. The firm is reportedly in the midst of closing a 聽fund. Shamapant declined to comment on its status.

However, he did tell me that his firm made four new investments in 2018, all in Austin-based companies, in addition to participating in a number of follow-on rounds. About two-thirds of LiveOak鈥檚 portfolio consists of Austin companies. Overall, the firm is exclusively focused on investing in Texas. Investments typically range anywhere between $1.5 million to $4 million on an initial round with the firm targeting somewhere between 15 and 25 percent of ownership. Generally, Shamapant said, LiveOak is much more 鈥渆ntrepreneur-driven than industry-driven.鈥�

鈥淥f the four investments we made in 2018, each was led by a repeat entrepreneur that had exited before,鈥� he said.

LiveOak also saw a couple of exits during the year, including being by partner for $210 million.

Texas鈥檚 performance as a whole was slightly better than 2017. For the year, startups across the state raised a total of $2.3 billion with Austin companies hauling in the majority (54.6 percent) of known funding. This compares to $2.19 billion raised in 2017.

The fourth quarter was relatively weak, though, overall for the state compared to the first two quarters of the year. However, on the positive side, the $549.3 million in known funding raised was 49 percent higher than the $367.7 million raised by Texas startups in the third quarter.

(Please note that for our Texas coverage we use reported, not projected, data. This means that reporting lag鈥攆rom funding events to public knowledge鈥攈as a higher impact than in our more geographically broad quarterly reports.)

Houston Chases Austin And Dallas

Although Houston still came in behind Austin and Dallas in terms of total funding for the year, it did manage to gain ground on a quarterly basis.

In both the third and fourth quarters of 2018, Houston startups surpassed Dallas counterparts when it came to raising venture funds. Houston also nearly caught up to Austin in the third quarter, a rare occurrence.

In the fourth quarter, Houston startups brought in $121.4 million across just 11 known deals, compared to Dallas startups only bringing in $101 million across twice as many deals鈥攕ignaling more early-stage funding took place in Dallas. A notable fourth-quarter Houston deal was the by oil and gas shop , which was also the largest deal in the city for the year as a whole.

For 2018, Houston companies raised $372.8 million across 77 known deals. That means dollars raised climbed an impressive 45 percent compared to $257.7 million across 95 deals in 2017.

Even Austin-based startup shops are paying attention to Houston. I reached out to 鈥檚 (CF) co-founder to find out why his popular and growing accelerator set up shop (and hired a team) in Houston during the fourth quarter.

He said the move was part of the that CF launched last year, which was a mission to connect entrepreneurs, family office investors, and big corporations in Texas.

鈥淚t鈥檚 producing great entrepreneurs with great businesses,鈥� he said, adding that CF invested in multiple Houston companies in 2018 and expects to do more investing in the city in 2019.

Houston’s 鈥渙bvious鈥� strengths as a startup market include being the US headquarters of most energy companies as well as home to the Texas Medical Center and its member companies, according to Baer. He also cited the city鈥檚 standing as the fourth-largest in the country, and the fact that it has one of the nation鈥檚 . But Baer鈥檚 also realistic about its ability to compete with Austin when it comes to its startup and venture scene.

鈥淗ouston is a great city, but it will take many years to build up a great startup ecosystem that rivals Austin,鈥� Baer conceded. 鈥淭here is no reason why it can’t happen and it’s worth the investment, but it does take time.鈥�

And while he applauds the work of 鈥渟trong VC leader鈥� Mercury Fund, he acknowledges that Houston 鈥渏ust needs more of them.鈥�

鈥淗owever, this is not a Houston problem. Very few cities have more than a few VCs,鈥� Baer told 附近上门 News. 鈥淲hat Houston has that most places don’t is a lot of corporate VCs. Almost every energy company headquartered in Houston has a venture arm. They tend to fund companies that are Series B and later鈥� so not the seed-stage stuff that is so popular in Austin and they do it all over the world, not just in Houston.鈥�

Meanwhile, Dallas startups rebounded some from a weak third quarter, yet total funding in the fourth quarter was lower than the first two quarters of the year. As mentioned above, companies in Dallas brought in $101 million across 22 known deals in Q4 2018. That was a disappointing 66 percent lower than the $300 million raised in Q4 2017, but a marked improvement over the 2018 Q3 quarter that saw just $41.9 million raised.

As an indicator of just how weak Dallas鈥檚 Q4 was, the largest deal over that three-month period was a $10 million by , a fundraising platform. The city鈥檚 largest funding took place in the second quarter when fintech startup announced a $90 million .

鈥� senior associate perception of the VC funding landscape in Dallas is on par with our findings. He noted that previous quarters and 2017 felt 鈥渕uch more active.鈥�

鈥淒allas was fairly slow in Q4,鈥� he said. 鈥淲e saw mostly follow-on investments occur with previously-funded Dallas based startups, and not a whole lot of investment in new companies.鈥�

Of the deals that were made in the city, he points out that e-commerce platform combinedwas one of the largest.

鈥淢obility and retail were the hottest sectors,鈥� he told 附近上门 News. 鈥淪urprisingly, we didn鈥檛 see a whole lot of traditional AI and SaaS activity in Q4.鈥�

His firm, which primarily invests in US and India-based companies in the mobile, cloud, and big data sectors, led a Series A in an undisclosed Dallas-based AI and SaaS company that will be announced later this month.

Looking ahead, Sharma hopes to see more funding in Dallas in 2019.

鈥淚 think there is a great new crop of early stage companies that are progressing well, and some of these are getting ready for Series A and B investments in 2019,鈥� he said. 鈥淚 think retail will continue to stay as a hot sector, and mobility will continue to pick up. From our investment thesis, we are excited to see more B2B enabling startups continue to make traction and get funding.鈥�

Texas In The Macro

While 2018 was a good year for Texas startups seeking capital, there is room for that to change, even if that change won’t be felt immediately.

鈥淚 think, at a macro level, activity was very strong as the year was quite hectic, both in terms of new company financings as well as follow-ons for portfolio companies,鈥� Shamapant told 附近上门 News. 鈥�2019 seems to be pointing towards a continuation of that right now.鈥�

However, he鈥檚 generally also realistic about the impact that the recent public market upheaval might have on private investing.

鈥淚 did private investing in the last two negative cycles,鈥� Shamapant told 附近上门 News. 鈥淯sually, there鈥檚 a lag between the two. In general, I think spend at all companies, when they see the public markets gyrate, gets to be more controlled. Plus, fully financed companies might not care about public market valuations over the next 18 months, but they will have to face the impact when they do come back to market.鈥�

鈥淭his is especially true of later stage companies,鈥� he continued. 鈥淪o you鈥檒l probably see some adjustments on valuations on those companies. Brand new investments are going to be relatively better insulated as long as they work on being capital efficient. Later stage companies are going to bear the brunt of it.鈥�

I, for one, am eager to see just how much closer Austin will get to living up to the hype surrounding it. I think the key here is patience and time. In the meantime, we鈥檒l see if both Austin and Houston continue to gain traction despite all the public market turmoil, and if Dallas can get out of its apparent slump.

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