附近上门

When it came to venture funding in Texas, the fourth quarter wasn鈥檛 pretty.

Deal flow in the Lone Star State saw a marked slowdown in the final quarter of 2017 compared to preceding fourth quarters. The number of dollars raised was disappointing as well.

Follow 附近上门 News on &

Just how slow are we talking about? The number of Texas startups funded in the fourth quarter (34) was less than half that of what was funded in the fourth quarter of 2015 (71), according to 附近上门 data. And the $412 million raised was the lowest Q4 total from the last three years, clocking in 36 percent down from the $644 million raised in 2016鈥檚 final quarter.

(Please note that for our Texas coverage we use reported data, not projections similar to what you can find in our US-Canada and Global reports. This means that reporting lag鈥攆rom funding event to public knowledge鈥攈as a higher impact than in our more geographically broad quarterly reports.)

Compared to the state鈥檚 dismal performance in the third quarter, things didn鈥檛 look so bad according to our research. The number of deals was down (34 vs. 43) but dollars raised were up 55 percent 鈥� $412 million compared to the $186 million that Texas startups brought in during the third quarter of 2017. But that was an unusually weak quarter.

On an annual basis, Texas companies raised $1.26 billion in 2017. That鈥檚 30 percent lower than the $1.79 billion raised in 2016. While the year saw an impressive second quarter, the rest of 2017鈥檚 performance was down.

Some of the year鈥檚 more notable deals include auto insurance marketplace s $40 million Series B round, AI-driven cognitive analytics company $32.5 million Series B raise and real estate startup $27 million haul in a Series A round.

The state also saw a few notable exits this year, including of Austin-based coupons site for $630 million.

Looking ahead to 2018, area venture capitalists and observers believe the region will follow the nation鈥檚 lead and see strong activity in the areas of artificial intelligence, machine learning and blockchain technologies. But for now, let鈥檚 take a deeper dive at what went on in 2017.

Market Breakdowns

As usual, Austin 颅鈥� the state鈥檚 capital 鈥� led Texas both in terms of deals funded and dollars raised both in the fourth quarter and in 2017 as a whole, according to 附近上门 data. Funding in Dallas and Houston was down significantly for the year with both cities notching their weakest annual performance since 2013.

Fifteen Austin startups raised 44 percent more 鈥� or $196 million 颅鈥� in the fourth quarter than the $110.2 million raised by 20 startups in the 2017 third quarter, signaling larger deal sizes.

Dallas wasn鈥檛 far behind, having raised $169.5 million across 11 deals in the year鈥檚 final quarter. Seven Houston startups raised just $29.4 million in the fourth quarter. San Antonio had its best quarter of the year, with one startup bringing in $17 million.

Annually, the $761.3 million raised by Austin companies in 2017 was nearly flat compared to the $761.6 million raised in 2016, according to 附近上门 data.

Dallas startups raised $289.5 million in all of 2017 compared to $340.6 in the 2016 fourth quarter alone. Houston companies brought in $168.4 million during the year, way down from the $468 million they raised in 2016.

The Venture Perspective

As usual, when asked, area venture capitalists remain bullish on the region鈥檚 funding environment despite the less-than-stellar numbers.

, general partner at Austin-based, said his firm 鈥渄idn鈥檛 break stride at all鈥� when it came to investing in 2017. Silverton 鈥� one of Austin鈥檚 largest venture capital firms 鈥� 颅announced it had raised a $100 million fund in February 2017. The company has made five investments out of that fund, Flager said.

However, he acknowledged that a lot of the investment activity in Austin and the state as a whole tended to be early-stage funding deals, which 鈥渢end to be smaller.鈥�

鈥淪o while the number of transactions are increasing, you don鈥檛 see the needle moving that much in terms of aggregate funding in a given quarter,鈥� he said. 鈥淭here鈥檚 just not a ton of bigger, later-stage rounds going on. But for us, the early-stage funding landscape is as healthy as it鈥檚 ever been.鈥�

Having said that, Flager dismisses any comparisons to the Bay Area.

鈥淲e鈥檙e not on pace to eclipse that region, or even on a path to do so,鈥� he said. 鈥淏ut I do see steady growth and the number of funds based here are increasing.鈥�

Of the 10-11 investments Silverton did in 2017, only two were not in Austin companies.

, managing member of Austin-based, believes 鈥渢here鈥檚 some re-setting鈥� going on with Austin venture capitalists as some firms work to raise money. One of the city鈥檚 more active investors,, is reportedly in the process of.

For its part, 1839 Ventures was founded in 2015 and is in the process of raising a $40 million fund to focus on domestic startups. It鈥檚 also raising a $20 million dedicated to helping Pakistani startups to help them expand to the U.S. or internationally.

1839 Ventures aims to fill what Scheetz describes as a gap in bigger seed, smaller Series A investments. The firm will focus on investing in Austin and Central Texas-based commerce, communication and business intelligence companies.

Overall, he doesn鈥檛 view the city as going through a funding slowdown.

鈥淚 think Austin is on target to where we need to be,鈥� he told 附近上门 News. 鈥淚 think there was a VC bubble all across the nation and now we鈥檙e down to a calmer level, not just here but everywhere.鈥�

Even Houston-based firms are investing in Austin companies.

Despite being based in Houston, Mercury Fund鈥檚 investments tend to be outside the city. The firm put money in 47 rounds last year. Thirteen of those were in Austin companies. Thirty were in other midcontinent cities. Just four deals involved startups based in its home city.

, partner at Houston-based, defends his firm鈥檚 increased activity in enterprise software and SaaS companies in Austin by pointing to the city鈥檚 鈥渨ell-developed startup ecosystem.鈥�

鈥淐omparing the two cities is like comparing apples versus oranges,鈥� he told 附近上门 News. 鈥淚n Austin, we find increased density, which means it is easier to find talent, and an ecosystem that cultivates startups.鈥�

Gilani added that he suffers from the curse that his first year in venture was 2008 when the recession first hit.

鈥淪o when you say slowdown, I am always measuring it against those numbers,鈥� he said. 鈥淎nd right now every company I see that needs to get funded is getting funded. Activity numbers are pretty darn strong.鈥�

During the fourth quarter, Mercury Fund participated a new round of financing for PR analytics startup Trendkite, an $11 million round led by New York-based.

In general, Gilani said that Austin companies that are hitting growth targets and have achieved product market 鈥渁re getting funded easily.鈥�

Houston companies have traditionally 鈥渂een a step behind鈥� Austin in terms of maturity in the venture landscape, Gilani acknowledges. However, he praised the city鈥檚 recents efforts to advance its startup ecosystem such as the development of, which was created through a combination of organizations to bolster Houston鈥檚 innovation ecosystem and drive the region to become a top 10 startup ecosystem by 2022.

Plus, Gilani notes there are now more than 400 members of, a hybrid accelerator and co-working space aimed at boosting the city鈥檚 technology scene.

鈥淗ouston is trying to figure stuff out and trying to achieve what Austin did a few years ago,鈥� Gilani said. 鈥淚t has made great strides over the last two quarters鈥� despite being hit hard by Hurricane Harvey.

Dallas seed-stage venture capital firm started actively investing in June 2017. It鈥檚 in the process of raising what it鈥檚 targeting to be a $75 million fund but has closed four deals since inception 鈥� two in Texas companies and two in startups in New York where it has a satellite office, according to Partner .

He admits that relatively speaking, the Dallas VC market is 鈥渦sually pretty soft.鈥�

But that hasn鈥檛 kept Interlock from being what Williams describes as 鈥減retty aggressive鈥� on the deal flow side.

鈥淎 lot of companies seem to be out looking for their Series A funding,鈥� he said. 鈥淎nd, we鈥檙e pretty excited about the deal flow pipeline we鈥檝e developed in a short period of time.鈥�

, founder and managing partner of Dallas-based , said his firm incubated two artificial intelligence (AI) companies in 2017 鈥� , a virtual intelligent assistant for healthcare, and , a Palo Alto-based company that develops image engines with use of high-performance vision and machine learning technologies.

In general, Puskoor said he鈥檚 seen companies 鈥済etting more mature.鈥� He鈥檚 hoping that 2018 will include more collaboration among Dallas VCs from investors in Austin and Houston.

鈥淲e hope to invest more in Series A and B rounds, not just seed,鈥� he said

Personal Take

As an Austin-based tech writer, I admit I鈥檓 a little disappointed in the state鈥檚 2017 numbers.

Everyone I talk to here seems so enthusiastic about the city鈥檚 startup scene and its potential. Large tech companies such as Apple, Amazon, Google and Cisco have a significant presence here. So what is it about the city that keeps it from reaching its full potential? Some say Austin just doesn鈥檛 think 鈥渂ig鈥� or 鈥済lobally鈥� enough.

I鈥檓 not sure what it is exactly. I do see the number of venture capital funds here growing. And there鈥檚 no shortage of startups or talent. But when you look at the numbers, it seems that Austin 鈥� and Texas as a whole 鈥� has a long way to go.

I think most tech-minded Texans are clear that comparisons to Silicon Valley are silly. Austin and the other major Texas markets are still working to develop their own unique startup and venture ecosystems. Hopefully in 2018, we鈥檒l see more of those efforts come to fruition.