San Antonio — More dollars, fewer deals.
That’s been the trend in Texas, as well as for the nation as a whole. Venture capital firms have invested money in companies across the U.S. during 2018 at a level that is on pace to break the record-breaking total invested last year (the most since the dot-com era, as Xconomy’s Jeff Engel wrote overnight). Even so, they’re doing fewer deals worth more money.
Texas is likewise poised for a record-breaking year, if VC firms continue to pour money into companies here like they did for the first six months of 2018. The $1.41 billion given to Texas companies in the largest four Texas metro regions, as of the first half of 2018, is the most for that same period in any year tracked by PitchBook and the National Venture Capital Association. (The data they provided to Xconomy only goes back to 2013.) If that continues, it’ll be the biggest full year for investing in Texas companies in the years tracked by the two organizations.
Notably, 2018 has been good to companies in some Texas cities, but not as kind to others. Austin companies remain a hot target; there was $824.3 million invested as of the end of June, the biggest first-half year in the last six years. The data includes investments in both early startups and more mature companies, such as Austin-based Dosh and Shattuck Labs. (It’s unclear whether PitchBook and the NVCA’s state and metro totals include other large deals like private equity firm Silver Lake’s $250 million January investment in WP Engine, which is also in Austin.)
The data from Pitchbook and NVCA also bears witness to the growth in San Antonio’s tech and life science scenes. San Antonio remains the smallest market in Texas for venture capital funding among the four largest cities in the state, with only $66.6 million invested in companies there as of June 30. That amount outpaces four of the previous five years for San Antonio venture funding, according to the data, which was released overnight.
Similarly, the $361.7 million raised by Dallas companies in the first half of 2018 is on pace to make it the best year for that metro area since 2013, when companies raised nearly $1.58 billion.
Only Houston appears to be in a slump. The $156.6 million total for this year’s first two quarters puts companies there in line to raise less money in 2018 than they did in 2014, 2015, and 2016.
Tech and life science companies (Pitchbook and NVCA track data for both) in each metro area are taking with fewer deals, too. Despite the growth in the total amount raised in Austin, it was the first time in the years tracked by the two organizations that fewer than 100 companies got funded in the first half of the year, according to Pitchbook and NVCA. In all of Texas, the NVCA and Pitchbook recorded only 183 deals as of June 30, 2018, compared with 264 and 284 in the first halves of 2014 and 2015, respectively.
Companies in Texas are maturing, which means the deals are getting bigger, says Michael Girdley, co-founder of venture firm Geekdom Fund and Dura Holdings, which buys and builds up software-as-a-service businesses. Both are based in San Antonio. There are also more early stage investors looking to join angel or seed funding rounds in companies, Girdley says.
“It’s also that investors want to put more money to work,” Girdley wrote in an e-mail. “PE is also coming downmarket because they have big funds and few good deals in the mid market.”
The data may not give a full picture of the actual amount of money being deployed, however, because few of the smaller deals done show up in securities filings, which means data like this might miss them, Girdley says. That includes things like simple agreement for future equity, or SAFE, notes that are similar to convertible notes, according to online legal service provider Upcounsel.
“Most deals are getting done as [convertible] notes or SAFEs now, and that means this data is incomplete,” Girdley says.