Austin Chamber

May 5, 2015 – Venture Capital

Posted By Beverly Kerr | May 05, 2015
Central Texas Economy in Perspective Print Article Austin Chamber
  • First quarter 2015 funding in Austin is 31% ahead of the same period last year

  • Average investment per deal was $9.15 million, higher than any other quarter over the last three years

  • While software companies continue to dominate VC investing in Austin, nearly $60 million went to biotech—the second highest quarterly total received by biotech in the last 20 years

Austin companies attracted $265.33 million in venture capital (VC) investment in the first quarter of 2015. That is the highest quarterly total since the first quarter of 2012. This follows on 2014’s rebound from a notable dip in 2013. First quarter 2015 funding is 31% ahead of the first quarter of last year.

Austin’s 2.0% share of U.S. investing in the quarter is on par with the average of the last decade and improved over 1.2% in 2014 and 1.5% in 2013. These numbers and those that follow are based on The MoneyTree™ Report by PricewaterhouseCoopersand the National Venture Capital Association based on data from Thomson Reuters.[1]

This quarter, 29 Austin companies took in an average of $9.15 million each. That level of funding per deal is higher than any other quarter over the last three years. However, Austin’s funding per deal is about 70% of the national first quarter average of $13.16 million.

A $44 million investment in Aeglea BioTherapeutics was the largest deal in Austin, and the second largest deal in Texas, this quarter. Two other biotechnology companies, DisperSol Technologies and Mirna Therapeutics, also took in substantial dollars. These three deals totaled nearly $60 million and represented 23% of all investment in Austin in the quarter. This is the second highest quarterly total received by biotech since the beginning of available data in 1995. Over the last 5 years, biotech accounts for 5% of area investments. The sector takes in almost 15% of VC dollars nationally.

What dominates VC investing in Austin is software companies—averaging over 40% of funding over the last 5 years, compared to 33% nationally. This quarter, 11 Austin software companies took $103.41 million or 39% of all dollars. Spreadfast and WP Engine represented the biggest deals, both exceeding $20 million. The average per deal for Austin software companies is $9.40 million this quarter, compared to $12.85 nationally.

The graph above looks at the last five quarters in terms of the value of investing in Austin companies by sector. Software, nearing 50%, jumps out above the norm of the last 5 years. For 2013 and 2014, software accounted for over 50% of all funding of Austin companies. The only other years this occurred were 1996 and 1997. Nationally, the 42% share seen in 2014 and this quarter represents software’s historical peak. Software has been the largest section nationally every year since data begins in 1995. In Austin, there have been three years in which investments in other industries exceeded investments in software: 1995, 2008, and 2010.

“Industrial/energy”[2] is Austin’s second most significant sector, representing nearly 18% of funding over the last 5 years. However, companies in this sector are absent from first quarter deals in 2015. SolarBridge Technologies' collection of nearly $42 million in the first quarter 2014 is the most recent major milestone in this sector. The company was acquired by SunPower Corp. later in the year.

VC investing in Texas has averaged 4.5% of total investment over the last decade.  However, the state took in only 2.9% of the total in 2014, the lowest annual share since data begins in 1995. Texas’ share is 3.2% in the first quarter of 2015.

Like Austin, Texas’ total investment of $1.4 billion in 2014 was better than average in terms of the levels of the last decade. What probably most impacts both Austin’s and Texas’ contracted shares of total investment is the performance of California. California saw VC funding of $14.5 billion in 2012 and $15.2 billion in 2013 rise to $28.4 billion in 2014. The first quarter of 2015 is another strong quarter—California companies took in over $8.0 billion or 60% of all U.S. funding. Silicon Valley takes the lion’s share of investing in California (85% of 2013 and 2014 dollars). A decade ago, Silicon Valley accounted for 35% of total U.S. funding. The share climbed to 42% by 2013, then jumped to 50% in 2014, and has fallen back to 45% in the first quarter of this year. In Silicon Valley, the number of deals was up just 7% in 2014 over 2013, but the average deal size grew by 80% to $17.2 million. In the first quarter 2015, average funding is $18.7 million per deal in Silicon Valley.

Investment in Austin companies in 2015’s first quarter was dominated by expansion stage[3] company deals (12) which have garnered $148.2 million or 56% of VC dollars.  Austin’s largest expansion stage deal was Sparefoot’s $33.0 million. Nationally, 40% of the quarter’s investment is in expansion stage companies. Expansion funding was 38% of the mix in Austin in 2014, similar to the rate annually over the last decade. Expansion funding was 42% nationally in 2014, higher than the 36% averaged over the decade.

First quarter later stage company deals (5) took $41.7 million or 16% of VC dollars in Austin, compared to 37% in 2014 (and 35% over the longer term).  The largest first quarter later stage deal was $28.4 million for Pivot3. Later stage funding was 31% nationally in the first quarter, up from 25% for 2014 (34% is the average over the last decade).

Early stage deals in 2014 (24%) and in the first quarter of 2015 (28%) have taken more than has been typical (20%) in Austin.  In the first quarter, 12 early stage deals took $75.5 million, including the $44.0 million that went to Aeglea BioTherapeutics. Nationally, 28% of funding also went to early stage companies, above the 25% decade average but below the 32% share in 2014.

No seed deals were recorded in Austin in the first quarter. Just under $11 million, or 2%, were tallied in 2014 in Austin; the share was the same nationally.

First-time financings (7) totaled $17.6 million in Austin or 7% of the quarter’s total. DisperSol Technologies, a later stage biotechnology company, took in $10 million. Nationally, first-time dollars represented 14% of all funding in the first quarter.

Named investors in Austin deals included 39 different firms (a number of deals also involved one or more undisclosed investors). Three Austin firms, Capital Factory, S3 Ventures and Silverton Partners made multiple Austin investments in the first quarter. The only other named investor associated with more than one deal was tech-focused, New York-based Insight Venture Partners, which invested in Sparefoot and Drilling Info.

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Footnotes:

[1] For a detailed explanation of the investments represented in the PwC/NVCA venture capital estimates, see page 3 of their latest press release
[2] Producers and suppliers of energy, chemicals, and materials, industrial automation companies and oil and gas exploration companies. Also included are environmental, agricultural, transportation, manufacturing, construction and utility-related products and services.
[3] See the MoneyTree Report definitions page for stage of development definitions, as well as other definitions.

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The Chamber’s Economic Indicators page provides up-to-date historical spreadsheet versions venture capital data for Austin, Texas and the U.S.

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Beverly Kerr

Vice President of Research, Beverly Kerr, joined the Chamber’s Economic Development Department in 2004, following 10 years in a similar role with the Kansas City Area Development Council. Beverly earned an M.A. in economics at the University of Missouri-Kansas City.