Lack of later stage investment sources linked to lower total investment and average deal size for Central Texas tech and life sciences industries
AUSTIN, Texas – October 27, 2015 - Today, the Austin Technology Council (ATC) and the Austin Chamber of Commerce together released the results of a Capital Landscape Analysis out of the Munday School of Business at St. Edward’s University that provides a comprehensive, first-time view of the capital investment landscape in Central Texas’ technology industry as compared to other leading markets. This empirical demographic study, which counted capital sources in nine major metropolitan areas and assessed each city on eight distinctive capital funding sources at various stages of growth, is the most granular analysis to-date. The report found that the size of Austin’s funding source network is significantly smaller than other markets and links this finding to the region’s lower overall venture capital investment total and lower average deal size.
While Austin leads all other markets in startup activity and its funding landscape includes a strong representation of seed and early stage funding sources, the report reveals that the city’s smaller number of later stage capital sources is inhibiting companies from reaching their full potential. In addition, Austin’s startups and early stage companies are missing out on the network effect experienced by other innovation centers, exposing the urgent need to proactively attract more late stage and mezzanine venture sources to the city, including private equity and investment banks, and activate the existing late stage providers within Austin.
The report shows a strong relationship between the number of funding sources and the total amount of investment and average deal size within a city, as demonstrated through these findings:
While Austin is ranked #1 for startup activity (a term the Kauffman Foundation defines as the combination of the rate of new entrepreneurs, opportunity share of new entrepreneurs, and startup density), it ranks twelfth for venture capital funding according to the NVCA data.
Austin has 144 funding sources as compared to the top four metro areas: Silicon Valley (785), New York (739), New England (475), and Chicago/Midwest (371).
While most metro areas average $10M - $11M per deal, Austin has a $5.4M mean average deal size.
Total venture capital investment in Austin is just $620M as compared to roughly $4B in both the New England and New York regions. Seattle and Southern California also receive more funding at $1.2B and $2.6B, respectively (National Venture Capital Association 2014 report).
On November 5th, industry leaders through ATC, in partnership with the Austin Chamber of Commerce, the City of Austin, and Capital Factory, will host a panel to discuss the findings and outline immediate and long-term next steps.
“While we have a healthy and growing capital investment network in Austin, it is not as over-developed as other metros,” said David Altounian, Ph.D., of St. Edwards University, who led the research study. “This, coupled with the fact that our startups are currently funded at lower levels than competition in larger markets, provides a tremendous opportunity for investors to get in early and establish a presence in Austin.”
“Capital has been critical to our growth, and bringing on the right investors has definitely helped our company realize success in the fast-growing commerce industry,” said Robert Alvarez, Bigcommerce Chief Financial Officer and Chief Operating Officer. “Austin’s thriving technology scene, diversity of talent, and cost of living make the city a very attractive place for startups and fast-growth companies to mature. There has never been more companies in Austin that are building disruptive products in really big markets, so it's time for the level of fundraising to reflect the opportunity in front of all of us.”
"Austin’s ecosystem has never been more hospitable for new venture capital and additional capital sources,” said Austin Mayor Steve Adler. "The development of a more comprehensive and competitive startup capital infrastructure for Austin is critical."
“It’s time for Central Texas to expand its investment vocabulary,” said Julie Huls, President and CEO of the Austin Technology Council. “By shedding light on the distinctions between all stages of investment, we now have a report that will serve as a baseline for us to understand future data and trends and arm our region with the information we need to retain and attract the most critical technology funding sources to strengthen our region’s economy.”
"In order to create an environment where Austin's most promising companies can reach their full potential, we need to make a concerted effort to engage our existing funding network and recruit additional capital investment sources to Austin," said Michele Skelding, SVP, Global Technology and Innovation at the Austin Chamber of Commerce. "We are grateful for the leadership of Gene Austin, Austin Chamber Chairman and CEO and President of Bazaarvoice, on this collaboration; we are pleased to work with key organizations to mobilize these efforts. The good news is that Austin is in a position of strength to build from: according to CB Insights, in 2014, early stage funding combined with the $620 million in Venture Capital exceeded $1 billion, a level not seen since the dot com era."
In immediate response to addressing the capital gap in Central Texas, the Austin Technology Council and Austin Chamber of Commerce have announced they will work together to encourage the expansion of later stage investment sources in Austin and the activation of existing companies through targeted recruiting and proactive outreach. Austin Technology Council will be working with its membership and key stakeholders on a continued data-driven approach, and hosting events to discuss and find solutions. The Chamber of Commerce will continue to build upon its active recruitment programs, annual A-List Awards, and legislative work to build a robust investment ecosystem in Austin. The Capital Factory has also announced it will be expanding its facilities in the downtown Omni building to allow for office space for qualifying VCs and later stage investors entering the market.
An infographic of the key findings can be accessed publicly at http://austintechnologycouncil.org/wp- content/uploads/2015/03/Capital_Data-Inforgraphic_ATC-and-Austin-Chamber.pdf.
The full report is available at http://austintechnologycouncil.org/wp-content/uploads/2015/03/Capital-Funding- Report_ATC_Austin_Chamber.pdf.
About Austin Technology Council
The Austin Technology Council (ATC) is the voice of Central Texas’ diverse and thriving technology and life sciences industries, representing more than 1,200 technology executives, 280 companies and 60,000 employees. The Austin technology and life sciences sector contribute $22.3 billion annually to the regional economy and support more than one third of local jobs. By convening Austin’s top technology executives, ATC is leading the effort to meet the future needs of the industry through increased access to capital, new and diverse technical talent in the region, mentorship for emerging companies, and connectivity across the industry and with key stakeholders in Texas and around the world.
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