CONTINUING COVERAGE AUSTIN ECONOMY

Austin rakes in venture capital

Area saw 99 deals for a total of $740 million in 2015, up 20% over 2014.

By Lori Hawkins lhawkins@statesman.com

The flow of venture capital into Central Texas accelerated in 2015, a sign that investors are continuing to bet on new technology being developed in Austin.

A total of 99 Austin-area deals received $740 million last year, according to a survey by PricewaterhouseCoopers and the National Venture Capital Association. That’s a 20 percent increase from 2014, when 114 companies collected $615 million.

That amount is the largest annual dollar figure for investments in Austin since 2001, when 127 companies received $1.14 billion.

“Austin is a brand, and venture capitalists love it,” said Bernard Weinstein, an economist at Southern Methodist University. “They look to Austin to be a leader in IT and software development, and, based on the checks they’re writing, they like what they see.”

Venture investments are a closely watched measure of Austin’s tech economy because the money allows companies to hire more workers,

invest in new equipment and ramp up product development and marketing.

Three-year-old software maker TrendKite is an example of how the money is put to work. In October, the company, which helps customers gauge the effectiveness of their public relations efforts, raised $10.7 million from investors including Noro-Moseley Partners of Atlanta, Mercury Fund of Houston and Silverton Partners of Austin.

The money will allow TrendKite — whose customers include Nike, Hershey and Pinterest — to expand product development and more than double its 70-person workforce.

To accommodate that, the company tripled its office space by moving to a new 19,000-square-foot downtown headquarters on Brazos Street, which it is filling with new computer equipment and standing desks.

“This round of funding gives us the foundation needed to scale our company for future growth,” said Erik Huddleston, CEO of TrendKite. “Our goal is to make more than 100 new hires over the next year, and we plan to achieve that.”

Expansion-stage companies like TrendKite accounted for the most venture capital activity in Austin last year, with 36 deals receiving $376 million. That’s a 62 percent increase in dollars and a 29 percent increase in deals from 2014.

“The venture community funded a ton of startups over the last three years in Austin, and now it’s gratifying to see these things get big,” said Aziz Gilani, a partner with Mercury Fund. “They’ve figured out their products and their customer models, and now they’re ready to make the next push forward.”

Nationwide, venture capital investments rose to $58.8 billion in 2015, up 22 percent from the year before. As usual, Silicon Valley took in the most venture money, with the San Jose area receiving $27.3 billion in 1,333 deals.

In Texas, Austin was by far the largest venture capital recipient in 2015. Dallas was next, with companies receiving $214.4 million, followed by Houston, which received $160 million.

In Austin, the software industry continued its long-held dominance in venture capital, with $328 million going into 42 deals. In second place was biotechnology, with $120 million invested in five deals. The IT services industry followed, with $56 million going into eight deals.

Venture capital firms raise money from pension funds and other big institutions and invest it in promising young companies. The goal is to get a healthy cut of the profits as those companies are sold or go public.

Investment activity in Central Texas companies peaked during the dot-com frenzy in 2000, when 185 companies raised a total of $2.2 billion.

But when the Internet bubble burst, investors pulled back, leading to several lean years when even promising companies struggled to attract funding. Eventually, the market regained strength, but it took another hit during the financial crisis of 2008.

In recent years, investment activity has bounced back, with venture capitalists funding deals in which Austin has long been a player — business software and medical devices — as well as newer markets including mobile Web, cloud computing and data analytics.

There has been concern among some analysts that the surge in venture investing could be a sign that the technology startup market is overheating. But Austin observers said the current activity is unlike the dot-com era, when millions of dollars flowed into startups that lacked sustainable business plans.

“It feels like more of the deals getting funded now have some real substance to them compared to the vaporware we had in the 2000s,” said Larry Westall, managing partner of the PricewaterhouseCoopers Austin office. “The companies getting investments today have reached key milestones, and they’ve proven that they’ve got staying power.”

Contact Lori Hawkins at 512-912-5955.