What I learned at the Texas Venture Growth Forum
Last week, TEN in partnership with Hermes Investment held its first conference called the Texas Venture Growth Forum. The event was targeted to match Texas companies with > $5M in revenue with Series B investors from the venture capital and private equity markets. Currently, there’s no true Series B or later stage funding in Texas. Companies must fly to the west coast and east coast to meet investors. The conference showcased Jason Villalba, a state legislator and the efforts he is making to reseed the venture capital community in Texas.
In the 1990s, the Venture Community was strong in Austin. We had over 30 VC firms here and there was a panel of three to five VCs going on almost weekly in which the panelists discussed their criteria for investment. The Dot Com crash took out most of those groups and when the dust settled what came back in their place were angel investors. Angels rose in popularity because startups no longer needed $5M to start a company – they needed only $500K. While some VCs remained in place, most exited the industry and found something else to do. Today, in 2015, venture capital is making a comeback because companies who started after the Dot Com crash (or survived it) have not grown to a position that they need $5M to $10M or more in funding and angels and angel groups are not in a position to provide it. The Series B and beyond belongs to the venture capital world.
In the Texas Venture Growth Forum, the gap in funding for Series B was highlighted. While most entrepreneurs know the gap exists, it was helpful to have David Altounian of the Austin Technology Council provide some deep dive research from the ATC Capital Study they recently completed. The data analytics sponsor for the event, Pitchbook, also chimed in with their report which you can see at this link.
While we all know there’s a shortage of capital, the next question to answer is what to do about it. It’s clear from the data that we need to recruit more funding by launching new funds here and recruiting existing funds outside of Texas to focus on this area. The other lesson I learned is that Texas companies should take a national approach to their fund raise from the beginning. Even California companies don’t raise all their funding from California. They have to go outside for a substantial portion (albeit less than Texas) of their funding too.