Thursday, March 10, 2016

Funding for Texas Startups -- It's not about how much you invest, it's how much investment you can attract

There's an ongoing debate between Texas investors and Texas startups about how to bring more funding to the startup and growth stage companies.  Recently, in Austin this debate has bubbled over with the Texas blogosphere bantering posts back and forth between the investors demanding better startup deals and startups demanding more funding from Texas investors.

The investors claim there is plenty of money to be had.  The startups argue the opposite.

Let's turn to some data to see where Texas stands.   For starters, Texas represents 10% of the country in population and business across the board. The National Venture Capital Associate tracks venture investment by state.  The NVCA data which you can see on this page, clearly shows the amount of VC funding going into Texas companies is currently around 1.5% with a a two year average hovering around 2.5%-- well below the 10% benchmark. It appears we are below potential. So what do we do about this?

I argue that the burden of funding rests squarely on both the shoulders of the startups and the Texas investors.  The startups need to look nationally for their funding as the world has gone vertical.  Investors are increasingly looking for deals that match a specific criteria (e.g. wearable deal with $1M in revenue and a fund raise of less than $5M).  The chance of a startup finding all of their funding in Texas or any one region of the US is quickly shrinking.  No longer can you find all your funding in your own backyard.  As the startup looks nationally, the range of competition increases.  Startups absolutely have to bring their A game to the national table -- B players need not apply.

For Texas investors, the question is no longer, how much funding are you going to deploy in Texas companies -- it's also how much your funding can attract from the national stage.  The investor's funding should be leveraged to bring in more dollars.  All funds are limited but its ability  to attract more funding is unlimited. Investors need to build syndicates with their fundings.  Investors absolutely have to bring their A game to the national table -- B players need not apply.

For those who are investing, thank you.  Now let's talk about how your funds can be leveraged to attract more capital -- in particular from out of state.  For those who are starting up a company -- thank you, too. Now let's talk about how you can take your startup to the A game level.

Best regards,
Hall T.

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