Jul. 29–Is it safe to go back in the water?
Venture capital investment in Austin showed a surprising rebound in the second quarter, more than doubling from a year ago, according to data released Monday. The number of companies receiving money rose 50 percent, and financing of new startups also increased.
“This is the good news we’ve been waiting for,” said Don Keller, managing partner with the Austin office of PricewaterhouseCoopers.
“Austin showed surprising strength.”
Nationally, financing was down from a year ago.
Twenty-four Austin companies raised $142 million during the three months that ended June 30, according to the PricewaterhouseCoopers venture capital survey.
By comparison, 16 companies raised $67 million during the second quarter a year ago.
Financing also was up from the first quarter, when 15 companies received $77 million.
Venture capital financing is a closely watched barometer because new companies create new jobs and, if they succeed, wealth.
Early-stage startups did particularly well, with five Austin companies taking in $43 million, or four times the amount raised a year ago by the same number of companies.
The increased activity is an encouraging sign for entrepreneurs seeking first-time financing, Keller said.
“Not only are established companies raising money, but new ideas are getting funded, which is really good news for those out there trying to start new companies,” he said.
Conformative Systems Inc., a year-old Internet software company, was among those that scored money — a $6.5 million infusion from Austin Ventures.
“We’ve definitely felt a difference in the interest level by VCs in the last couple months,” co-founder Arie Brish said. “VCs have been calling and wanting to get to know us, compared with six months ago when we were chasing them. It seems like they’re starting to work with startups again.”
The difference this time around is that investors are being pickier, said Richard Schwartz, chief executive of SoloMio Corp., an Austin wireless-communications company that raised $6.5 million during the quarter from investors including Austin Ventures and Techxas Ventures.
“There’s definitely money they are looking to put to work, but they’re spending more time than ever understanding a company’s business model, literally talking to their customers and doing their homework,” Schwartz said. “That’s a good thing — as long as your answers are good.”
Nationally, venture financing declined from a year ago, sliding 27 percent to $4.3 billion, while the number of companies getting money fell by 19 percent. But the numbers increased slightly compared with the first quarter, offering hope that investments are stabilizing.
“The venture capital industry is actually in a good place right now — not withholding money but not spending it freely either,” said Mark Heesen, president of the National Venture Capital Association. “A few more quarters at this pace would be healthy.”
Silicon Valley companies received $1.3 billion during the second quarter, up from $800 million a year ago. It’s also a slight increase from $1.2 billion in the first quarter, according to a survey by Ernst & Young and research firm VentureOne.
The region receives about one-third of the nation’s venture investments, in part because of the hundreds of venture capital firms based there.
Statewide, 14 Dallas companies raised $87 million, while three Houston companies took in $33 million.
The $142 million raised by Austin companies is only a fraction of the amount invested here during the 1999-2001 venture boom. At the peak in the second quarter of 2000, 49 Austin companies raised $627 million. But after slumping during 2002, investment levels are now slightly higher than pre-boom levels.
Austin’s second-quarter performance was fueled by Austin Ventures, which was involved in seven of the 24 deals.
“When Austin Ventures does that many deals in one quarter, it has a significant impact on the numbers,” Keller said.
A strong showing by Austin’s semiconductor sector also provided a boost. Chip-related companies took in $35 million, compared with $400,000 a year ago.
Software held its own as well, bringing in $42 million, up from $35 million in the second quarter of 2002.
The strength of those sectors, along with new life in early-stage financing, bodes well for the second half of the year, Keller said.
“Will it be indicative of what’s going to happen next? I don’t know,” he said. “But I’d like to think we’ve turned the corner.”
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(c) 2003, Austin American-Statesman, Texas. Distributed by Knight Ridder/Tribune Business News.
