Funding in Austin, and Our Experience
- August 8, 2016
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Much has been made of the funding climate in Austin over the last 6 months or more. Further, much as been made of Austin’s City Council’s relationship with high tech, given its policies regarding TNCs (ride hailing) and STRs (Short Term Rentals). Silicon Valley has been telling Austin for months that Austin is no longer a tech hub if we don’t have Uber.
But, when I look at what companies in Austin are doing, and I see a lot of savvy entrepreneurs building good businesses and raising money. I don’t see any evidence of our tech hub status diminishing. If anything, it is getting stronger.
I didn’t feel as though I could comment on BP3’s fate during this, as we were in the middle of a funding process of our own, and the last thing you want to do is get the cart in front of the horse- until we finished our fundraising we didn’t want to presume that our efforts would yield the results we wanted. But now that our funding has closed and the announcement is public, I thought I’d share a little about our experiences and the context I see in Austin.
Austin Funding Context for Startups
Let’s review a bit about funding recently, for a sense of what’s going on (thanks to the Austin Business Journal, this isn’t too hard!):
- Just this past week, our friends at Cognitive Scale raised $21M in a series B. Previously: lots of blog posts about how you can’t raise a series B in Austin. But they did it. And they raised from Silicon Valley.
- In June, our friends at Spredfast raised $50M in a Series F round. This happened less than a month after the prop 1 vote in Austin. They’ve raised $116M in all. Hardly starved for capital, I’d say.
- Outbound Engine raised $15M . Better coverage here.
- Convey raised $4.5M
- The week ending August 1st: $14.6M raised by 5 companies (BP3 being one of them)
- July 25th : $24.6M by 5 companies
- July 18th: $30.7M by 8 companies
- July 11: $7.8M by 2 companies
- July 5: $7.8M by 4 companies
- The week ending June 27th saw 5 startups raise $19M
- June 20th: $30.9M
- June 13: $64.6M
- June 6: $66.3M
- And there are many others I’m overlooking.
Of course, Silicon Valley raises dramatically more money every week than Austin does. That isn’t the point. The point is that Austin companies that are building good businesses have access to capital.
There has been a consistent flow of investment money to Austin firms over the last few quarters. Most of that money comes from outside Austin, it’s true. And I would argue for a well-run company the location of your investors doesn’t matter as much. You have the luxury of picking the right partner for your business, rather than taking the partner that lives close to you. There’s no reason not to broaden the field to investors far and wide if they can help you grow your business.
There’s a fair critique of Austin that the lack of certain types of investors, or the deep pockets required, means that Austin startups can’t “swing for the fences” as easily. That usually translates into: Austin startups can rarely fund rapid growth with big losses like the Unicorns of the Silicon Valley can. For the typical entrepreneur in Austin, that means coming up with plans that involve getting your burn rate to zero a lot sooner than any competitors that might launch in the Bay Area. It affects the kinds of businesses we start and fund and the kinds of businesses that flourish. It may be frustrating, but running businesses that don’t have to rely on years of losses is a good way to spend more time with customers and less time raising money.
Through the fundraising process, we learned a little bit about investors’ view of Austin. The general consensus is that Austin has a lot of seed and decent Series A opportunities to invest, and there are some big success stories (HomeAway, RetailMeNot, Bazaarvoice, etc.), but there are not enough mature mid-size companies who have built a track record of revenue and profit – or at least not enough investable opportunities. I can’t personally attest to that but that’s what we were hearing, and I guess just as startups have their share of fair critiques, so do investors. I can say that our experience validates the good news that if you get that far – mid-sized company with growth and profit – that there are equity firms ready to help you grow with more capital.
Our Experience with Funding, and Why we Expected it to be Hard
In Petra, we found investors that believed in our team, and in what we are doing, and in the trajectory. We talked to a lot of great investment firms along the way. We never once heard a negative issue about Austin or City Council that affected their thinking about us or investing in our business, or affected their interest in investing in Austin-based companies. We certainly talked to Austin investors as well, and will in the future when the time is right.
For patient, well-run companies who are generating enough cashflow to run their business, or have enough growth to move investors, there will be options to take on capital. For all the Austin-based companies that are frustrated about fundraising, we understand. We were considered “first-time” entrepreneurs from an investor perspective, despite our prior experience at firms like Trilogy, 7-24, USWeb, and Lombardi. We started a firm just in time for the recession of 2008-2010. We had to bootstrap as a professional services firm to pay the bills and build the case for developing software. For several years we were a moderately fast-growing, profitable company that was, nonetheless, un-investable. All along the way, we have heard that we were about to peak, that the next level is much harder, and that we would hit the wall. Statistically all of those people were right. We didn’t hold it against them, but it was great motivation to power through each barrier.
Gradually our business evolved to the point where we were clearly investable, but you still have to find and attract the right investors – which took us more than 6 months to do, and realistically it was probably closer to a year. (This is where I pause to give a shout out to Petra Capital for stepping in to invest in BP3).
As a result of this, we can relate when someone complains about not being able to raise money, for any pre-determined reason. We understand. We empathize. We can share campfire stories about being the odd duck.
But we didn’t start BP3 in order to be validated by the startup community, or by angel investors, or by VCs. We started BP3 because we were passionate about what we could build and we felt like no one else was tackling the problem the way we would. Nine years later we feel reasonably vindicated, but I’d be lying if I didn’t admit that we’re not looking back or satisfied, we’re laser focused on the future and how to get to that next level.
u don’t build a company to be with the cool kids, or to live up to someone else’s expectations of what you should do with your life or your company. You build a company so that you can implement your vision and share your vision with others. The validation comes from your team and your customers. But yeah, at some point it is nice to get a little financial help from investors, too.