FUNDING FLOW: In 2019, big deals drove Austin VC funding to a two-decade high

This past October, Austin startup Rigup stunned the local startup community when it announced it had raised a $300 million round and raised its valuation to $1.9 billion, becoming what many consider to be a unicorn.

The $300 million deal was by far the biggest of 2019, and also one of the biggest deals in Austin history. The last round of similar size came from technology company WP Engine, which disclosed a $250 million investment in 2018.

Rigup, which makes an online platform that connects oil and gas companies and service companies, also raised $60 million in a separate deal earlier in the year.

Local venture capital experts say they knew Rigup -- which was founded in 2014 -- had been on the rise, but did not expect the size of the investment.

“I don’t know who saw RigUp coming,” said Thomas Ball, a partner at Austin-based venture capital firm NextCoast Ventures. “Two years ago I think everybody knew about it, but I don't know that anyone thought they would raise that much money.”

The RigUp news came just weeks after another huge funding announcement, as Austin-based SparkCognition raised $100 million round.

Experts say it was these megarounds -- typically defined as deals where a startup raises at least $100 million -- that helped drive Austin-area venture capital funding to its highest level in nearly two decades.

Austin-area companies raised $1.73 billion in venture capital funding in 2019 in 151 deals, according to a report by PricewaterhouseCoopers and CB Insights, which tracks venture capital deals nationally.

The total funding easily surpassed 2018’s total of $1.48 billion, and is the most since the height of the dot-com boom era in 2000, when funding peaked at $2.7 billion, an amount no year since has come close to matching.

The surge of funding also confirmed what Austin-venture firms predicted in late 2019, after a strong fourth quarter and promising deal activity showed the year was likely on track to for a near two-decade high. Venture dollars are a key ingredient of a homegrown high-tech economy, enabling companies to add workers, invest in new equipment, hire service providers and ramp up product development and marketing.

Texas VC funding as a whole also hit a near two-decade high at $2.98 billion from 267 deals, according to PricewaterhouseCoopers and CB Insights. That’s the highest number for state since 2001, when Texas raised a combined $3.5 billion in 331 deals. Nationally, the total raised was $108 billion, according to PricewaterhouseCoopers and CB Insights.

In 2019, Austin led all Texas metro areas in total deals and total money raised. It also accounted for half of the top 10 deals for the year and four out of 10 in the fourth quarter, according to PricewaterhouseCoopers and CB Insights.

“There’s no doubt that Austin’s entrepreneurial landscape continues to expand and thrive, and an increase in funding is representative of the level of talent in our community,” Leigh Christie, senior vice president global technology and innovation for the Austin Chamber of Commerce, said a written statement. “When our companies receive funding, we hope that places them in a better position to attract and hire talent, which then allows them to increase their growth and customer base.”

'So many seeds planted’

In recent years. Austin has seen increased deal activity in startups considered “expansion” or “late stage,” which has helped larger deals and led to more VC dollars flowing into the metro area, industry experts say.

“It's validation that not all entrepreneurs are playing for ‘small’ outcomes here, which has been criticism in the past,” Ball said. “The best entrepreneurs and investors are willing to go long.”

Ball said the region is likely to continue to see deals like those made by Rigup or SparkCongition as more companies grow in Austin and reach later stages.

“There have been so many seeds planted in the last five years,” Ball said. “With the large number of local investors who continue to seed the market. there's going to be many more companies that break out.”

Chris Pacitti, a founder and partner at Austin VC firm Elsewhere Partners, said megadeals like those raised by Rigup or SparkCongition are a good sign for the Austin economy, but that they don’t tell the full story.

“It's good we're getting those megarounds. For a long time, you saw them in Silicon Valley or New York and Boston, but you didn't see them in Austin,” Pacitti said. “It's really cool to see $300 million in financing going up in our own backyard, but that can create a lumpy comparative.“

Pacitti said he tends to focus more on deal volume, which can be more instructive than huge outlier rounds.

“Deal volume has been consistent, but the dollars went up,” Pacitti said. He said that consistency is a sign of a healthy and growing venture capital landscape.

Since 2012, the Austin area has consistently topped 100 VC deals a year. In the past five years, the number has ranged from 147 to 162 deals per year, with total funding ranging between $868 million and 2019’s $1.73 billion.

“If you trace back 10 years ago or more, we were seeing like 50 or 60 deals a year in Austin. Now it’s at 150 deals.” Pacitti said. “I look at that as quite a good factor.”

Growing sectors:

Technology companies -- especially startups in the Internet and software -- continue to lead the Austin venture capital scene. However, experts say there has been increased diversity in the types of companies landing investments.

Ball pointed to increased activity in the consumer packaged goods sector -- where Austin has grown big-name brands like Tito’s Handmade Vodka and Siete Family Foods -- and the health care sector.

Siete Family Foods, which makes grain-free tortillas, chips and other foods, raised Austin’s third-largest VC deal of the year in April with a $90 million funding round. In the health tech sector, EverlyWell, a company that offers at-home lab tests for a variety of purposes, also landed a $50 million deal.

“You're seeing, lots of different investors both locally, from the coast and even globally,” Pacitti said.

’Things are going in our favor’

Austin’s VC activity remained strong in the fourth quarter even as other regions, including Silicon Valley, New York and Boston, saw a dip in deal activity.

Industry experts say a slow quarter in other regions doesn’t raise any warning signs for Austin going forward.

"The local investors who are here are pushing to do deals in Austin, and the investors from out of town are continuing to come to Austin to invest,“ Ball said. ”I don't think we’re competing with other markets for dollars at this point.“

Ball said it could also be a sign that national investors are looking more to Austin, but it’s too early to tell.

“I'd love to look into that and say this is a sign that more and more people are leaving California and coming here, which is certainly a trend that we do see. But I think one quarter doesn't make a trend” Ball said.

Christie, of the Austin Chamber of Commerce, said her organization is continuing to see talent and companies migrating to Austin from the coasts, which she said could mean more potential investors looking towards Austin.

“Our accelerators and entrepreneurs continue to grow innovative technologies, and those companies who recently received large rounds of funding are continuing to call Austin home,” Christie said. “Let’s hope we continue to experience more of the same.”

Ball said Austin’s population growth overall has helped contribute to the strength of the startup market.

”The population is growing, the big tech companies are setting up real operations operations here,“ Ball said. “All the things are going in our favor.”

RigUp, an online platform that connects oil and gas companies and service companies, raised the biggest deal of the year in October with a $300 million funding.

Endeavor Real Estate Group reported in June that it raised $160 million, with commitments for an additional $140 million.

SparkCognition said in October that it raised $100 million to accelerate its artificial intelligence platform.

Siete Family Foods, which makes grain-free tortillas and other foods, raised $90 million in February.

ScaleFactor, an accounting and payroll management software company, raised $60 million in August.

RigUp also raised a $60 million funding round in January.

Outdoorsy, an online RV rental marketplace, said in January that it had raised $50 million.

EverlyWell, which offers at-home lab tests for a variety of purposes, said in March that it landed $50 million.

Disco, a fast-growing software company, raised $50 million early in the year.

TurnKey Vacation Rentals, an online platform that handles the process of renting out a vacation home, said in July it raised $48 million.

FloSports, a digital sports media company, raised $47 million in June.

Austin’s biggest funding deals of 2019