After a slow start to the year, venture capital activity in Austin bounced back in the second quarter, with internet companies leading the charge.
A total of $330 million was raised by 43 companies during the quarter, according to a survey by PricewaterhouseCoopers and CB Insights. That’s a 182 percent increase from the first quarter, when 17 companies received $117 million.
All stages of companies experienced an increase in investment funding compared to the previous quarter. Expansion stage companies received the majority of money, with $152 million in 11 deals.
“This was a great rebound quarter,” said Larry Westall, managing director of the PricewaterhouseCoopers Austin office. “It shows there continues to be significant interest in our market, our people and our companies.”
Nationwide, venture capitalists deployed $18.4 billion across 1,152 deals in the second quarter. Silicon Valley companies received $3.6 billion of the total, according to the survey.
Venture capital investment matters to the Central Texas economy because it allows companies to grow their workforces, invest in new equipment and office space and ramp up product development and marketing.
That’s the case with Austin-based Opcity, which in May raised $27 million in its first round of venture financing. The startup, which launched last year, has built a platform that connects real estate agents with pre-screened homebuyers and sellers using matching algorithms.
Founder and CEO Ben Rubenstein said the company decided to raise a larger than usual round of Series A funding because it saw a chance to quickly accelerate its reach.
“There is such a huge opportunity that we want to scale and we want to do it right,” he said in May. “The first step is to put in the necessary infrastructure. We need to hire, hire, hire. You name it, we pretty much need it right now.”
The company, which has about 100 employees, is hiring in areas including data science engineering, design, marketing and sales.
Over the years, venture investing in Central Texas has seen dramatic ups and downs, with investors coming and going and markets rising and falling. Investment activity peaked during the dot-com boom in 2000, when 185 Austin companies raised an eye-popping $2 billion.
When the internet bubble burst, investors pulled back, leading to several lean years when even promising companies struggled to raise money.
Today, Austin is home to a number of active venture firms, including ATX Seed Ventures, AVX Partners, LiveOak Venture Partners, Silverton Partners and S3 Ventures. In March, Next Coast Ventures, led by former Austin Ventures investor Tom Ball, announced a new $85 million fund to invest in startups.
LiveOak made five investments in Austin companies during the second quarter, including Opcity, communications company Telestax and Digital Pharmacist, a digital health company that connects pharmacies and patients.
“We had a busy quarter and are seeing a lot of activity,” said Krishna Srinivasan, general partner at LiveOak. “We’re seeing a lot of good companies that are emerging here, and the hard work the founders have been putting in during the last couple of years has led to some nice financings.”
Most of Austin’s venture firms focus on early-stage deals, typically an investment in the $2 million to $5 million range, which can be used to hire a founding team or develop a product.
Austin companies in the expansion stage — launching products, breaking into new geographic markets and in need of hiring dozens of employees — have found fundraising to be more difficult. But there have been some positive developments on that front, including the recent opening of an Austin office by March Capital Partners, which is looking for expansion-stage deals.
“We are a good fit with the existing venture environment in Austin,” Jim Armstrong, a March Capital partner, told the Statesman. “We know the folks at Silverton, at Next Coast, at S3 and LiveOak. They focus on early stage investments, and when I talked with them, they said they would love to have us here because as their companies grow it would be great to have someone lead a follow-up round of financing.”
Additionally, Austin is on the radar of large corporate investors, and they have pumped millions into some of the biggest deals this year, said Jonathan Packer, who leads innovation efforts at the Greater Austin Chamber of Commerce.
The recent wave of activity by corporate investors is being driven by an interest in artificial intelligence technologies, he said. “Large corporations are investing in that space, and they see the innovation in AI and areas like digital health care happening in Austin,” Packer said.
In the second quarter alone, artificial intelligence startup SparkCognition raised $32.5 million from Verizon Ventures and the Boeing Company’s investment arm Boeing HorizonX; software maker Zilliant received $30 million from global finance company Goldman Sachs and CognitiveScale, which builds machine intelligence software for health care and other markets, landed $15 million from backers including Intel Capital, Microsoft Ventures and USAA.
In Austin, the internet industry — with a strong slant toward artificial intelligence —remained the single largest investment sector in the second quarter, with $143 million invested in 23 deals. That’s a 46 percent increase in dollars from the first quarter.
Nearly every other investment category — including software, health care, electronics and food and beverages, also saw an increase in investment compared to the prior quarter.
Austin’s High Brew Coffee helped give the food and beverages category a boost, bringing in $17 million to ramp up expansion of its cold-brew coffee business.
The fast-growing company, which has about 80 employees, will use the funding to invest in infrastructure and increase its capacity. High Brew sells its eight-ounce cold-brew cans at 15,000 retail outlets in 50 states. National retailers that carry High Brew include Whole Foods, Target and Safeway.
“Witnessing the growth of High Brew over the past three years has been an amazing ride,” founder David Smith, who previously co-founded Sweet Leaf Tea, said when High Brew landed the funding in May. “With the closing of our Series B funding, we will be able to reach even more markets. We are excited to write the next chapter in the High Brew story.”
Austin’s top 10 venture deals in the second quarter:
SparkCognition, AI technology to predict when a company's systems might fail or get hacked, $32.5 million
Zilliant, software to determine the best pricing on deals, contracts and price lists, $30 million
Xeris Pharmaceuticals, injectable treatments for diabetes and other diseases, $30 million
Opcity, platform that connects real estate agents with pre-screened homebuyers and sellers, $27 million
Ambiq Micro, technology that dramatically cuts the energy consumption of semiconductors, $23.5 million
Ortho Kinematics, noninvasive diagnostic technology for evaluating patients' spine function, $18.6 million
High Brew Coffee, cold-brew coffee, $17 million
CognitiveScale, augmented intelligence software for financial services and other markets, $15 million
Ziften Technologies, threat-detection software, $14.75 million
ClearDATA, provides cloud computing services to health care companies, $12 million
Source: The MoneyTree Report from PricewaterhouseCoopers and CB Insights.