SXSW panel: Austin doing just fine in funding startups

Posted March 11th, 2016

Is there a shortage of capital for startups in Austin?  Or do we just lack enough quality companies to attract it?

That's been subject of debate among Austin entrepreneurs recently, and investors weighed in at a South by Southwest Interactive panel on Friday. 

"There are two camps right now: One says Austin's venture capital landscape is in the dark ages with a lack of capital versus the other side that says 'Just get out there and find the money, it's there,' " said Claire England, executive director at Central Texas Angel Network. 

England said CTAN, which backs early-stage companies, funded 30 percent more deals in 2015 over the previous year.

RICARDO B. BRAZZIELL / AMERICAN-STATESMANTom Meredith speaks during a rally on April 14, 2015. 

Former Dell Inc. executive Tom Meredith, who now runs investment firm Meritage Capital, said the fact that the money isn't flowing wildly in Austin as it has been in Silicon Valley is a good thing.

"In a startup you want limited money," Meredith said. "You don't want to be over-funded ever. Because in that case you make dumb decisions. It's been a different mentality in Silicon Valley, with inflated valuations and companies getting funded that probably shouldn't be. Austin for whatever reason didn't see that in the 90s and we don't have that now."

He said the shift in power from Austin Ventures to smaller more nimble investment firms is also a positive for Austin startups. Austin Ventures, which dominated investment activity in Austin in the '90s and early 2000s, announced last year that it wouldn't raise a new fund for early stage investing.

"The fact that AV is not here is actually a blessing," he said. "At first I thought it was not a good thing. But I've reflected and now I realize it's a really good thing. Because it used to be that if they passed on your deal you weren't able to get money anywhere else. Now more money is coming in from these micro funds, and they're more adaptable and more open."

Laura Kilcrease, managing director of Triton Ventures, said that "more money is coming into town, much of it because of the demise of AV."

"I think there is plenty of money out there, but that doesn't mean it's easy," Kilcrease said. "Often the thing we're calling companies are not companies, they're features. Investors want to see early customer traction and companies that can scale."

They also want to see their money go further than it once did, she said.

"We have traditionally applauded ourselves for the amount of money we raised. 'They raised $30 million, they must be really good.' A lot of it got flushed away, and we're not acting like that anymore. Now you need to do a lot more with a million."

For Austin, unlike Silicon Valley, that's always been part of the mentality anyway, she said.

"Austin has had to be scrappy because of who we are, and it has turned out to be a benefit," Kilcrease said. "We do a lot more with less."