Ven­ture cap­i­tal in­vest­ing on the re­bound

Re­port shows sharp jump in fund­ing of Austin star­tups af­ter slump to 13-year low in 2009

Austin American-Statesman - - TECHMONDAY - lhawkins@states­man.com; 912-5955 Lori Hawkins cov­ers star­tups and ven­ture cap­i­tal for the States­man.

Last year, Austin ven­ture cap­i­tal firm S3 Ven­tures didn’t make a sin­gle in­vest­ment. “We just didn’t see the deals we wanted to do,” said man­ag­ing di­rec­tor Brian Smith.

In 2010, S3 has in­vested in three com­pa­nies and could do a cou­ple more deals by year’s end, he said.

“There’s more deal flow this year, and we’re see­ing a lot that we like,” Smith said. “It feels like there’s more ac­tiv­ity right now — more en­trepreneurs with new ideas, and more VCs in­vest­ing.”

S3 is one of a num­ber of ven­ture firms

Lori Hawkins — here and on the East and West Coasts — back in the game this year. Af­ter slid­ing to a 13-year low in 2009, ven­ture in­vest­ing in Austin com­pa­nies re­bounded sharply in the first half of 2010, ac­cord­ing to a re­port re­leased last week.

A to­tal of $164.8 mil­lion was in­vested in 37 Austin deals, ac­cord­ing to the re­port by the Na­tional Ven­ture Cap­i­tal As­so­ci­a­tion and Price­wa­ter­house­Coop­ers.

That’s an in­crease of 141 per­cent from the first half of 2009, when $68.4 mil­lion went into 23 Austin deals. That means nearly $100 mil­lion more raised by Austin com­pa­nies in the first half of this year than last.

“What’s great is that rip­ple ef­fects will be felt in Austin over the next 12 to 18 months,” said Kirk Walden of Walden Con­sult­ing, an Austin-based firm that ad­vises star­tups and ven­ture firms. “Com­pa­nies will spend some money im­me­di­ately, on hir­ing, on new equip­ment, maybe new of­fice space. But the im­pact will con­tinue to be felt over a pe­riod of time.”

Na­tion­wide, ven­ture in­vest­ments also rose sharply in the first half of the year, thanks in large part to a ro­bust show­ing by clean-technology and life sci­ences com­pa­nies. In­vestors put $11.4 bil­lion into 1,646 deals, 49 per­cent more money than in the same pe­riod last year, the re­port said.

“Ven­ture cap­i­tal­ists are feel­ing more pos­i­tive about the eco­nomic out­look for in­vest­ment, based on the jump we saw in VC fund­ing this quar­ter,” said Tracy Lefteroff, global man­ag­ing part­ner of Price­wa­ter­house­Coop­ers’ ven­ture cap­i­tal prac­tice. “If the mar­kets re­main pos­i­tive, we’ll likely con­tinue to see ro­bust in­vest­ment lev­els for the re­main­der of the year.”

In a promis­ing sign for Austin en­trepreneurs, the num­ber of com­pa­nies rais­ing

money for the first time in­creased sig­nif­i­cantly in the sec­ond quar­ter. Eight com­pa­nies re­ceived a to­tal of $38.4 mil­lion — com­pared with a to­tal of one com­pany, which re­ceived $800,000, in the same quar­ter last year.

Among those rais­ing their first round of ven­ture cap­i­tal was So­cial Agency, whose Spred­fast ser­vice helps cus­tomers man­age their so­cial me­dia ef­forts. Spred­fast’s soft­ware lets clients plan, ex­e­cute and monitor on­line cam­paigns across mul­ti­ple so­cial me­dia out­lets, in­clud­ing Face­book, Twit­ter, LinkedIn and blog­ging plat­forms.

The com­pany, which launched in Jan­uary and has 15 em­ploy­ees, raised $1.6 mil­lion from Austin Ven­tures in April.

Co-founder Ken­neth Cho said he knew rais­ing money for a com­pany with­out a track record would be chal­leng­ing, so he be­gan net- work­ing with in­vestors two years be­fore So­cial Agency needed in­vest­ment.

“We got on their radar and set up meet­ings and shared our tri­als and tribu­la­tions,” Cho said. “They gave us some re­ally great ad­vice, and we built re­la­tion­ships. When we were ready to ask for money, they knew us.”

Cho said So­cial Agency was pur­sued by a num­ber of Sil­i­con Val­ley and East Coast in­vestors but chose Austin Ven­tures be­cause it wanted a lo­cal part­ner. Still, the com­pany is stay­ing in touch with the other firms.

“Even though they didn’t in­vest, you never know how we might work to­gether in the fu­ture,” Cho said. “They might have a port­fo­lio com­pany they’re look­ing to roll up, or know the right per­son for a po­si­tion we’re fill­ing. The thing we learned is it is never too early to start in­tro­duc­ing your­self and get­ting out there.”

Mean­while, Smith of S3 said he plans to con­tinue to look for promis­ing com­pa­nies that need fund­ing for ex­pan­sion. His firm in­vests in early-stage technology com­pa­nies but fo­cuses on star­tups that are be­yond the idea stage.

Of its three in­vest­ments this year, two are es­tab­lished com­pa­nies with prod­ucts and cus­tomers: Austin­based Li­breDig­i­tal, which pro­vides dig­i­tal ser­vices to the pub­lish­ing busi­ness; and Richardson-based data com­mu­ni­ca­tions com­pany Sipera Sys­tems Inc.

S3’s third in­vest­ment, which has not yet been an­nounced, will be in a startup pre­par­ing to launch its first prod­uct.

“Based on what we’re see­ing, in­vest­ment in Austin isn’t slow­ing down,” Smith said. “Ev­ery­one has come through a tough time eco­nom­i­cally, but it feels like now we’re all ready to push for­ward.”

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