Austin venture capital firm Silverton Partners announced Wednesday it has raised a new $144 million fund that will be mostly dedicated to making new investments in Texas startups. That appears to make it the largest early-stage fund in the state.
The firm plans to invest in 20 to 25 startups with its new fund, with about 25% set aside for non-Texas startups.
While the coronavirus pandemic is altering a lot of startup activity right now, Silverton co-founder and General Partner Morgan Flager told Inno that the firm sees a lot of opportunity now and on the horizon.
"We're absolutely looking to invest," he said, noting many of his best investments came during the dotcom bust and the 2008 financial downturn. "Some of the best investments we've made at the firm have come at those times."
Silverton generally invests $500,000 to $6 million in early-stage startups, with initial investments averaging about $2 million. Outside of Austin, it has invested in Dallas-based OneDay and made several investments out of state in California, New York and Utah.
Its new flagship fund raised $127 million for new investments. Meanwhile, $17 million will go into a newly created Opportunity Fund for follow-on investments in its most successful portfolio companies at later stages than Silverton typically gets involved in. The firm has already invested in Austin's Self Financial, The Zebra and AlertMedia out of the new fund.
Silverton, founded in 2005, had initially set out to raise a $120 million fund in September 2019. And that came shortly after some of the firm's most successful exits, including the acquisition of Austin-based portfolio companies Favor and TrendKite, as well as the IPO of Austin's SailPoint and Silver Lake's buyout of Austin's WP Engine. In total, the firm reports $3.2 billion in cumulative value in exits in the past two years.
Flager said it mostly drew the new fund from existing investors, which are often university endowments and the like, but it also added new investors that help diversify its backers. He declined to name the investors.
While the pandemic complicated things, Flager said Silverton's recent exits and investors' need to find smart places to deploy capital put it in a fortunate position to secure deals.
“It never really got dicey for us," he said. "It was lucky timing on our part to have the fund soft circled prior to COVID-19 happening -- and being able to close it out despite the world experiencing this major event."
While many industries are taking major financial hits as much of the country stays at home to avoid spreading the coronavirus, Flager said that the firm will continue to look at deals in all industries, including travel and restaurant tech.
“I’m definitely not of the opinion that we should hit pause on those industries, which is probably counterintuitive for some folks because those industries are going through some challenges," he said.
Flager said while we may see major disruptions and no one has a crystal ball, most of Silverton's investments are in early-stage businesses that are building toward scaling up in a year or two, providing some space from our current predicament.
That said, Flager said raising money will likely be more difficult for many startups.
He said companies that already had a strong business pre-pandemic or are well-positioned to thrive in this environment will continue to be sought after by investors -- perhaps more than before the outbreak.
But for many others, perhaps 60-70% of startups, capital won't freeze up, but valuations will likely suffer and deals will take longer and involve more questions. Meanwhile, he said, many businesses that were struggling going into this or are getting hit hard by the pandemic will likely fold.
Austin, like many startup hubs, has seen hundreds of startups emerge in recent years with capital widely available and perhaps even a perception that launching a startup is relatively easy.
"At times like this, you kind of get the true entrepreneurs who are so convicted about their idea that they’re willing to take a chance in this environment and they know they have to do whatever it takes to make it work," Flager said.
