Pandemic didn't crush Austin startup funding — 2020 VC funding almost broke record

Austin’s startup scene didn’t quite set a record for venture capital funding in 2020 — but it was close, something few would have predicted during a pandemic.

In fact, for a short time in the early days of the Covid-19 outbreak, many founders and venture capitalists worried deal flow might slow to a crawl. That’s because, in addition to the general uncertainty in the market, traditional face-to-face meetings, previously considered core to the funding process, all but ceased.

But after that brief pandemic pause, venture capital firms ramped up video conference meetings with founders and continued to invest in Austin area startups at an impressive clip — many motivated by the changes spurred by the lockdown and medical crisis.

In 2020, VCs poured $2.26 billion into local companies, according to a new Venture Monitor report by PitchBook and the National Venture Capital Association. That lagged slightly behind 2019’s record-setting haul of $2.3 billion.

Meanwhile, national trend lines showed record investments in high-growth startups, record capital raised by VC funds and a strong year for exits. Overall, U.S. investors dropped $156.2 billion on startups investments — up from 2019’s $138.1 billion.

Perhaps most notably, mature startups gained a larger share of total funding while seed-stage deal flows slowed — a trend that has been developing over several years. Nationally, the number of angel, seed and first-time funding deals declined slightly. That’s an indication that many VC firms were doubling down on portfolio companies instead of making new bets on emerging ones. 

This, along with roughly $152 billion in dry powder that American VC firms have to start the year, sets the startup world up for an interesting 2021.

“If investors continue to use teleconferencing software to source, diligence and invest in nonlocal companies, a large amount of capital could be unlocked for businesses headquartered outside of traditional investment hubs,” the report said. “In fact, excluding our deal count estimate, in 2020 the Bay Area saw one of the largest declines in angel and seed deal counts of the 10 most active CSAs, realizing just 81.2% of its 2019 total.”

Zooming into Austin

The Austin metro area ranked eighth in the nation for the number of venture investments in local startups with 260 deals logged in 2020. That put Austin well behind Denver’s 329 investments and well ahead of Minneapolis’ 114 deals. The top three metros were, respectively, San Jose-San Francisco (2,503 deals), New York (1,500 deals) and Los Angeles (1,126 deals).

In terms of deal count, 2020 was a slower year for Austin than 2019 when 307 investments were logged by PitchBook and NVCA. Austin’s highest deal count since the organizations started issuing the report was the 310 logged in 2018. Its lowest was the 86 deals counted in 2006, which is the earliest data included in the report.

Despite the pandemic setting in last spring, there wasn’t much change quarter-to-quarter. The deal flow in Q2, for example, was probably hardest hit by the pandemic. In Austin, 75 deals were logged that quarter, about 10 deals fewer than in other quarters.

Austin also came in No. 8, in terms of dollar amounts invested in local startups, with just under $2.3 billion. That nearly matched last year’s record deal total, and it represents a continuation of Austin’s startup investing boom, which has climbed relatively steadily from just under a billion invested in 2006 to hitting the $2 billion mark for the first time in 2019. 

The top 10 deals in the Austin area logged in the PitchBook-NVCA report were as follows:

You can find the top 50 investment rounds of 2020 in Austin in our recent funding roundup.