Austin startup funding soared through the roof in first half of 2021

Fueled by a steady flow of founders migrating to Austin, the local startup ecosystem in the first half of 2021 obliterated previous venture capital funding records.

A new PitchBook-NVCA Venture Monitor report covering the first six months of the year showed local companies raised $1.5 billion in VC in the second quarter and $921.5 million in the first.

Each of those figures was larger than any of Austin's previous best quarters — by a lot. The prior high water mark, at least in available PitchBook data going back to 2014, was $783.6 million raised in Q4 2019.

Another way to look at it: The $2.4 billion Austin startups raised in the first half of 2021 was already ahead of the $2.26 billion local companies raised throughout all of 2020.

The growth in funding didn't surprise Joshua Baer, one of Austin's most active investors and founder of startup accelerator Capital Factory.

"The investors are moving here, and they're funding more deals and writing big checks," he said. "There are all these people coming here funded. They're going to look like they got funded here. They actually got funded like three months ago in San Francisco, and then they moved here. There's a lot of that."

Austin's startup ecosystem loosely followed the broader pattern that has been noted across the nation: more huge funding rounds for maturing startups, but steady or declining deal count.

For example, Austin's record-setting $1.5 billion in funding in Q2 came from only 79 deals. In Q1, local entrepreneurs secured 93 deals to raise more than $900 million. A few years ago, it was common to see 80-90 deals per quarter raise around $600 million.

"The whole market is super frothy," Baer said. "So it's easier than ever to raise money from anywhere, there's just more money around, and the crowdfunding stuff — that's a real alternative for a lot of people right now."

The top five funding deals in the first half of 2021, according to the report:

That was about $946 million raised across the five largest deals.

It seems unlikely that the pace of investment in Austin companies will slow, given the continued influx of startups relocating from Silicon Valley and other markets, as well as a growing number of hometown venture firms and maturing startups.

While some transplants may come to Austin just as they raise new money, others relocate to Austin, continue to iterate on their products and later catch their funding wave.

Legal-technology startup Disco, for example, moved to Austin from Houston in 2018, thanks in part to a funding deal with Austin-based LiveOak Venture Partners. It raised at least $161 million in venture funding in recent years. In June the company filed to go public at a $1.6 billion valuation.

The venture cycle is being fueled nationally by investments maturing into exits and new funds being born, at a time when crowdfunding and accelerators are also booming.

The PitchBook-NVCA report showed IPOs and SPACs helped fuel $372.2 billion in exit value for venture-backed companies so far this year. That's 30% more than 2020's all-time record.

Overall, venture-backed businesses raised $150 billion in the first half of 2021 year, which was about 90% of last year's total. That was also a record year.

“U.S. venture investment levels continue to rise as mega-deals become more common and nontraditional investor participation in VC becomes standard. As the industry looks toward the second half of the year, investors are evaluating whether this level of dealmaking will persist and what its broader impact might be,” John Gabbert, founder and CEO of PitchBook, said in the report. “The robust exit market of the last 24 months has returned record amounts of liquidity to LPs and more exits happening across the VC ecosystem is a broadly optimistic sign for the health of the venture market going forward.”