One of Austin's longest-tenured venture capital firms has raised hundreds of millions of dollars to invest mostly in Texas startups.
Silverton Partners LP announced July 6 it has raised $248 million across two funds: one dedicated to making early-stage investments in small, technology-oriented businesses and another to pump additional money into existing portfolio companies.
A total of $177 million was raised for its latest flagship fund, Silverton Partners VII LP, and $71 million was raised for Silverton Opportunities II LP, which is set up for follow-on investments.
Together, they represent Silverton's seventh fund since its founding in 2006 — and its largest yet.
Managing Partner Morgan Flager said the firm will likely make 20 to 23 investments in early-stage startups, with about two-thirds of the money going to Texas-based companies. Meanwhile, it will make six to eight follow-on investments with portfolio companies from its opportunity fund.
As fund sizes have increased, so too have the VC firm's check sizes. It plans to put $500,000 to $10 million in initial investments in early-stage startups.
Silverton Partners is led by Flager, along with Kip McClanahan, Mike Dodd and Roger Chen, and it has 11 employees based in the historic Joseph and Mary Robinson Martin House at 600 W. Seventh St. in downtown Austin.
The firm has backed Austin companies such as Kickfin, SourceDay, Wheel and, farther back, Favor and TrendKite.
Along with the new funds, Silverton also announced it has promoted Matthew Saitta to principal and Alyssa Dadoly to chief financial officer and operating partner. The firm added Aneesh Desai as an associate on the investment team.
Silverton's new funds are coming online at a time of upheaval in the investing and startup ecosystem. Along with inflation and volatile crypto markets, declining tech stocks have reverberated down to devalue many overly ambitious startup valuations assigned during the frothiest times in the venture market.
That also translates to some venture firms, as well as private equity firms, investing more cautiously or pulling back altogether. The trend, however, hasn't rocked the boat much for Silverton Partners, although the firm is advising its portfolio companies to gird for more market decline.
"What we tell our companies is, 'Hey, even if you have good unit economics, it'd be great to find a way to get through the next nine months, or 12 months, without having to be in the fundraising market,'" Flager said. "One of the challenges is, everyone's kind of looking around, like, where's the bottom? And no one wants to start shooting before they know where the bottom is, because they don't want to be the person that's rushing in when the market is still declining. And so once people have a little bit more of a feel for how low it's going to get, then I think you'll see fundraising start to pick up again."
While venture stats will likely decline somewhat in coming months, the momentum of the past decade or so will continue to fuel investments. In Austin, for example, several of the city's most active firms have recently announced new funds.
That includes S3 Ventures' relatively new $250 million fund, as well as LiveOak Venture Partners' $210 million fund.
"There's still a lot of capital out there," Flager said. "I don't expect the figures to be anemic over a two-year period. They're going to be less than I think what they were in 2021, even over a longer time horizon, but that funding will be there.
"But you just have to get over this choppiness."
Meanwhile, Flager said as big venture firms pull back from overly ambitious funding rounds, smaller startups will find it easier to make key hires.
"There was just a lot of pretty reckless large, late-stage fundings. It just kind of fueled some behavior that was, I'd say, tough for earlier stage businesses because these companies could almost pay or were willing to pay almost whatever it took, paying people crazy amounts of money ... and just kind of made it a little bit hard to compete if you're trying to be a little bit more capital efficient with your business and kind of be a little more pragmatic about growth."
That is just one of the upsides Flager sees during potential market disruption.
"The hiring market is still competitive, but it's cooling off a bit," he said. "And I think it's allowing companies that raise more modest amounts of capital on the early side to have a real shot at hiring people and competing where I think a year ago that was just more difficult.
"So I think that's a good thing for Austin — that has allowed new shoots to sprout up — and it's certainly good for us because we want to be the person there watering those seeds and caring for them and making sure that we get to the next level and not have to over-capitalize these businesses from the jump in order for them to be competitive."
Get ABJ's latest list of local venture capital firms here, and see a list of local angel investors here. A list of local startup incubators can be found here. Want daily updates on fundings, hires and other news of interest to the startup community? Subscribe to Austin Inno's Beat newsletter.
