Report: Austin's VC Funding Slumped in 2016

The number of venture capital funding deals for Austin startups hit its lowest point since 2012 last year, and the value of those deals hit its lowest point since 2013, a new PitchBook report shows.

In 2016, 199 deals were closed in the Austin area for a total of $978 million in venture capital investments. While the decline is cause for concern in Austin's already modest VC ecosystem, it represents a relatively small setback after VC deals for Austin companies reached a peak in 2014 and 2015. And the slowdown somewhat mirrors national trends.

The PitchBook report notes Austin's economy continues to run strong.

It cites a few possible reasons for the slowdown in VC funding. Those include: "an insufficient supply of startups decreasing the probability of VCs finding worthwhile opportunities; lack of robust domestic sources of capital; declining interest on the part of both local and outside investors due to increases in perception of risk; and a sluggish recycling of capital."

Austin has generally been known for producing a high number of startups, but relatively few that reach the point of a major exit through IPO or acquisition. And the city's lack of VC funding has been among the most discussed business topics in Austin since Austin Ventures stepped away from early-stage funding in 2015.

Perhaps one of the most dramatic aspects of the decline of VC investment in Austin is the drop off in the number of first-time fundings. Only 49 first-time funding rounds happened in Austin in 2016, down from 85 in 2015 and the lowest amount of first-time rounds since 2009.

Although Austin experienced a decline in VC deals last year, it is poised for a significant amount of new activity in 2017 as several new VC funds come online, including new funds from Notley Ventures, Arena Venture Partners, True Wealth Ventures and Next Coast Ventures.

The most active investors in Austin in 2016 were:

The report notes that an overall decline in funding nationwide, driven in part by overvaluations, is having a big impact on investors' enthusiasm for startup funding. But funding deals in Austin and elsewhere may once again increase after market corrections. And Austin's new funds, increasing number of big tech companies with operations in Austin and emerging medical sector are promising signs for the future.

"The opening of the new Dell Seton Medical Center as well as the establishment of a nonprofit—Capital City Innovation — that will target connecting entrepreneurs with the healthcare research and development efforts at the new center could help engender the creation of new healthcare- related startups," the report said.