Austin venture funding is still high, but signs of a slowdown emerge

Venture funding for Austin startups was on a slow climb from 2015 to 2019. But by 2020, it was skyrocketing. The metro area went from quarterly totals of roughly $300 million to $700 million to blockbuster quarters totaling $2.5 billion.

Now, the macro economic trends that began to trickle down to startups in late February are evident. But Austin is still flying high, relatively speaking.

Austin continued to lead Texas in VC activity despite a slowdown of its own. VC investment in Austin totaled $870.24 million across 80 deals during Q2, down about 65% from approximately $2.51 billion across 129 deals during Q1, according to data from the Q2 2022 PitchBook-NVCA Venture Monitor released July 14. Austin companies had raised $1.95 billion across 94 deals in VC investment during Q2 2021.

Software company DealHub.io's $60 million round in June was the Austin market's largest VC raise during Q2, per the report.

Austin's not alone in seeing a pullback in VC investing, as well as startup layoffs and hiring freezes even among companies that recently raised significant funding from top tier local and coastal firms.

Market tightening of the U.S. VC ecosystem continued during Q2 after beginning to surface with a correction in the public markets during Q1, according to the report. The market for initial public offerings was virtually closed down during Q2. Later-stage companies eyeing public listings "had to pivot liquidity strategies and cool pricing expectations."

Many VC investors started prioritizing existing portfolio companies and supporting them on their paths toward profitability. However, corporate VC investment and corporate mergers and acquisitions have continued at a relatively strong pace this year, the report noted.

While VCs are certainly being more cautious, they have more money to deploy than ever. Many of Austin's most active early-stage VC firms have recently raised larger funds than ever before. Several others are in the process of raising big numbers, along with opportunity funds to fuel portfolio companies. So, while it may feel like we're in for a long a drought, there's plenty of reasons to be optimistic.

Austin's top deals of Q2

Houston Inno's Chris Mathews contributed to this report.