Report: Funding for Austin startups is down

The first quarter of 2022 was the best ever in terms of venture capital funding for Austin area startups.

It was all downhill from there.

As 2022 churned out bad news, from slumping stocks and inflation to global disruptions, local startups were able to raise less and less money.

After the nearly $2.5 billion raised by Austin startups in Q1, funding fell to $879 million in the second quarter and $816 million in the third, according to the Venture Monitor report published by Pitchbook and the National Venture Capital Association. Now the latest data shows local startups raised only $755 million in the last quarter of 2022.

That's the lowest amount raised in a quarter since Q3 of 2020, when the pandemic was still creating major disruptions. On the other hand, historically speaking, that $755 million wasn't so bad. It wasn't until the end of 2018 that Austin startups raised more than $700 million in a quarter, according to the Venture Monitor data.

But the decline in funding is unmistakable. There were only 78 deals logged in Q4 last year. That's also the lowest Austin has seen since Q3 2020.

Overall, Austin startups had 416 funding deals for a total value of $4.9 billion in 2022.

Meanwhile, fewer companies are finding lucrative exits in Austin and across the nation. The new report showed only four exits from local companies in Q4. That followed 6 in Q3, 3 in Q2 and 10 in the highly active first quarter of 2022 that generated nearly $3 billion in exits.

It was a similar story across the nation.

"One of the most striking observations of 2022 was the low rate of public listings for VC-backed companies," the report said. "Just 14 public listings occurred in Q4, and the median post-money valuation of publicly listed VC- backed companies fell by $550.2 million in 2022, demonstrating institutional investors’ pronounced loss of appetite."

The slowdown throughout 2022 happened as many venture capital firms in Austin and across the nation were raising hundreds of millions for new funds, portending a steady flow of future investments.

"In raw numbers, 2022 was a great year for the VC industry, with most indicators of market activity at or near record highs. When graded against any year other than the stratospheric 2021, industry activity was extremely strong," the report said. "However, it is important to look at the quarterly trend, where activity dropped off steeply between the first and last quarters of 2022. The question is, was the decrease in activity during 2022 just the afterparty effect of 2021 wearing off? Or is the VC industry just taking a moment to regroup?"

Top Austin area deals of Q4