Venture capital activity in the Houston area came back to Earth in the fourth quarter of 2023 after a brief spike in the preceding quarter, indicating the Bayou City is following national trends in a tough venture environment.
With 37 deals, the Houston-Sugar Land-The Woodlands metropolitan statistical area fell behind Dallas-Fort Worth and Austin, which counted 41 and 126 deals, respectively, according to new data from the 2023 Pitchbook-NVCA Monitor. Houston did see $252.2 million in deal value in Q4, ahead of Dallas but well behind Austin’s $1.1 billion in the same quarter.
While Pitchbook recorded one more local deal closed in Q4 compared to Q3, Houston's data for the previous quarter also included the highest-valued deal in all of Texas thanks to Houston-based Axiom Space’s $350 million Series C round — a deal that was unmatched in Q4.
Houston’s decline in Q4 mirrored total venture deal value across the country falling to its lowest point since the fourth quarter of 2019. The $170.6 billion invested nationally in Q4 is a drop of $71.6 billion from a year earlier and $177.4 billion from the same quarter in 2021.
Early-stage deals were hit particularly hard, with the quarterly value for those deals across the country dropping to its lowest point since Q3 2017.
One positive sign for Houston — and many markets outside traditional VC hubs such as Silicon Valley, Los Angeles, New York and Boston — is that deal count is beginning to split more evenly between these traditional hubs and “breakout” markets. However, deal value is still skewed toward the major VC hubs, Pitchbook said.
While the report said markets are unlikely to recover in the near term, it also highlighted several indicators in public markets that could lead to a brighter 2024. Inflation has remained on the downward trend, and interest rates could be set for cuts in 2024, which Pitchbook said could be a signal for VC-backed companies that investor interest in small-cap growth stocks could be returning.
Software, industrial technology leads Q4 Houston VC deals
The biggest raise in Houston in Q4 came from software startup RepeatMD, which provides white-collar rewards programs for wellness clients such as med spas and aesthetic spas. Palo Alto, California-based Centana Growth Partners and New York-based Full In Partners co-led a $50 million Series A round for RepeatMD in November.
Philipp Sitter, co-founder and CEO of RepeatMD, told the Houston Business Journal in an interview that the funds will help build go-to-market teams for expanding RepeatMD’s services outside of its predominant markets of dermatology, plastic surgery and medical spas. The funding round came about nine months after Houston-based Mercury Fund LP first seeded the company.
Hot on RepeatMD’s heels in deal valuation was superconducting wire manufacturer MetOx Technologies, which landed a $43 million late-stage venture investment in December. The funding was led by Kansas-based Koch Disruptive Technologies, MetOx said.
The third-highest-valued deal was completed by EndoQuest Robotics. The medical device company closed a $42 million Series C-1 deal led by its legacy investors, CE Ventures Ltd. and McNair Enterprises Ltd. EndoQuest previously raised over $80 million under its old name, ColubrisMX, according to Crunchbase.
Mercury’s new fund makes a big impact in Texas
RepeatMD’s seed round from Mercury was one of the investments made from the VC firm’s $160 million Mercury Fund V, which closed in late September. Mercury said it received commitments from university endowments, foundations and family offices with a focus in the Midwest. Fund V is the third-largest fund closed in Texas in 2023.
Besides RepeatMD, Mercury also made an investment into Houston fintech founder Youngro Lee’s latest startup, Brassica Technologies, which delivers transfer services between traditional banking institutions and those relying on newer innovations such as Web3. Lee previously founded the investment platform NextSeed before it was acquired by New York-based Republic in 2020.
Several investment firms not mentioned in the Pitchbook-NVCA report closed funds with a focus on decarbonization and climate technology. Houston-based Ara Partners closed over $3 billion in new capital commitments in its Ara Fund III in December. Ara has already made four portfolio investments with a focus on European companies.
Meanwhile, Maynard Holt, a former leader of investment bank Tudor, Pickering & Holt Co., closed an $85 million fund through his new company, Veriten. The fund, named NexTen LP, is Veriten’s debut fund and has made five investments, including one into Houston-based grid-forecasting company Amperon.
