Venture capital investments in Houston-area startups increased 32 percent last year, bolstering efforts to market the region as ripe for more than traditional energy and real estate deals.
A report released Tuesday by financial data and software company PitchBook and the National Venture Capital Association found nearly $606 million in venture capital was invested across 98 Houston-area deals last year, up from $459 million and 101 deals in 2018. Last year’s tally marked the best year for the dollar amount of venture capital since at least 2013, the oldest numbers released with the report.
“The big news in the venture capital numbers are larger dollar value, later stage deals, which is encouraging because that’s where a lot of economic impact lies. Jobs, for example,” said Harvin Moore, president of Houston Exponential, a nonprofit that works to accelerate Houston’s tech industries by connecting and promoting Houston’s various innovation players.
Attracting more venture capital has been key to Houston’s work fostering a high-tech ecosystem. In the past few years, city leaders, business executives, universities and startup assistance organizations have developed new programs, coworking spaces and pools of money to support startups.
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The urgency of the effort was made clear when Houston was the only one of the nation’s four biggest cities not to make the list of 20 finalists for Amazon.com’s second corporate headquarters in January 2018. There have been concerns that Houston might repeat past mistakes, squandering its momentum or overlooking accepted economic development practices.
But the robust funding activity last year came amid a steady drumbeat of innovation announcements, with local startup hubs opening or being built (the Cannon, Downtown Launch Pad and Ion, for example) and out-of-state startup assistance organizations moving to Houston, inlcuding Silicon Valley-based Founder Institute, Boston-based MassChallenge and Wisconsin-based gener8tor.
The Greater Houston Partnership, in its own report, touted 2019 as a record year for venture capital funding.
“The venture capital totals that we’re seeing reflect the boom in overall activity that we see throughout Houston’s tech ecosystem,” Moore said.
The largest Houston-area deal in 2019 was the $121 million Series B round for cell therapy company AlloVir, formerly called ViraCyte. The funding was led by Boston’s Fidelity Management and Research Co.
The fourth quarter in Houston saw $109 million invested in local startups, up slightly from the nearly $108 million invested in the fourth quarter of 2018. The largest deal for that three-month period was $25 million received by GoExpedi, an e-commerce, supply chain and analytics company that provides procurement services and parts to the industrial and energy sectors.
GoExpedi CEO Tim Neal said raising the $25 million was a relatively easy process. The company previously raised $2.3 million in July 2018 and $8 million in February 2019.
“The hardest thing was our first round of financing,” Neal said, “because we were unknown and we were from Houston.”
The company now has more than 20 customers and supplies more than 100 rigs, which Neal said proves it can compete with larger publicly traded distributors including Houston-based DistributionNow and Houston-based MRC Global.
And lately, Neal has noticed a larger appetite for investing outside of California.
“There’s a lot of investor interest outside of Silicon Valley now because it’s become really saturated there,” he said.
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Nationwide, the venture capital industry deployed $137 billion in U.S.-based companies in 2019, surpassing the $130 billion mark for the second consecutive year. Last year also set a record for venture capital exit value at $256 billion across 882 liquidity events, which occur when a company is acquired or becomes publicly traded. This flow of money back to investors should encourage more fundraising and increased allocation to venture capital, according to the PitchBook report.
Startups in Silicon Valley received $50.7 billion last year. New York received $27.5 billion, Boston received $10.7 billion and Austin received $2.2 billion.
Looking forward to 2020, Houston Exponential’s Moore said he expected an even better year as Houston has both more early-stage startups and more funding.
“With increased access to angel capital and venture capital, more of our startups will raise money and continue to grow,” Moore said. “And that means Houston’s future venture capital numbers will be increasingly larger.”