Venture capital funding in Dallas area at lowest level in at least 17 years
By HANAH CHO
Venture capital investment in North Texas startups and young companies took a huge dive in 2012 from a year earlier, reflecting the lowest dollar commitments for the region’s entrepreneurs in at least 17 years.
Investors put up $116.8 million in 33 North Texas companies last year, down 79 percent from $562.6 million in 40 companies in 2011, according to the MoneyTree report, to be released Friday by PricewaterhouseCoopers LLP and the National Venture Capital Association. The report is based on data provided by Thomson Reuters.
The dollar volume is the lowest level reported for the Dallas-Fort Worth region since the MoneyTree report began collecting data in 1995.
Cindi Keith, a partner at PricewaterhouseCoopers’ technology practice in Dallas, said broader economic conditions such as uncertainty over the presidential election and the fiscal cliff prompted investors to stay on the sidelines. With some of the issues resolved, entrepreneurs could see pending deals close early this year, Keith said.
“It’s not the end of the world,” she said. “We’ll have to see what the first couple of quarters [of 2013] look like.”
Results for 2011 were heavily aided by a $300 million deal for Irving-based Reata Pharmaceuticals Inc. Even without that investment, 2012’s commitment would be down 56 percent.
Venture investments statewide and across the country also saw declines last year.
Investors sank $924 million into 153 Texas companies last year, compared with $1.58 billion into 167 companies in 2011. Besides the Dallas region, venture funding in Houston also fell sharply in 2012.
Keith said North Texas typically attracts 10 to 11 deals a quarter. So missing even one or two can make a huge difference, she said.
The fourth quarter of 2012 produced only two deals worth $33.9 million. Fort Worth-based ZS Pharma secured $30.9 million in funding, which also was the largest deal for North Texas last year.
Moreover, the software sector, which traditionally has been one of two top-funded industries in North Texas, attracts fewer dollars per deal, Keith said.
Venture capitalists and analysts said the industry overall is still shrinking, putting a strain on available capital for startups and young companies.
With fewer new funds raising money, venture capitalists were pickier about deals while at the same time holding on to money to support existing companies in their portfolio, said Tracy T. Lefteroff, global managing director of PricewaterhouseCoopers’ venture capital practice.
Nationally, venture capitalists invested $26.5 billion in 3,698 deals last year, down from $29.4 billion in 3,937 in 2011.
Mark Heesen, president of the National Venture Capital Association, said it’s likely that venture capital firms will invest less money in 2013.
And that is not necessarily a bad thing, he said. Investors will complete better deals with more seasoned entrepreneurs, which will produce a higher success rate.
“We’ll continue to see a much more disciplined venture capital industry that will continue to see contraction,” he said.