Part 2, “State of Capital in Austin — The Equity Side”
In Austin, when the conversation gravitates to funding and capital, most think of the equity side before they think of the debt side, which is explored in “Part 1, State of Capital in Austin — The Debt Side.” Given the high proportion of technology companies in our area, the conversations around capital are generally focused on venture and family offices that provide capital to these verticals. As with the debt side, the equity funding markets are very fluid with new participants coming to the market in droves to capitalize on the opportunities to make investments and derive a return.
The equity side of the equation is, admittedly, more complex than the debt side. This is because each equity participant has their own investment thesis where they are interested in investing in certain business models or verticals and not so much in others. Perhaps that’s where the “gap” comes in within Austin because, depending on your business model or vertical, there may be more or less capital interested in investing. The capital spectrum is wide when it comes to equity, and it is mission-critical to understand the agenda of each form of capital in that spectrum from friends and family to angel to private equity to venture and family offices.
According to Crunchbase, there are 102 firms in the Austin area that designate as either venture, private equity, angel or family investment office. In contrast, the San Francisco Bay Area has 1,507 firms under the same designation with Boston having 270 and New York having 1,306. That is a stark contrast between the coasts and definitely signals a capital gap in the Austin area on the equity side.
This dynamic, and the contrast between Austin and the coasts in particular, definitely precipitate the need for entrepreneurs and founders to look outside Austin as part of their capital strategy. It seems Austin is a great place to bootstrap companies and put together seed or initial rounds of capital, but when it comes to larger and more complex rounds of capital, an entrepreneur or founder may have to tap into resources both within Austin and outside Austin to accomplish their goals.
The answer to why this dynamic exists is complex. It seems all the pieces are in place to have the type of equity capital community that exists in the SF Bay Area or in the Northeast. Pieces including a thriving entrepreneurial ecosystem led by the Austin Technology Council, Capital Factory, CTAN and others. Austin also boasts a major Tier 1 university in the University of Texas at Austin similar to how Stanford supports Silicon Valley. Austin also tops the charts on virtually every quality of life study, which attracts top talent from everywhere in the world. Austin is also home to the state capitol and a very active legislature that supports economic development in the state. So why is it that Austin only has a fraction of the firms that exist in other places around the U.S.?
Perhaps the answer lies in the fact that the city has only recently (in the grand scheme of things) started to grow rapidly and become a hub for innovation and entrepreneurialism. Perhaps it’s because there have not been as many large exits in Austin that have allowed capital to be redeployed back into the ecosystem. Perhaps it’s because the majority of investment in Texas flows into energy and real estate in Texas, leaving less for technology-related endeavors. There likely isn’t one answer; rather, there are several factors. However, it is very encouraging to see reports weekly in the Austin Business Journal and other outlets talking about new capital providers opening offices in Austin. There is definitely momentum behind solving the capital gap that exists on the equity side, but it’s going to take work…and time.
About The Author
Allan is CEO and Co-Founder of PaidUp (getpaidup.com), a financial technology company launched in 2014 designed to handle bookkeeping, accounting, payroll and club dues management for elite volleyball clubs across the U.S. Allan and his co-founder, Felipe Fernandes, launched the startup in Austin, TX and are currently supporting many of the largest volleyball clubs across the U.S. managing nearly $10MM in payments on behalf of these clubs since inception.
Allan is also an accomplished banker with a nearly twenty year track record working in the capital markets supporting privately-held business owners and sponsor backed companies. Allan started his career with Comerica Bank in Dallas in 2001 where he spent the first five years of his career as an analyst and corporate banker. Allan joined Bank of Texas in Dallas in 2005, working primarily in corporate banking and private wealth management where he supported privately-held business owners and their underlying middle-market businesses. In 2013, Allan and his family moved to Austin to join the commercial banking team of BBVA Compass later joining Regions Bank in 2017 to build the Central Texas region as Market Executive.
Austin is home to Allan, and his wife of eighteen years, Jennifer. Allan and Jennifer have three active boys, Will, Alex and Sam and their family enjoys spending time together outdoors, running, cycling, camping and enjoying live music. Allan’s family is also passionate about giving back to the Austin community and work hard to support the homeless through Mobile Loaves & Fishes (an Austin based, 501(c)(3) and Freshies, an organization he and his family launched in 2014.
