After a major drought in venture capital funding for Austin startups, a panel including several of the city’s top venture capitalists hinted Nov. 8 that the purse strings are beginning to loosen a bit – though nothing like the heydays of 2021 when startup valuations soared and deals sprouted at a rapid pace.Silverton Partners General Partner Mike Dodd said his firm has made five new deals in the past three months or so after a relatively slow period of very limited investing in the 10 months prior. Likewise, Next Coast Ventures co-founder and Managing Director Tom Ball said his firm also inked five new deals in the past three months after a major slowdown.

While deal flow might be trending up a bit compared to the first half of the year, many founders and investors are still reckoning with the dramatic fall of venture deals over the past year.The Q3 report from PitchBook and the National Venture Capital Association, released in October, showed Austin startups had raised nearly $590 million across 78 deals in the three months that ended Sept. 30. That was the slowest quarter since Q2 2019 in Austin.

The trend has also translated, in some cases, to fewer founders out on the fundraising trail.

“Our deal flow has been way down,” True Wealth Ventures General Partner Kerry Rupp said. “It’s not just that we’re not writing as many checks, which is true. Unfortunately, we’re seeing fewer deals.”

She said that, near the end of last year, many founders were waiting for 2023 in hopes that the funding environment and startup valuations would magically rebound. She said that the pattern might be repeating this year, though she suggested now is as good a time as any.

“If your business is fundamentally working, investors have money that they need to spend,” she said.

Texas still has an advantage

The panel conversation between five local VCs happened in front of a standing-room only crowd at Capital Factory as part of the annual Austin Startup Week, which culminates with the Austin Startup Crawl on Friday evening.

S3 Ventures General Partner Charlie Plauche set the stage with a presentation showing a massive drop off in funding deals nationwide as compared to the 2019 to 2022 timeframe. But he and other VCs noted that startup funding, at least in Texas, is still as strong or stronger than ever before. They just wish people could forget the anomaly that was 2021 when funding flow and valuations spiked to the highest levels ever locally and nationally.

“It’s a pretty crazy slowdown, which probably shouldn’t be too big of surprise for anybody,” Plauche said. “It has fallen, but not as far as you might think.”

He suggested that Texas has been somewhat insulated from the broader national trends, which are largely driven by the massive venture scene on the West Coast.

“It has fallen in Texas, but we are on pace to still beat 2022, which is amazing,” he said.All of the VCs suggested that they’re still hungry for good investments, though they noted that firms are generally more interested in startups led by founders with proven track records and strong product-market fit in a changing economy. They also noted that many of Austin’s most prominent venture firms raised their largest funds ever during the peak of the startup boom years, meaning they have piles of cash to cautiously deploy.

“It’s never been a better time to start a company regardless of what valuations are,” Ball said.

That said, a lot of tech workers and founders have moved from expensive markets in California to Austin, which has driven up salaries, as well as housing costs, all of which can make it much more expensive to start a business, Venu Shamapant, founding partner at LiveOak Venture Partners, said.

“We still have advantage, but not as much as before,” he said.

VC advice: Stay engaged with potential investors

The VCs advised founders to keep reaching out to venture firms, even for meetings with junior associates. Those early meetings establish relationships. Even if a firm doesn’t think a startup is ready for backing, founders who stay in touch and show how they’re growing and navigating the economic landscape will often get more attention than those who make their pitch and disappear.

Several of the investors also encouraged founders to use pitch deck slideshows when pitching their businesses to founders. Too many entrepreneurs seem to try to wing it or simply read off a script.

“There’s a reason you read your kids to sleep,” Rupp said, recounting video conference pitches she has taken where founders seem to be reading off their screens. “It turns me off even when I want to be engaged.”

The investors also suggested that founders make targeted pitches that show that they understand the types of businesses each individual firm invests in, as well as maintaining connections throughout what can be a months or even years long process.

“It’s a dating process,” Ball said. “You want to have as long of a relationship as possible with an investor.”

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