LOCAL ECONOMIC SNAPSHOT | VENTURE CAPITAL

Funding for Texas startups dips

By HANAH CHO
Staff Writer hcho@dallasnews.com

Venture capital is falling this year after roaring back last year. For the rst nine months of the year, venture capitalists invested less money in startups and young companies in the Dallas area and in Texas than during the same period last year. On that pace, funding in 2012 will fall below investments in 2011, a trend that is also reflected nationally.

Venture capital investments in Texas

Funding came back in 2011 after a three-year slump amid an economic downturn. Flow of money into young Texas companies in 2012 has slowed again.
(In millions) 2,000 1,750 1,500 1,250 1,000 750 500 250 0 03 04 *Through nine months 05 06 07 08 09 10 11 12*

Venture capital fundraising

Fundraising dollars this year appear to be on track to beat last years commitments, but the number of new funds has declined. In the rst nine months of 2012, 139 funds raised $16.2 billion vs. 160 funds and $12.4 billion for the same period in 2011. In the Dallas area, only one raised capital: Pharos Capital Group of Dallas. AMOUNT (In billions) YEAR FUNDS 2009 2010 2011 2012* 163 173 182 139 $16.3 $13.6 $18.6 $16.2

Texas

North Texas Texas: $716 million North Texas: $82.9 million

Top 10 industry investments statewide

So far this year, the Austin-based software company Drillinginfos nearly $117 million deal has been the largest in the state. Software garnered the most money locally, statewide and nationally. In North Texas, biotechnology and information technology took the next two spots. Companies in Dallas attracted about $83 million in investments, coming behind Austin and Houston so far this year. Industry Software Medical devices and equip. Industrial/energy Biotechnology Semiconductors IT services Computers and peripherals Electronics/instrumentation Media and entertainment Health care services $91.78 $83.10 $63.32 $54.98 $42.01 $35.88 $17.56 $17.48 $13.89 Amount invested (in millions) $281.02

Top 5 deals in North Texas

Software companies make up the bulk of the top deals, but biotechnology got a rare lift to the top. Neos Therapeutics Inc. Grand Prairie Biotechnology $18.1 million SCIenergy Dallas Software $8 million Horizon Data Center Solutions Plano Software $13 million

SCIenergy Dallas Software $6.2 million

DeviceFidelity Inc. Richardson IT Services $6 million

SOURCES: PricewaterhouseCoopers; National Venture Capital Association; MoneyTree Report; Data from Thomson Reuters

The bottom line

Were seeing considerable softening of new investment in life sciences. The number of rst-time fundings in biotech and medical devices is much lower than it has been even in recent years. A lot of that is caution about the future of the FDA [Food and Drug Administration]. Trailblazer Capital has seen a large increase in new ventures requesting startup capital of $1 million to $3 million. Our Fund II investments are experiencing receptive markets with nancially strong companies willing to take new product risk. We believe this will result in robust early-stage company growth and investment activity in 2013. Joel Fontenot, a managing partner of Trailblazer Capital With entrepreneurs lamenting the lack of venture capital, itll be interesting to see how the Securities and Exchange Commissions new crowd-funding rules expected next year will impact how startups raise funds.

John Taylor, head of research at the National Venture Capital Association

Hanah Cho, staff writer, The Dallas Morning News