Mary Ann Azevedo covers startups and technology on Crunchbase News.
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Texas startups will soon have two new sources of capital.
Crunchbase News has learned that two Austin-based venture capital firms, ATX Seed Ventures and Quake Capital, are in the process of raising $ 100 million of funding.
The news comes from a period when Austin’s tech scene saw a string of victories. Tech giants Apple and Google recently pledged to expand their presence in the Texas capital in a major way. And venture investment in the city is accelerating at an impressive rate. In January alone, Austin startups grew almost as much as they did in the entire fourth quarter of 2018.
While both companies have different investment strategies, they share some similarities: They are both trying to fill what they perceive as a gap in the early stage of the Austin market, and both are naturally bullish on the region.
Let’s first discuss what ATX Seed Ventures has planned.
The firm recently closed its second $ 32 million fund and is already raising money for its third fund, which has a target of $ 100 million. A first shutdown is expected as early as May and a final shutdown later this year.
While that may seem like a big leap, the company’s partners of five years – Managing Director Chris Shonk, COO Danielle Allen, and Brad Bentz – explained to me that the company actually has more than $ 60 million under management, so the larger size may look more dramatic than it actually is.
“We put a significant amount of capital to work outside of our primary fund with co-investments…” Shonk said. “But we are excited that investors will not only double, but also triple.” It’s a strong sign of investor confidence. “
ATX Seed Ventures launched its first fund at SXSW 2014, in which it deployed capital of $ 17.25 million. The firm currently has 26 portfolio companies and has already seen four exits: Incent Games (also known as FantasySalesTeam) was acquired by Microsoft; RideScout was acquired by the moovel Group, a subsidiary of Daimler; Set.fm was acquired by VNUE Inc. and Unbill was acquired by Q2ebanking.
Under its name, ATX Seed Ventures began by investing primarily in Austin-based companies. Since then, it has branched out to invest in other Texas cities and is now considering “surrounding” markets.
Despite its name, the firm not only invests in the seed stage, although it is when it prefers to enter the most.
“What we were really trying to do in the market was institutionalize the seed by leading rounds, taking a seat on the council and structuring the terms,” Shonk told Crunchbase News. “We like to be the first institutional round of a company and present what we consider to be the rigor and discipline of Series A and B in the initial assessment stage.”
One of the things that the company likes best about being the first institutional control is that it can “control the valuation a little.”
“The ratings have gone crazy, especially in later rounds,” Shonk said. “In this way, we are not inheriting someone’s previous complexities.”
“In terms of valuations, they are not as out of control here in Texas as they are in some markets,” he said. “So on a risk-adjusted basis, you can still make some really good deals here.”
In terms of sectors, ATX is especially focused on B2B, which is known for Austin, with a SaaS business model. But he’s also interested in supply chain / manufacturing, real estate technology, and energy-related businesses.
“We try to run the races that we think we can win,” Bentz said. “So we focus on our own areas of expertise, as well as our LPs so that we can add strategic value, and not just put money into deals.”
Meanwhile, Quake Capital, which moved its headquarters from New York to Austin last July, is also in the process of raising a $ 100 million fund.
Founded in January 2016, Quake began investing in early 2017 with a fund of $ 4.65 million. He invested in 31 companies in that fund. Jim Brisimitzis, managing partner in Quake’s Seattle office, noted that Quake’s second fund was capped at $ 15 million “on demand” on its LPs. That fund was closed in December. Overall, the firm currently has more than 110 companies in its portfolio.
As part of what it describes as its greatest commitment to the region, the firm has hired a new managing director, Jason Fernandez, to lead its Austin office. As part of his new role, Fernandez will oversee Quake’s ATX accelerator program, as well as the firm’s network of advisors and advisers. Most recently, he worked as a Finance and Operations Partner at BASE Equity Partners.
“We believe that Quake is entering the Austin market at the right time,” Fernandez said. “We see a real opportunity to participate in this early stage / seed category, as most of the existing CVs seem to be moving a bit up the food chain and investing in later stages.”
Brisimitzis reiterated Quake’s confidence in the Austin market.
“We see a tremendous amount of growth in this ecosystem and we want to be a part of it,” he told Crunchbase News.
As Austin’s startup ecosystem continues to grow, there is no doubt that two new nine-figure funds will be welcomed with open arms.