Jul 17, 2021 - Economy

Austin sees pay-off from pandemic-era tech reshuffling

Austin-area VC deals by stage
Data: PitchBook; Chart: Sara Wise/Axios

Austin has been one of the top beneficiaries of the pandemic-era reshuffling of tech entrepreneurs, investors and workers.

“From an Austin perspective, I’d characterize it as ‘it’s never been better,’” Next Coast Ventures managing director Mike Smerklo tells Axios of the local startup scene’s growth over the past year, adding that his firm is busier than ever.

Flashback: “I remember way back in 2014 — I can’t remember exactly which firm it was, but they said ‘we really like you guys but we only invest in Bay Area companies,’” says Sunroom Rentals CEO Ben Doherty, who co-founded on-demand delivery startup Favor in 2013 in Austin.

  • “Back in 2014, a good portion of investors believed that if they invested in a company that’s in Austin, it wouldn’t be the category winner,” he adds.
  • Investors believed Favor and others would be outmatched by rivals like Postmates and DoorDash that can access Bay Area talent. With the increased comfort around distributed teams, an influx of tech workers in Austin and the willingness of job candidates to move there, that’s no longer a concern for VCs.

What’s changed: More investors on the coastal hubs are not only willing, but even eager to meet and back startups in Austin and the like, according to Doherty. “I think Silicon Valley VCs might have a bit of [fear of missing out],” he adds.

  • The past year has also boosted Austin’s growing VC industry with the arrival of investors from places like the Bay Area — a welcome trend for Smerklo, who notes that the dominance of a couple of local firms was stifling for Austin.
  • Yes, but: While sources of seed funding are even more plentiful in town today, late-stage capital is not, says Doherty. Even raising a Series A round still requires meeting with VCs on the coasts.

The bottom line: “The risk to a market like Austin is geopolitical — you need housing and roads for people to get to their jobs,” says Smerklo. “You’ve got to make it so that college graduates can move to Austin.”

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