July 17, 2021

Welcome to the middle of July. How's your summer going so far?

  • This week we're checking in with Miami and Austin — two cities that were hailed as the "new Silicon Valleys" during the pandemic — to see what has happened to their startup markets.
  • As always, feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar.
  • Playing on my Spotify: a bunch of Backstreet Boys and Spice Girls songs (courtesy of a '90s-themed playlist).

Today's Smart Brevity™ count is 973 words 3 1/2 minutes.

1 big thing: New startups are brewing in Miami

Illustration: Sarah Grillo/Axios

Startup funding activity in Miami increased during the pandemic, but it has been largely concentrated at the earliest stages — signaling that the city is still a young hub whose primary growth comes from adding brand new companies to its ecosystem.

Why it matters: Despite a lot of noise from certain Silicon Valley techies and investors who left the area for cities like Miami, new data suggests the exodus was more temporary as some are now quietly returning to the Bay Area.

By the numbers: In the first two weeks of July, notable local deals include Lula ($18 million), Marco ($82 million) and Unybrands ($300 million). And according to data from Pitchbook:

  • 2021 Q2: $831 million invested, up 142% compared to the year-over-year period immediately after the pandemic began.
  • 2021 Q1: $224 million invested, up 109% y-o-y.
  • 2020 Q4: $216 million invested, down 68% y-o-y.
  • 2020 Q3: $218 million invested, down 23% y-o-y.

(Scroll to the bottom for data on Miami deal-making by stage.)

What they’re saying: “Pre-pandemic, there were only a few companies being built here that were a fit,” says ANIMO Ventures general partner Nico Berardi, who’s based in Miami but doesn’t exclusively invest there.

  • Of the 22 investments ANIMO’s made so far from its first fund, only one is based in Miami, though Berardi cites two other local companies he’s missed out on backing.

Between the lines: “The local ecosystem prior to COVID-19 wasn’t really committed to excellence” and had over-indexed on startup meetups relative to the depth of its startup bench, explains Berardi.

State of play: A number of entrepreneurs are setting up their new startups in Miami, including previously successful founders, says Atomic managing partner (and early transplant) Jack Abraham.

  • The arrival of investors from established VC firms like Founders Fund and Andreessen Horowitz, and SoftBank’s commitment to investing $100 million in local startups, has sent strong signals about Miami’s viability as a hub. “Symbols matter,” adds ANIMO's Berardi.
  • There’s also an uptick in VCs from Silicon Valley and other hubs taking trips to Miami to meet with local startups and network. Investors from the #Angels group, Freestyle and GV (among many others) have been in town recently — and are even inking some deals.

Of note: Big and late-stage financings have also started to creep up in Miami and the rest of South Florida over the last couple years — though some have gone to companies that have recently relocated there, like Pipe ($250 million) and Introhive ($100 million).

  • There was also no financing round above $500 million in the first half of 2021, unlike in the previous three years, as Refresh Miami's Nancy Dahlberg notes.

The bottom line: Miami’s certainly making strides in beefing up its local startup market, but Silicon Valley it is not (yet, at least).

2. Meanwhile, in Austin...

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

“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.

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

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.”

3. The other side of California

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

A quieter beneficiary of techies and investors moving to new locales over the past year has been Los Angeles, whose longtime efforts to grow its startup scene were further boosted by the arrival of those fleeing the Bay Area who still wanted to stay in California.

By the numbers (according to Pitchbook):

  • 2021 Q2: $6.3 billion invested, up 370% y-o-y (immediately after the pandemic began).
  • 2021 Q1: $6.2 billion invested, up 197% y-o-y.
  • 2020 Q4: $3.5 billion invested, up 126% y-o-y.
  • 2020 Q3: $7.2 billion invested, up 192% y-o-y.

📚 Due Diligence

  • Missing piece in Silicon Valley exodus talk: labor laws (Axios)
  • The Miami movement fuels Q2 venture capital (Refresh Miami)
  • The rebellion against Silicon Valley (the place) (Axios)

🧩 Trivia

Big exits like acquisitions and IPOs are often hailed as a marker of a local startup market's success.

  • Question: Which company's IPO in recent years was a milestone for VC-backed companies in the South Florida area? (Answer at the bottom.)

🧮 Final Numbers

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

🙏 Thanks for reading! See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and transplants from Silicon Valley to sign up.

Trivia answer: online pet supplies retailer Chewy.