Venture Capital Investment in Houston Off to a Strong Start in 2008

Houston kicked off 2008 with a strong quarter of venture capital investment according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. In the first quarter of 2008, 10 Houston based companies raised $124.5 million in venture capital compared to 27 companies that raised $242.6 million over all of 2007. Q1-2008 represented the largest amount of investment since Q3-2006. Here are some stats:

• The bulk of the investment last quarter (54.3%) went to industrial/energy companies with software (25.9%) and medical devices (11.6%) right behind;
• 27.8% of total investment went to companies with an Internet related technology (3 out of the 10);
• 40.0% of the deals went to early stage companies, which represented $13.1 million or 10.5% of the total invested;
• Out of the 19 investors participating in these deals, only 1 Houston VC firm was involved, DFJ Mercury. DFJ Mercury was also the most active Texas based venture capital firm in all of Texas last quarter doing 16.2% of the deals by Texas firms, but only put $1.7 million to work. Of the 4 seed stage deals done in Texas, DFJ Mercury was in 3 and only one of those deals was DFJ Mercury the first money in.

What would make this report more useful would be some persepctive. That perspective might come from knowing how many deals were actively looking for capital last quarter. I cannot say how many deals will get done for the remainder of the year but since it seems that we only have one active firm in town, I find it hard to foresee this pace holding up.

Nationally, the numbers tell a different story. Across the US, venture capital investing was down 8.5% from Q4-2007:

“Venture capitalists still have large amounts of money in their coffers, therefore it’s no surprise to see a solid level of investing continue,” said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. “VCs have weathered numerous economic cycles and will continue to fund companies with innovative ideas and solid business models while they also stand behind their portfolio companies for the long-term.”

“Despite the current economic downturn in the United States, venture capitalists are still putting money to work across multiple industries and stages of development,” said Mark Heesen, president of the NVCA. “The continued interest in the life sciences and clean technology industries, as well as the traditional IT sectors, reflects the long term investment horizon that the venture industry has always embraced. We do not expect to see significant declines in investment levels in the coming year. However, the dollars going to later stage investments could increase if the IPO window remains closed for an extended period of time and venture capitalists have to sustain companies longer than expected.”

Bottom line for you startup hopefuls out there is that money will find good deals. The definition of a good deal may change and adjust as the economic future takes shape, but money seeks a return above the average; it is what capitalism is about.