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LOCAL ECONOMIC SNAPSHOT | ENTERPRISE FUNDS

Venture capital rebounds
By SHERYL JEAN
Staff Writer sjean@dallasnews.com

KYLE ALCOTT
Staff Artist kalcott@dallasnews.com

Venture capital is back. For the first time in four years, venture capitalists invested more money in young companies in the Dallas area in 2011. But fundraising remains difficult, especially outside of mega-funds on the East and West coasts. Nationally, less than 500 venture firms are actively investing, down from more than 1,000 in 2000. Fewer firms are funding fewer entrepreneurs. Startups have suffered the most, with fewer and smaller seed deals.

Investment trends
Last year, Irving-based Reata Pharmaceuticals Inc.’s $300 million deal was the largest investment nationwide. In Texas, venture dollars hit their highest level since 2007, ranking fourth nationally. Software, energy and biotechnology attracted the most money locally, statewide and nationally. Companies in the Dallas and Austin areas combined attracted three-quarters of venture investments statewide from 2009 to 2011. AMOUNT (In billions) DALLAS AREA
1.50 1.25 1.00 .75 .50 .25 0 ’07 ’08 ’09 ’10 ’11

DEALS TEXAS
1.50 1.25

$1.5 billion

DALLAS AREA
200 150 100 50 0

TEXAS
200 150 100

153

$523 million

1.00 .75 .50 .25 0 ’07 ’08 ’09 ’10 ’11

36
’07 ’08 ’09 ’10 ’11

50 0 ’07 ’08 ’09 ’10 ’11

Fundraising trends
Fundraising improved across the board, but new commitments continued to fall below company investments. Nationally, in 2011, 169 funds raised $18.1 billion vs. 169 funds and $13.8 billion in 2010. The data still is dismal for the Dallas area. Just two funds raised capital last year: Dallas-based Trailblazer Capital and Richardson-based Texas Women Ventures. AMOUNT COMMITTED (In millions) DALLAS AREA TEXAS
1.2 1.0 0.8 0.6 0.4 0.2 0.0 ’03 ’05 ’07 ’09 ’11 1.2 1.0 0.8

Venture-backed IPOs
Despite a handful of big initial public offerings nationally, there were fewer deals in 2011: 52 deals raised $9.9 billion vs. 75 IPOs and $7 billion in 2010. Texas IPOs roared back to life last year and two — Houston’s Kinder Morgan and Austin’s Freescale Semiconductor — ranked among the nation’s top 10. North Texas saw one IPO: Kosmos Energy Ltd. in Dallas. VALUE OF IPOs (In billions) DALLAS AREA
8 6 4

$194.5 million

TEXAS
8 6 4

$6.95 billion

$27 million

0.6 0.4 0.2 0.0 ’03 ’05 ’07 ’09 ’11

$594 million
2 0 ’07 ’08 ’09 ’10 ’11 2 0 ’07 ’08 ’09 ’10 ’11

NUMBER OF FIRMS DALLAS AREA
8 6 4 2 0 ’03 ’05 ’07 ’09

TEXAS
8 6 4

NUMBER OF IPOs DALLAS AREA 6
15 10 5

TEXAS
15 10 5

15

2
’11

2 0 ’03 ’05 ’07 ’09 ’11

0

1
’07 ’08 ’09 ’10 ’11

0

’07

’08

’09

’10

’11

Note: Excludes funds of funds and secondary purchases.

First-time fundings
A 34 percent decline in the number of Texas companies receiving venture capital for the first time in 2011 shows that investors are still spending much of their time and resources with their portfolio companies. Nationally, these first-time financings accounted for 18 percent of all venture dollars. TEXAS NUMBER OF FIRST-TIME FUNDINGS
100 80 60 40 20 0 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

U.S. NUMBER OF FIRST-TIME FUNDINGS
1,500 1,200 900 600 300 0 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

1,159

41

SOURCES: PricewaterhouseCoopers; National Venture Capital Association; Thomson Reuters; Trailblazer Capital; Dallas Morning News research

The bottom line
“The trend of less capital required to start companies is reflected locally in what’s now called micro-VC funds — $20 million to $70 million. After the 2008-09 recession, entrepreneurs see enough stability and a brighter future to talk on risk and pursue dreams like we haven’t see for a few years.” Joel Fontenot, a managing partner of Trailblazer Capital “A lot of fundraising did not happen in 2011 because the IPOs did not happen, so firms did not have much of a track record. Nationally, money was raised in 2011 by a very small number of funds. If fundraising does not pick up in 2012, the question is will venture capitalists be able to invest in new companies in 2012.” John Taylor, vice president of research for the National Venture Capital Association “The venture capital industry has changed dramatically in the past few years, reducing the amount of money available to entrepreneurs. Will it shrink further as many venture firms continue to face difficulty raising funds? That will affect what shape and role venture capital will play going forward.”

Sheryl Jean, staff writer, The Dallas Morning News