LiveOak Venture Partners raises a $109M fund, deepens Austin's early stage capital pool

By Michael Carney , written on May 21, 2014

From The News Desk

Many things are, in fact, “bigger in Texas” – at least bigger than most places. The Lonestar State trails only California in population, GDP, technical employment, and university research and development. Unsurprisingly, the state has one of the nation's most promising startup ecosystems in the Austin (and greater Dallas) area.

Where Texas falls short of living up to its “always bigger” reputation is in the availability of venture capital. Texas saw just $1.3 billion in venture investments in 2013, according to a PWC MoneyTree report, compared to $14.7 billion in California (and $12.2 billion in Silicon Valley alone) and $3.1 billion in New York.

As Pando discussed as part of a 2012 on-the-ground report from the region, Austin has long had a “warped center of gravity” when it comes to early stage funding. Yes the city has Austin Ventures, a 30-year-old multi-billion dollar behemoth that backed HomeAway, CompUSA,, and RetailMeNot, among others. But beyond that, options have been limited for entrepreneurs looking to partner with deep-pocketed local firms.

That’s beginning to change however, thanks to a trio of former Austin Ventures partners – Venu Shamapant, Krishna Srinivasan, and Ben Scott – who today announced the close of their $109 million inaugural fund at LiveOak Venture Partners. The sum is the largest early-stage technology investment pool raised in Texas in over five years. The three partners report creating more than $1.5 billion of enterprise value from invested companies over the last 10 years, including backing the likes of Spatial Wireless (acquired by Alcatel-Lucent), Navini Networks (Cisco), LifeSize Technologies (Logitech), and Mavenir Systems (NYSE IPO).

LiveOak has already made five investments since completing its first close in January 2013, two Seed stage and three Series A stage deals, and plans to make another 15 investments over the life of the fund. More importantly, it gives local founders a second option when it comes to experienced financial partners and similarly gives out of town VC firms a second trusted co-investor to steward local investments.

“Ten years ago, there were plenty of funds based in Texas,” Shamapant says. “Most no longer exists,  having gone away for reasons like their partners retired [and they failed to succession plan – or they couldn’t survive a decade-long down cycle]. This market is large enough for multiple funds to succeed, and in fact, a healthy market requires multiple active funds.”

LiveOak has set forth an industry agnostic investment thesis, requiring only that the companies it backs be tech or tech-enabled service businesses based in the southwest region. The firm will look to be the first institutional investor in its portfolio companies whenever possible and may occasionally incubate idea-stage ventures in its office, something that the partners did successfully while at Austin Ventures. The LiveOak founders consider themselves active investors, meaning they will take a board seat in 100 percent of their investments and will be materially involved in guiding the entrepreneurs they backs.

Unlike Silicon Valley, Austin startups tend to emphasize generating revenue early in their lifecycle, Srinivasan says, something that the region shares in common with other up-and-coming tech hubs like Los Angeles and New York. Thanks to this revenue focus and the lower local cost of living, companies in this market also tend to be more capital efficient, making them, at least by one metric, lower risk investments. And thanks to the relatively limited capital availability, investors can usually get into Texas deals at a discount to the valuations that they’d pay in California or New York.

Where Texas startups are found lacking, however, is in that shoot for the moon ambition that seems to be imprinted in the Valley DNA, Shamapant says. “I’d say the number one thing we need is more visible success stories,” he says. “It’s time for Texas companies to aim higher, and to build bigger standalone businesses that will lead to more spinoff success stories.” Then again, these "doubles and triples" exits are in some ways a direct result of the capital efficient and early monetization attitude that permeates the Texas startup ecosystem.

If we’ve seen anything with the rapid decline of the Boston startup ecosystem and the parallel emergence of both New York and Los Angeles, it’s that it only takes a few cycles for a market to dramatically change its fortunes. In both cases, it has been the arrival of smart capital and a subsequent increase in local success stories (leading to second-order wealth and experience), that have unlocked the latent potential that these wealthy and highly educated markets always possessed.

Texas too has all the necessary ingredients to emerge as a formidable and lasting startup ecosystem. That narrative only improves with the addition of fresh capital and a hungry new firm looking to make a name for itself. Now if only it would lose that “Silicon Hills” moniker.