Earlier this week I got a call from a reporter asking about my thoughts on a recent report that startup funding was declining in Dallas. While I hadn’t read the report, lots of the articles I read in the local press about startup funding use data from the National Venture Capital Association and PricewaterhouseCoopers. The most interesting thing about the data is the fact that it isn’t accurate. In many cases local deals aren’t reflected in the numbers. In others the funding is attributed to the location of the investor and not the startup. For example, our first round was included in the NVCA numbers as an investment that occurred in San Francisco and not Dallas (some of our investors are located in San Francisco). In the aggregate the data is great for revealing trends such as the fact that last year saw the most venture investment since 2000, but it isn’t very good at giving you an understanding of the local funding scene. Here is my view of the current state of startup funding in Dallas:
Raising Seed Capital in Dallas ($25K to $1M)
Raising seed capital in Dallas between 2001 and 2010 was almost impossible. For years I encouraged early stage entrepreneurs to move to San Francisco primarily because of the easy access to seed capital. Over the past five years everything has changed. It has never been easier to raise early stage capital in Dallas. In fact, I would argue that it might be easier to raise seed capital in Dallas than it is in Silicon Valley today. There is a thirst for access to early stage deal flow here in Dallas like I’ve never seen before. If you’ve got a novel idea and the ability/skill to execute on it you WILL find investors eager to give you a chance here in Dallas.
Raising Venture Capital in Dallas ($1M+)
Once a startup is ready to raise their first institutional round, regardless of location, the capital markets are wide open for companies with real traction. I can’t think of a single Dallas startup that was doing well who failed to raise a Series A. In the Valley, unlike Dallas, it is very possible to raise your Series A without any traction. I would argue that the fact that we don’t see ‘traction-less’ funding rounds here in Dallas is a blessing in disguise. Dumping a bunch of money into a struggling startup (we call them zombies) keeps a potentially great entrepreneur on the sidelines for years. Instead of pivoting or starting a new startup, a funded entrepreneur in a zombie is trapped. He can’t abandon his investors so he will keep ‘trying’ until the money runs dry. If you’re struggling to raise your Series A take a long hard look at your business and be honest with yourself – investors are dying to get into great deals – if they’re not dying to get in your deal it is likely that your deal sucks. Fix it or do something else, but don’t complain that their isn’t any money available for Dallas startups (primarily because it isn’t true).
At the end of the day Dallas is a great place to start a business and raise a family. There is plenty of monetary and human capital. Now get busy.