Flat Earth and Venture Capital
December 10th, 2006
In the summer of 2006, as my company was closing out a financing round, I began studying the current process of raising capital for Texas growth companies. (My background over the last 15 years or so has been as a co-founder/CEO involved in raising over $200M for three startups and related ventures.)
The deeper I looked, the more it became evident that the Texas growth capital market has been in flux and was still moving. Access to capital for growth companies in Texas is in a state of real, structural change:
- Texas VC’s in general are not raising the ‘next’ fund, for a variety of reasons, although the opposite seems true on both coasts
- Private Equity continues to gain fundraising momentum, in some cases competitively with VC’s - especially for larger deals
- The traditional exit scenario is still messy
- One thesis is that changes in the VC market are analogous extension of what happened in Texas with commercial banking in the 80’s and in investment banking in the 90’s, where local institutions were sold/merged and became outposts rather than centers. Most of the traditional Texas names in investment banking - Rotan Mosle, Eppler Guerin, Rauscher Pierce, Schneider Bernet, etc. eventually morphed from having complete capabilites - Institutional Sales, Retail, Research, Investment Banking - to being limited “Flat Earth” outposts funneling business back to the money centers.
I’d argue that Flat Earth benefits for growth capital are not total, and in fact these developments create a new class of Texas-based investment opportunity. These posts are about defining new classes of growth company opportunity and raising capital against them.
-John J. Reed
