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I live in Texas, where during the tech bubble folks were walking around saying that it was nothing compared to the real estate crisis of the late 80s. So now seemed like a good time to chat with Austin Ventures, which has been investing in the state since 1979 and announced two funds worth a total of $900 million in September, a few days after the markets started to collapse.
I spoke with general partner Chris Pacitti, who told me that once the firm, which has a reputation for being financially-oriented rather than operationally-oriented, saw the crunch coming it kicked its fundraising machine into high gear. Now Austin Ventures has $300 million for early-stage deals and $600 million for growth equity.
When it comes to recession or depression fears, Pacitti talked about the fine line entrepreneurs will have to walk between cutting spending to a point where they can last through a protracted downturn and shrinking to the point that they can’t compete once the dollars start flowing again. But he also said that this time around, many of the startups are well positioned to withstand a downturn, especially those with recurring revenue streams.
“We’ve seen this movie before, but this will be different than the last downturn,” Pacitti said. “The economy will be worse, but this is not a tech-led recession that we experienced before with lots of overfunded sectors and business models that didn’t work.”
In his mind, most of today’s startups (especially those at Austin Ventures, which didn’t make a lot of Web 2.0 and cleantech bets) have the type of subscription-based revenue streams that could see them through a protracted downturn. He also sees Texas faring a bit better than the California tech scene.
“There aren’t a lot of cleantech investments here that need a lot of capital, so that will be a net positive,” Pacitti said. “Basically those are large, capital-intensive science experiments that need a lot of project finance. That is very difficult sector to be in right now. We have a different mix here, and are focused on software and media plays.”
For those wondering how to achieve the fiscal discipline to hang on through the downturn, Pacitti put it simply, “This means the CFO is back in control.” For a venture firm that prides itself on financial acumen and strategies, that’s music to Austin Venture’s ears.