The Lone Star State has more capital, as LiveOak closes its newest fund with $105 million

Texas may have suffered a heartbreaking defeat during last night’s NCAA men’s championship basketball game, but the state does have something to celebrate today. Local outfit LiveOak Venture Partners, a venture firm focused exclusively on Texas-based startups, has closed a new fund with $105 million in capital commitments.

It’s the second vehicle for the firm, formed in 2013 by longtime investors Venu Shamapant, Krishna Srinivasan and Ben Scott, all of whom met while working together at Austin Ventures in 2000 — and who seem to know what they’re doing as a team.

LiveOak has already seen two of its portfolio companies sell for meaningful amounts (Digital Pharmacists sold last month to K1 Investment Management for more than $100 million; Opcity was snatched up last summer by News Corp. for $210 million). They also have at least two portfolio companies whose valuations have risen considerably since LiveOak funded them, including CS Disco, which raised $83 million in January, and OJO Labs, which raised $45 million just a few weeks ago.

We were in touch with the trio late last week to learn more about what they are seeing on the local startup scene.

TC: You’ve all been based in Austin for a very long time. What are the biggest shifts you’ve seen since meeting each other 19 years ago, during the peak of the dot-com bubble?

KS: There are three primary dimensions where Texas has evolved since 2000. Talent is perhaps the most significant improvement since 2000. There’s been a massive inflow of strong talent — in particular from the coasts — and we also have a maturation of locally cultivated talent. [Both have created a] critical mass of people across functions and industries that have been through a startup cycle.

While, like any other market, Texas had plenty of local capital in 2000, that quickly dried up, leaving Austin Ventures, where we worked at the time, as the only really meaningful source of local capital in Texas. [After the more recent financial crisis], between 2009 and 2012, all local early-stage capital really dried up, in contrast with the continued growth in the talent. But that created the opportunity for us to start LiveOak and today, there’s strong capital availability locally and from outside, setting up a really vibrant entrepreneurial scene in town.

I’d also say that while Texas is certainly more skewed toward the enterprise / B2B market, it has become much more diversified than in 2000. We have completely [moved] away from semiconductors and hardware and heavily accelerated into verticalized software and tech-enabled services. Some of the leaders in our portfolio are players in legal tech, real estate tech, health tech. We’re also seeing some early growth in consumer, but that’s an area where we’ll need to import talent heavily.

TC: How has the founder profile changed, if at all?

KS: While we haven’t reached peak Texas by any means, we have seen a tipping point in terms of cost-of-living factors in coastal states bringing in serial entrepreneurs to start and scale companies that would have otherwise been founded in other parts of the country in past years. In fact, over half of the six investments we’ve already made out of our new fund were founded by entrepreneurs who moved to Texas in the past five years.

TC: And what’s happening in terms of valuations? Any trends you’ve observed over the last year or two?

VS: Valuations in Texas companies are very dependent on the stage of the company. For early-stage companies, while there has been some uptick in valuations, on average, they continue to be at a discount to national valuation trends. For later-stage capital, where these companies target the same national investor base, the valuations tend to converge towards national levels of valuations.

TC: What size checks are you writing, and has that changed with this new fund? 

KS: Our strategy is to be one of the first institutional investors in a company. For post seed-stage companies that are raising their first institutional round of financing, our first check can range from $1.5 million to $4 million. Over the life cycle of a company, we’re comfortable investing from $8 million to $10 million [altogether].