Last week I wrote about the death of Austin Ventures, which once was one of the country’s largest venture capital firms (and easily the largest in Texas). Much of the ensuing conversation — including this outstanding post by Joshua Baer — has been about what this development means for Austin-area startups. The general consensus is ‘not much,’ suggesting that AV’s star had been fading for years before formally imploding.
But is it actually possible that Austin’s entrepreneurs would benefit from the lack of a local capital colossus? That’s the argument of one Term Sheet reader, who emailed me the following:
One benefit to entrepreneurs of the public dissolution of Austin Ventures is the removal of the ‘What about AV?’ question. Many VC firms from outside Austin would understandably have concerns about information asymmetry between themselves and AV when evaluating Austin-based investment opportunities. As such, many entrepreneurs felt obliged to ‘kiss the ring’ and had an understandable fear that a negative (or no) opinion of their startup within the halls of Austin Ventures could hamper their efforts to ever raise institutional venture money elsewhere. While AV’s prominence in early stage financing has declined in recent years, their formal and public exit should clear the air of some stale preconceived notions — to the benefit of Austin’s entrepreneurs.
This ‘signaling risk’ argument makes a lot of sense, similar to how some entrepreneurs worry about what happens if they take seed funding from a large VC firm that may not ultimately participate in their Series A rounds. And I’ve heard agreement from folks in other small regional markets, including some who think the lack of a local giant makes their startups scrappier.
Ultimately, however, it’s hard for me to completely buy into this. For starters, there is the example of Silicon Valley. More money, more success. Not saying it’s a perfect path from one to the other, but it sure doesn’t seem to have hurt. And the less time an entrepreneur has to spend raising money is more time he or she has to grow the business.
Second, sure it’s great when a company manages to raise just a bit of local angel capital (or no outside capital at all) and become successful. Kind of like when the guy without the high school diploma becomes a billionaire. But the reality is that most billionaires wore a cap and gown, just like most wildly-successful tech startups raised venture capital.
I’m okay with the notion that losing Austin Ventures doesn’t hurt Texas too much, because it already had declined in relevance (i.e., local entrepreneurs had already learned how to survive without it). The region actually being better off without AV, however, is a bridge a bit too far for me…
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