It is common in startup circles to predict that funding for smaller innovation centers will increase and that Silicon Valley will lose some of its dominance. In reality, nonetheless, things is not going to play out that way.
That’s actually not what’s happening in Texas, at least. Lone Star State startup funding is headed toward a year-over-year decline in 2024, even as overall U.S. enterprise capital funding revives, fueled by record AI investments.
Behind Crunchbase dataTexas corporations have raised just over $3 billion in seed funding through growth this 12 months. Less than half of that went to corporations in the Austin metro area, which has also seen a funding slowdown.
As shown in the chart below, recent funding levels are well below the peaks reached in 2021 and 2022, approaching levels seen in previous years.
Financing for startups in the austin metropolitan areawhich regularly account for greater than half of the statewide investment, followed a similar path.
AI is not doing so well, but big deals are coming together in other areas
Texas hasn’t exactly been a powerhouse in generative AI so far. Given that it’s a major goal for U.S. startups that have been raising the largest funding rounds in recent quarters, that will explain some of the state’s relative underperformance.
Less than 10% of Texas funding this 12 months has gone to AI-related corporations, in keeping with Crunchbase data. Most of that went to a single deal — a $175 million Series B Saronicdeveloper of autonomous sea vessels equipped with artificial intelligence.
Beyond AI, Texas-based corporations have raised some pretty big rounds this 12 months. Standouts include:
Reasons to not attribute too much significance to the decline in financing
While Texas startup funding is down, there’s no particular reason to expect this to be a long-term trend. On the contrary, there’s room for optimism that more investment is on the way, especially as the most promising startups funded at the peak scale their businesses and seek latest rounds. And if the IPO market truly returns, we should always start seeing pre-IPO funding as well.
In addition, corporations in other parts of the country can and do relocate their headquarters, often to Texas. This is very true for corporations affiliated with Elon Muskwho moved TeslaThe company’s headquarters will move from California to Texas in 2021 and is reportedly planning to do the same in the future. SpaceX AND X.
Considering that the biggest beneficiary of early-stage funding this 12 months was one other of Musk’s startups, xAI — it would not be surprising if this company moved to Texas at some point.