2018 was the yr massive tech introduced it was leaving the West Coast and shifting to the center of the nation and to the opposite coast. Apple, Amazon, and Google all introduced expansions of their campuses in different areas. Austin was the one Southern metropolis to be rewarded one among these new campuses — with Nashville additionally getting a comfort prize. I hope we’ll see cities like Dallas, Houston, Atlanta, and Nashville proceed to spend money on their startup ecosystems in an effort to develop the following nice technology of tech corporations.
Maybe foolishly, I’m taking a stance and publishing my predictions for startups within the Southeast. Like most forecasts, the one inevitability is that a few of these, if not all, will find yourself unsuitable. Nevertheless, having a standpoint to make use of as a place to begin is necessary when every part within the startup world is way from sure.
1. A significant Silicon Valley enterprise agency (or two or three) will lead a $50 million+ spherical (or two or three) within the Southeast
By now, it’s change into apparent that innovation is occurring all throughout the nation and is being highlighted by teams like Steve Case’s Rise of the Relaxation fund. I think 2019 would be the yr main Silicon Valley companies lead vital rounds in Southeast-based startups.
This has occurred earlier than, as when Kabbage raised $250 million from SoftBank in August 2017, however with the rise of megafunds we’re as a consequence of see the incidence extra typically.
Throughout the previous 24 months, a number of startups have raised significant rounds from coastal VCs with deep pockets or these with shut ties to them. Names embrace Bestow, Pull Request, New Data, Map Something, Spark Cognition, and OJO Labs. It’s not exhausting to think about one among these companies selecting up a big spherical in 2019.
2. Early-stage offers will decline as household workplaces pull again from direct investing in startups…
More and more, household workplaces have change into the de facto seed funds of the non-coastal markets by main offers and taking board seats. In 2019, I believe it’s doable we’ll see a slowdown of that pattern as household workplaces change into extra prone to take money to the sidelines as a consequence of public market uncertainty. If the Fed continues to lift charges, it turns into completely doable household workplaces will flip to personal debt and distressed property or funds affect tasks the place returns are solely a part of the equation.
For many of those household workplaces, enterprise is a really small a part of the portfolio and is complementary to a different enterprise phase the place they’ve experience. In contrast to these companies, the startup economic system is just not as correlated with the macroeconomic tendencies. But this doesn’t imply that these traders gained’t take a extra cautious stance in 2019, particularly on the margin, the place progress isn’t as apparent, even with added synergy.
I’m not satisfied these household workplaces gained’t miss out on investing in a brand new wave of crucial startups, particularly within the analog areas, the place the Southeast will probably be part of the conversion from an industrial economic system to an data one.
three. …however sequence A rounds will entice extra consideration from coastal VCs
The emergence of megafunds has elevated the scale of sequence A rounds dramatically previously few years. In 2017, the common sequence A was round $7 million, in accordance with PitchBook. However maybe most astonishing is that 39 % of valuations had been $25 million+ and fewer than 25 % of these offers had been underneath $10 million.
Traders, particularly megafunds searching for choices, are concentrating their capital into offers they view as larger high quality. My guess is that when the 2018 numbers come out, we’ll see extra consideration being paid by coastal companies with “smaller” funds investing exterior of the coasts as they’re priced out of the “scorching” offers in Silicon Valley by funds snug with deploying extra capital earlier.
It is a pattern I think will proceed into 2019, as there isn’t a scarcity of capital to spend money on early-stage corporations. However the non-coastal corporations should show they’re well worth the funding to beat the perceived limitations of location.
four. If a slowdown happens, it’ll look extra like 2015-2016 than 2008-2009
Talking of lacking out, right here’s a small pattern of companies that many anticipate to IPO in 2019 that had been based over the last recession.
I think we’ll see a slowdown in enterprise investing this yr, nevertheless it gained’t appear like 2008-2009. As a substitute, the drop will probably be extra much like the one in 2015-2016, the place the full variety of offers fell by about 15 %.
It’s unlikely we’re headed for something like Q1 2009, the place enterprise funding fell by 50 % from Q1 2008 to a complete of $three.9 billion. That pattern continued for the rest of the yr, and 2009 ended up because the slowest yr since 1998.
Regardless, the bear market generally is a good time to take a position, as nice corporations are nonetheless based throughout recessions. Nevertheless, startups can probably anticipate extra diligence from traders — significantly household workplaces the place charges on invested capital aren’t in play — and for valuations to come back down even for the very best progress corporations.
It’s doable I sound each optimistic and pessimistic on the similar time — and that’s correct. I’m extremely optimistic that the concentrate on innovation and know-how away from Silicon Valley will proceed to propel the trade to the forefront in new metros.
On the macro aspect, I’m much less certain, as a slowdown appears all however sure in some unspecified time in the future within the close to future. Whereas tech is, in principle, an uncorrelated asset, that’s by no means the case in observe, as funding all the time slows when the economic system does the identical.
Regardless, there’s little doubt that 2019 goes to be an thrilling yr for startups between the coasts, and I can’t wait to see the tendencies that emerge.
Kevin Stevens is a accomplice at Intelis Capital, a brand new early-stage VC agency based mostly in Dallas, Texas. A model of this put up first appeared on his weblog.