I had the opportunity to travel to Austin recently to check out the city and get a feel for the entrepreneurial landscape there. I had never been to Austin before and it just so happened that the weekend I was there was during South by Southwest (SXSW). I always knew SXSW was a big event, but I had no idea it had grown so large that there were different activities all over downtown Austin. Luckily, I had a friend in Austin who is pretty well-connected and she was able to introduce me to a few people who are making great contributions to entrepreneurial ecosystem there. For example, I had the chance to meet Josh Baer, founder of the Capital Factory. The Capital Factory is an accelerator, incubator, and co-working space that takes up four floors in a large office tower in downtown Austin. Josh’s Linked-In profile summary sums up his mission which is to “help people quit their jobs and become entrepreneurs.” If you happen to be in Austin anytime soon I encourage you go check out the Capital Factory. It’s a great place to meet entrepreneurs, get feedback from potential investors, and attend a workshop or two.

Another great place to check out is Galvanize. In short, Galvanize is a place where individuals can take classes to learn how to become software developers. Galvanize partners with large corporations looking for developers and since inception, the organization has achieved a 91% employment placement rate for those participating in their programs. In the world of early-stage companies, the words technology and startup seem inseparable and interdependent. As such, it seems imperative to have organizations like Galvanize in order to build a thriving entrepreneurial community, especially one that is dependent on tech talent.

Meeting entrepreneurs is one of my favorite things to do and there was no shortage of them in Austin. It was kind of like being in a buffet line where you are free to stuff yourself to your heart’s desire until you explode. And then, when you think you’re almost full, you suddenly get a craving for frozen yogurt with gummy bears on top, and no one thinks you’re a pig because that’s how you’re supposed eat a buffet. The entrée of entrepreneurs in Austin is kind of like that.

I was however a little shocked to learn that even though Austin had such an abundant quantity of entrepreneurs, the number of venture capital firms was lacking, especially for companies raising between $2M to $5M. In the short time I was in Austin, I spoke with over 30+ entrepreneurs on this topic and the majority said the same thing. The angel investing community in Austin is very strong as evidenced by the Central Texas Angel Network (CTAN), one of the nation’s leading angel investor groups. CTAN has over 160 members and has invested just under $100M into 135+ companies – it’s a powerhouse. Regardless of geography, investment dollars from angel investors is critical for startups, especially in the early stage. However, as companies grow and are successful, they often need another injection of capital to get them to a stage where venture capital is ready to take a look. Yes, there are some VCs that invest in Seed and Series A rounds, but most VCs do not. It seems like for companies who need $2M to $5M it’s like being stuck in purgatory where companies will eventually ascend into heavenly bliss or descend into eternal damnation.

This funding gap by no means is unique to Austin, but is emblematic of the state of venture capital in the Midwest in general. In our firm, we experience this quite often with companies in our portfolio. One of our companies could be doing all the right things and making the right decisions, and the only thing they ever did wrong was “needing more capital.” It’s become all too common. If only there were more venture capital firms in the Midwest that made investments between $2M and $4M then I think there would be a lot more success stories of great startups coming out of this region of the country.

Overall, the trip to Austin was great and I look forward to going back. The city is full of talented and innovative entrepreneurs and with the growing presence of large tech companies (like Google), Austin is quickly becoming the next Silicon Valley. Thanks again to everyone that helped to make my first trip to Austin a memorable one. Cheers –KM