HTX
FUNDING
REVIEW
HOUSTON EXPONENTIAL
PREPARED BY SERAFINA LALANY,
CHIEF OF STAFF

The definitive review of the Houston funding landscape as of
7.31.20

 HOUSTON BUCKS NATIONAL
TREND WITH VC INCREASE
DESPITE DOUBLE BLACK SWAN
1

Despite a dramatic 64% drop in M&A activity* and very slight growth in venture capital
funding nationwide, VC funding in Houston rose 7% for the first seven months of 2020,  as
compared with a year earlier with deal activity reaching $466.3M. This remarkable performance
marks three consecutive years of strong growth in deal value in the tech innovation ecosystem-–
and comes despite the worst economic contraction in a century due to the COVID pandemic and, in
Houston, the additional effects of a crisis in Houston’s largest industry, energy. 
“This expansion in Houston’s relatively new and
booming tech innovation ecosystem shows a
strength and resilience that is really exciting,”
said Harvin Moore, President of Houston
Exponential (“HX”). Houston tech firms raised
over $466 million from January through
July, compared with $437 million raised
during that time frame in 2019 - an increase
of 7%, three times higher than the national
increase of 2.5%.  Houston began 2020 with its
first ever “unicorn”, or private venture capital
funding with a valuation of over a billion dollars.
That $125 million raise by HighRadius was only
slightly higher than the $121 million raised in
2019 by local biotech startup AlloVir, and so is
not the sole reason for 2020’s strength.
“We are seeing a maturation of our very young
ecosystem, as rapidly growing tech companies
increasingly access later stage venture capital,
which often comes from outside the local
area” said Moore. And, says Moore, the outlook
for the remainder of 2020 is even better.  “There
are several very large local deals in final term
sheet stage, and we expect full year 2020 to
be the highest ever for venture capital in
Houston; our ecosystem is really thriving.”

 2020 ON TRACK TO COMPLETE HATTRICK OF OVERALL VC GROWTH
Even as COVID-19 related slowdown hampers deal flow, Houston tech startups are on pace
to surpass last year’s record-setting funding volume with the aid of mega-deals ushering in a
new era.
 More late-stage VC deals were financed than
were early-stage investments, a strong
statement by investors looking to protect their
largest investments and portfolio companies
most likely to achieve a successful exit. 
This year, 18 later stage deals (of the total
46) accounted for nearly 76% of all capital
raised. 
 Late-stage VC deal count uncharacteristically
outpaced 2019 with the prominence of megadeals (100M+) as companies take advantage of
high capital availability and investors look to
protect their largest and best investments. Two
mega deals in particular, Preventice Solutions
and HighRadius, raised 137M and 125M
respectively. 
The largest deal YTD is not Houston’s first
crowned unicorn, HighRadius, but rather
Preventice Solutions: developer of remote
patient monitoring med devices for cardiac
arrhythmia patients. The company secured
Series B funding from Palo Alto-based Vivo
Capital along with support from existing
investors, including Merck Global Health
Innovation Fund, Boston Scientific, and the
Samsung Catalyst Fund.

We’ve seen many VCs focus on
a ‘flight to quality'. Specifically, VCs
are focused more on making sure
their best performing portfolio
companies have cash, especially at
the later stages, as well as investing
in the later rounds of new deals that
are clear over-performers during
COVID.”
- Blair Garrou,
Managing Director
of Houston-based
Mercury Fund

 LATE-STAGE LANDSCAPE
$352.36M   18 Deals
Of any venture stage, the late-stage is most
vulnerable to market volatility as
public comparables are often used to price new
rounds and exit potential drives investor and
founder behavior.
Despite this, there has not been a drop in latestage activity. In fact, almost the opposite has
occurred. So far, late-stage VC deal count is
tracking at a multi-year high. 18 late-stage
deals have been completed YTD with
nearly $352M invested, well above the figure
reported in 2018 YTD report (242M across 8
deals).  
In addition, the financings of two mega-deals at
125M and 137M have paved the path to another
year of out-performance.  These high figures are
the product of several factors. For one, certain
sectors have experienced newfound growth in
this market, such as health IT and B2B
software (two of Houston’s primary sectors),
 and companies within those sectors are looking
to take advantage of capital availability.
On the opposite side of the spectrum, many
sectors have seen a vast disruption and some
startups are needing to raise unplanned
rounds of emergency financing to weather the
storm.

DEALS YOU NEED TO KNOW:

SaaS provider for integrated receivables
and Houston's first crowned unicorn,
HighRadius, raised $125M in Q1

Liongard, a SaaS provider of a unified
automation platform to MSPs, raised a
series B led by an HXVF portfolio fund,
Updata Partners as well as Houston-based
Integr8d Capital

ThoughtTrace, raised $10M to advance its AIdriven document Intelligence and contract
analytics software from McRock Capital and
existing investors, Chevron Technology
Ventures.

Bill Gates leads $10M investment in Quidnet’s
long-duration geomechanical pumped storage

Preventice raises $137M to accelerate
salesforce expansion, technology and product
innovation and further development of clinical
evidence supporting its flagship solution.

 EARLY-STAGE LANDSCAPE
$73.52M   12 Deals
DEALS YOU NEED TO KNOW:
Sourcing and due diligence programs have come
upon tough times as a lack of startup events and
the inability to meet in person with ease have
caused VC firms to rethink their approach to deal
flow, according to PItchbook. Ask about HX's
Virtual VC Immersion Days and how we can
connect you to 100+ companies currently
fundraising in Houston.
Around the nation, investors have
been reevaluating their portfolios and shoring up
their balance sheets for the quarters
to come. Houston likewise experienced a
33% contraction in aggregate funding across the
early stage scene, as VCs double down on
higher-performing portfolio companies and
quickly cut their losses on troubled startups,
eliminating many of the early-stage deals they
might have completed otherwise.
Largest early-stage investment was in Solugen
($30.15M) which uses plant-centered
biotechnology to produce environmentally
friendly chemicals.

Goodfair, an e-comm platform
designed to help reduce the textile
waste crisis and make sustainable
fashion accessible, raised $3.67M
from Waterhouse Ventures.

SecurityGate, a cybersecurity
platform for management in OT/ICS
operational environments secured
funding from Houston Ventures in
June.

SmartAC officially launched out of
stealth mode with $10 million in
funding for its air conditioning and
heating (HVAC) health platform that
digitizes the experience of AC
ownership,

 ANGEL, SEED, AND FIRST
FINANCINGS
$38.42M   16 Deals
DEALS YOU NEED TO KNOW:
Angel and Seed-stage investments, helping
companies begin their venture lifecycle, are
not tracking at the growth rate of later-stage
activity--experiencing a 30% contraction in
number of deals
Despite this, aggregate deal value has
remained consistent with the previous year's
$38.9M in total funding.
As accelerators move more upstream to take
advantage of maturing companies in the
form of follow-on rounds, there has been a
significant downtick in the number of first
checks produced by this key segment.  
The high market volatility near the end of Q1
caused fear that angel investors would pull
back spending on private due to wealth loss.

Retina AI, an AI company focused
on diagnostics for diseases such as
diabetic retinopathy from pictures
of the retina, raised 4.1M in an
angel round which closed mid-July.

Base Hologram, as the name
suggests, is a provider of hologram
concert experiences—quite timely.
They raised a whopping 15.4M in
an outsized angel round this past
May.

However, the illiquid nature of angel deals
likely helps insulate these allocations from
short-term fears.

M1neral, the developer of a mineral
intelligence platform intended for
mineral buyers and mineral owners to
conduct transactions efficiently, closed
a seed round led by Amnis Ventures
and Pheasant Energy this past Jan.

 METHODOLOGY
This report includes equity investments into startup companies from an outside source. Investment does not necessarily
have to be taken from an institutional investor. This can include investment from individual angel investors, angel groups,
seed funds, VC firms, corporate venture firms, corporate investors and institutions, among others.
All financings are of companies headquartered in the Greater Houston Region, with any reference to “ecosystem” defined as
the combined statistical area (CSA). We include deals that include partial debt and equity.
All funding information has been sourced from Pitchbook, press-releases, and founder/investor interviews.
Angel & seed: We define financings as angel rounds if there are no PE or VC firms involved in the company to date and we
cannot determine if any PE or VC firms are participating. In addition, if there is a press release that states the round is an
angel round, it is classified as such. Finally, if a news story or press release only mentions individuals making investments in a
financing, it is also classified as angel. As for seed, when the investors and/or press release state that a round is a seed
financing, or it is for less than $500,000 and is the first round as reported by a government filing, it is classified as such. If
angels are the only investors, then a round is only marked as seed if it is explicitly stated.
Early-stage: Rounds are generally classified as Series A or B (which we typically aggregate together as early stage) either by
the series of stock issued in the financing or, if that information is unavailable, by a series of factors including: the age of the
company, prior financing history, company status, participating investors, and more.
Late-stage: Rounds are generally classified as Series C or D or later (which we typically aggregate together as late stage)
either by the series of stock issued in the financing or, if that information is unavailable, by a series of factors including: the
age of the company, prior financing history, company status, participating investors, and more.
*Primack, Dan. “Merger-and-Acquisition Activity Falls despite Fears of Pandemic Feeding Frenzy.” Axios, 16 July 2020,
www.axios.com/mergers-acquisitions-democrats-coronavirus-b44122b4-18a7-407e-ada1-f5f1b2ccf460.html.

SERAFINA LALANY
HOUSTON EXPONENTIAL

www.houstonexponetial.org
serafina@houstonexponential.org