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Houston companies raised $455.8 million in venture capital (VC) funding in the last quarter of ’22, a decrease from the previous year's Q4 figure of $776.7 million. Despite the drop, Houston companies raised a total of $1.95 billion in venture capital over the full year of ‘22, down 23.7 percent from the previous year but still the second-best on record.
In ’22, 191 Houston-area companies secured investment through 226 venture capital deals. These deals were funded by 348 different investors. The biggest venture capital deal in Houston in ’22 was worth $500 million, closed by Manchester Energy, a traditional midstream energy company. During ’22, Houston raised a total of $1.95 billion in venture capital, with the average post-closing valuation of a business being $86.6 million (the median being $28.5 million).
Despite having the second-best year on record for VC raises, Houston experienced a 23.7% decline in VC deal funding compared to the previous year, higher than the US average decline of 17.8%. Nationally, the drop in activity can be attributed to factors such as the ongoing impact of COVID-19, international conflicts, and rising interest rates. However, the decline in deal activity in Houston is slightly more pronounced than in the rest of the country. Rising interest rates have had a particularly negative impact on the VC industry, which has been a popular investment option for major investors in recent years due to high returns. As interest rates rise, investors may diversify their holdings and shift away from venture capital in the coming year.
To put Houston's activity in context, Austin, Texas—our frequently discussed and compared neighbor to the west—had 416 VC deals totaling $4.9 billion in ’22.
In ’22, energy and consumer products and services (B2C) were the only two industries to see an increase in funding. Energy raised $785.6 million, an 866 percent increase from the previous period, while B2C raised $106.8 million, a 26 percent increase. Other industries saw decreases in funding, with information technology down 60 percent to $285.3 million, business products and services (B2B) down 10 percent to $277.6 million, healthcare down 72 percent to $246.4 million, materials and resources down 52 percent to $201.2 million, and financial services down a modest 3 percent to $47.3 million.
Prepared by Greater Houston Partnership Research
Roel Gabe Martinez, GISP, CERP
Venture capital funding in Houston for the 4-qtrs ending Q4/22