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Fort Worth energy firms absorbed 60% of the early stage capital raised by firms in the area since 2000, according to an analysis by Sparkyard, a platform that connects entrepreneurs and business owners to resources.
The findings confirmed what economic development executives in Fort Worth already knew: that energy firms dominate early stage funding in the area. The analysis highlights the need to diversify the area’s capital sources, which would broaden Fort Worth’s appeal to startups across a greater array of industries, Cameron Cushman, assistant vice president of innovation ecosystems at UNT Health Science Center in Fort Worth, said.
“Fort Worth is just not very diversified as far as VC,” Cushman said in an interview.
“The bottom line is that there is no real incentive – from a startup capital standpoint – to launch a company in Fort Worth if it’s not in the energy sector,” the Sparkyard report said. “Given what we know about the importance of diversity in entrepreneurial ecosystems, this is something that needs to be addressed.”
Since 2000, Pitchbook, which covers private capital markets, has tracked 1,263 firms that have started in Fort Worth in that time. The firms are capital-intensive and potentially high-growth, a small subset of the 5,000 companies started annually in Fort Worth.
Only 52 of those raised early stage capital – defined by Sparkyard as seed, angel, or Series A, B or C- during the 20 years, for a total $303.8 million raised across 79 deals, Cushman said. Of the 52 firms, “only a small portion” raised capital in more than one deal, Sparkyard said.
Eight energy investments accounted for $182.72 million of that money raised, the Sparkyard analysis of the Pitchbook data found. Twenty-two deals in healthcare raised $49.55 million, and 20 deals in information technology raised $38.59 million.
The Barnett Shale likely drove Fort Worth’s early stage capital deals in energy, Cushman said. Other capital raised by Fort Worth firms in the last 20 years, according to Pitchbook:
• Business products and services: 12 deals, $18.45 million
• Consumer products and services: 15 deals, $12.04 million
• Financial services: Two deals, $2.45 million
Gozova, a Fort Worth-based early growth firm that’s developed a truck-and-crew-on-demand app, last year secured a $500,000 seed round from investors Ed and Sasha Bass and Bobby Patton and two other angels, and has used the money to dramatically expand its footprint.
Despite the relatively smaller amounts of capital raised, the B2B and consumer products and services segments accounted for more than half of the startups measured at 498 and 235, respectively, Sparkyard said.
The other segments included healthcare, 202 startups; IT, 121; energy, 96; financial services, 84; and materials and resources, 20.
Sparkyard also used the Pitchbook data to compare Fort Worth to four other Texas markets - Houston, Dallas, San Antonio and Austin – and found those cities had significantly greater diversity by industry when it came to early stage capital. IT, for one, accounted for more than half of capital raised by firms in Austin for the 20-year period, nearly half in Dallas; 29.6% in Houston; and 32% in San Antonio.
“In the aftermath of the current economic downturn, where will the next big employers be created?” the Sparkyard report concluded. “Will the investment community continue to invest in energy, or will new and emerging industries take their place? And will those new companies have access to the capital necessary to grow? Only time will tell, but shifting our investment strategies and capital attraction efforts will require a significant effort moving forward.”