Texas Capital Report: Funding Slows in Q3 2019

HOUSTON, Oct. 16, 2019 /PRNewswire/ -- Capital raising for private companies in Texas has begun to slow in Q3 with 80 companies receiving funding, marking a 20% drop from Q2. Economic uncertainty may be at the root of this decline caused by several factors, including a drop in consumer spending, US–China trade uncertainty, and a slowdown in global growth.

Texas businesses drew in $8.3 billion in funding during Q3 2019, dipping from $10.7 billion in the second quarter.* The top three industries to attract capital this quarter are Finance, Technology Consulting/Services, and Energy.

The Energy sector has shown to be a consistent destination for investors and continues to hold its position in the top three industries to raise capital each quarter, with a total of $1.5 billion in funding collected for the sector. The Finance sector followed closely this quarter with $1.47 billion capital raised.

An outlier this quarter was Compass Datacenters, which raised a whopping $3 billion in order to fund growth initiatives in new data center campuses across the country. Compass is capitalizing on the increasing number of data-intensive businesses that need fast and reliable access to their data as a core part of their business model.

Based in Dallas, Compass helped the metro area this quarter retain its lead this year in total capital raised per quarter with over $5 billion in funding during Q3, bringing the total amount of capital accumulated in 2019 by Dallas-based companies to over $17.3 billion. Austin came in second with $1.6 billion raised this quarter, bringing its total to $3.2 billion so far this year. In third, Houston raised $1.1 billion during Q3, marking $4.4 billion brought in this year.

Moving into the fourth quarter, a moderate pace for private investments in Texas seems likely due to the increasing economic uncertainty across the country. In a June essay, Rob Kaplan, who leads the Dallas Fed, commented, "I am also highly attuned to the fact that, since early May, downside risks to the outlook have increased due to heightened trade tensions and decelerating rates of global growth. The question is whether trade and global growth uncertainties are likely to persist in a manner that leads to a material deterioration in the outlook for U.S. economic growth."**

*Fundraising totals include transactions for private companies headquartered in Texas with less than $1 billion in annual revenue.

** Economic Conditions and the Stance of Monetary Policy (essay), June 24, 2019

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