Austin companies get $120 million in venture capital in second quarter

Austin startup Spanning Cloud Apps didn't plan to seek venture capital, but the buzz surrounding cloud technology changed founder Charlie Wood's mind.

"We wanted to grow the company organically, but we realized it would take us years to do that, and in the meantime the market would pass us by," Wood said. "So we decided to raise money and step on the gas."

Now, thanks to a $2 million investment in April from Foundry Group of Boulder, Colo., 1-year-old Spanning Cloud is hiring engineers, sales people and marketers, with a goal of doubling its 10-person staff by year's end.

"Our little office is going to be really packed," Wood said. "But the timing is right to push forward."

Six Austin companies, including Spanning Cloud, received a total of $13.3 million in first-time funding during the second quarter, according to the National Venture Capital Association and PricewaterhouseCoopers. That compares to three companies that raised a combined $4.1 million in first-time financing during the first quarter.

First-time venture investment is a closely watched measure of Austin's startup community, because the money allows companies to hire more workers, invest in new equipment and accelerate product development and marketing.

Companies receiving venture money for the first time included Nitero Inc., which raised $1.6 million to develop a multi-gigabit Wi-Fi system; Innovari Inc., which received $4 million for its energy consulting business; and FanTrail Inc., which took in $500,000 for social networking services.

On the other end of the spectrum, investors actively backed established companies, with five Austin deals receiving $10 million or more.

The biggest recipient was Spiceworks, which received $25 million from Austin Ventures and other investors. The company, which develops software to help companies manage their information technology networks, said it would using the money to expand its services and add 25 employees to its 90-person workforce.

Also, SolarBridge Technologies, which makes microinverter devices for solar power, raised $19 million, and Illumitex Inc., which develops light-emitting diode optical devices, received $13.5 million.

Overall, 19 area companies received a total of $119.5 million in the quarter. That's a 33 percent increase over the $89.8 million raised in the first quarter, and a 48 percent increase over the $80.5 million in the same quarter a year ago.

Jim French , managing partner at PricewaterhouseCoopers' Austin office, said the mix of deals "made for an impressive quarter. It's clear that investors are becoming more bullish, and Austin is clearly high on the VC radar screen. If I were an entrepreneur in this market, I would be very encouraged."

For the first half of the year, Austin companies have raised $209 million, up $42 million from the first half of 2010. That puts the region on track to post its strongest year since 2007, the year before the financial crisis began, French said.

Nationwide, venture investment rose 19 percent in the second quarter, with $7.5 billion invested in 966 deals. The software industry received the highest level of funding for all industries with $1.5 billion, and biotechnology came in second with $1.2 billion.

In Austin, software dominated for the seventh quarter in a row, with six deals pulling in $48.4 million. Coming in second was the industrial and energy segment, with two deals receiving $23 million.

For Spanning Cloud, which sells a backup service for Google Calendar, Google Docs and other Google cloud-based applications, raising money was just the first step.

"Now we've got to put it to work by hiring the right people," Wood said. "It's hard to find engineers, but we're going to do what it takes. We signed a one-year lease in May, and when it's up, we'll definitely be moving to a bigger space."