As Texas venture capital activity grows, limitations come into view

The US Southwest is experiencing exceptional growth in venture capital activity, and Texas has been leading investments in the region.

Texas reached a peak of $16.99 billion in private equity- and venture capital-backed rounds of funding in 2021. This figure has seen fluctuations since then, with $9.91 billion recorded in the year through Nov. 25, according to S&P Global Market Intelligence data.

The growth of venture capital deals in Texas is being driven by an influx of talent from larger companies relocating to the area, said Venu Shamapant, founding partner of Texas-based venture capital firm LiveOak Ventures.

"Some of these bigger companies that have been moving here, what they're really bringing into this market is more talent. It's experienced entrepreneurs. It's experienced executives that have run bigger businesses that are coming into this market. Over time, they tend to want to go do their own startups, and that's how the private ecosystem benefits from the bigger companies that are moving out here," Shamapant told Market Intelligence.

Shamapant noted Texas ranks as the second-largest source of technology talent in the US after California.

California ranked first in net tech employment count in 2024, with approximately 1.5 million workers, while Texas had approximately 1 million workers, according to data from industry association CompTIA TCA Community.

Texas startups benefit from state incentives as well as a regional "cluster effect," where large venture deals attract further investment, creating a cycle of funding that supports smaller startups. This dynamic mirrors aspects of California's Silicon Valley ecosystem, where substantial deals catalyze additional opportunities for entrepreneurs, said Daniel Zimmermann, partner and chair of emerging company and venture capital practice at international law firm WilmerHale.

Between 2021 and 2024, a total of 200 companies, both public and private, relocated to Texas, with 24 companies making the move in 2024. The majority of these companies were from California, based on the records from the Office of the Texas Governor.

The highest number of relocations occurred in 2021, with a total of 79 companies moving to Texas. Notably, Tesla Inc. was among those that relocated that year, while Oracle Corp. made the transition a year earlier. Among private companies, the headquarters of Space Exploration Technologies Corp. and X.AI LLC relocated to Texas from California.

Tech companies that move to Texas benefit from lower taxes and fewer regulations on land use and labor, according to a report from The Wall Street Journal.

Top sector

The Lone Star state's most attractive sector in 2025 has been technology, media and telecom (TMT), which received the highest number and value of rounds of funding at $4.18 billion across 121 transactions.

As of Nov. 25, a pair of $1 billion funding rounds has been recorded for 2025 in the state. One was the venture round for social networking platform X Corp., a subsidiary of X.AI, which saw participation from investors Darsana Capital Partners LP and 1789 Capital Management LLC. The other was Base Power Inc.'s series C round, with investors including Addition LP, 137 Ventures Management LLC, 1789 Capital, Andreessen Horowitz LLC, Lightspeed Ventures LLC, Salesforce Ventures LLC and StepStone Group Inc.

The energy and utilities industry ranks second, with an aggregate transaction value of approximately $2.38 billion, followed by the healthcare sector, with $1.78 billion.

Growth constraint

Amid the increase in funding activity, Shamapant noted that a constraint to growth in the Texas investment landscape is the limited availability of local early-stage capital.

Early-stage companies struggle to secure funding from nonlocal investors, as smaller investments require a commitment that is difficult for distant investors to manage. By contrast, later-stage investments attract capital more easily due to their larger size and established traction.

Another obstacle is the varying levels of ecosystem development, particularly in cities like Dallas, making it challenging for investors to stay informed and engaged without a regular presence in the area.

"Austin is the most developed market within Texas. Dallas and Houston are also very important markets for us, but they're slightly behind in development. And Austin is better covered by early-stage venture capital. But if you go to Dallas and Houston, for example, there's even less local capital," Shamapant said.

– Download a spreadsheet with Texas private company head count and rounds of funding data featured in this story. – Read about private equity penetration in Europe. – Explore more private equity headlines.

Private company head count

In 2025, the employee head count of private companies in Texas is at 2,564,275, up about 6% from 2,420,256 in 2019, according to Market Intelligence data. Growth has been driven by sectors such as financials, healthcare, industrials and information technology.

The top five cities that have seen the highest growth in private company head count in the past five years are Houston, Austin, Arlington, Spring and McKinney.

Top rounds of funding

Six of the fifteen largest funding rounds for the year to Nov. 25 were in the TMT sector.

Nagaraju Nuthalapati contributed to this article.