Arkansas sees dramatic growth in venture capital investment during pandemic

April 4-10, 2022

By Wesley Brown

Not yet comparable to Silicon Valley, Austin or even Provo, Utah, Arkansas’ still young startup and venture capital community is starting to catch up with the rest of the world.

According to the new National Venture Capital Association (NVCA) 2022 Yearbook, with data provided by private equity database PitchBook, more than 14,400 U.S. venture-backed companies across 251 metro areas and 414 Congressional Districts raised funding in 2021, a new annual record for the number of companies raising venture capital (VC). 

According to the 75-page report, VC activity reached new heights in 2021. For the first time ever, fundraising for VC funds topped $100 billion, and venture-backed investment into companies surpassed $300 billion. In addition, VC-backed IPOs raised more than $500 billion, and disclosed merger and acquisition startup deals exceeded $100 billion. With 14,411 VC-backed companies raising capital in 2021, this averaged out to about 40 companies raising an aggregate of about $900 million each day.

“Since the onset of the global pandemic in March 2020, our worlds — at home and in the workplace — have been turned upside down. Yet during these turbulent times, the venture industry has stepped up to the plate to meet our country’s needs and strengthen our economy,” said Bobby Franklin, president and CEO of NVCA. “Looking ahead, VC is also playing a critical role in addressing the country’s long-term needs in sectors like climate-tech, life sciences and cybersecurity.”

And although most of the nation’s VC assets and activity remains geographically concentrated in California, Massachusetts and New York, several other states had much higher year-over-year “assets under management” (AUM) increases from 2020 to 2021, notably Wyoming (223%), Indiana (154%), Montana (137%), Arkansas (110%) and Iowa (99%). Nationwide, venture capital AUM increased by over 20% for 40 states between 2020 and 2021. At the end of 2021, 34 states had more than $300 million in AUM.

In Arkansas, there are six active VC investors today that hold nearly $561 million in AUM. Prior to 2013, there were virtually no investors in Arkansas that focused specifically on VC deals. That all began to change in 2014 and 2015 when Arkansas-based investors had $9.7 million and $9.9 million in assets under management, respectively.

That total increased dramatically in 2016 when AUM in Arkansas rose to $180.8 million. That total grew incrementally between 2017 and 2020 to $266.6 million. In 2021, that total more than doubled from the previous year when Arkansas AUM jumped over the half-billion mark to $560.9 million. 

Deal activity in Arkansas has also picked up during the same time as AUM with Arkansas, Indiana, Wisconsin, Missouri and Texas seeing the biggest year-over-year gains in capital closed in 2021. From 2014 to 2021, VC fundraising activity in Arkansas rose a whopping 1900% from $10.5 million to $200 million. In 2021, there were 33 deals closed with 28 venture capital-based startups in Arkansas for a total of $131.1 million.

Veteran entrepreneur, startup mentor and consultant David Moody, executive director of Little Rock-based Ark Angel Alliance since January, said the investor and VClandscape in Arkansas has changed dramatically since Northwest Arkansas entrepreneur John James co-founded and raised more than $100 million in capital a decade ago for Fayetteville-based Acumen Brand. 

James built Acumen Brand into one of the nation’s largest online retailers of cowboy boots before exiting the Northwest Arkansas ecommerce firm in 2015. James later started Hayseed Ventures, a startup studio focused on customer acquisition and based in Fayetteville. Hayseed invested in more than a dozen startups including Menguin, a tuxedo rental website previously headquartered in Fayetteville that was bought by Men’s Wearhouse founder George Zimmerman for $25 million.

“Around that time, there were only a few dozen investors involved in the venture capital scene. Some of the investment opportunities we had wouldn’t even get beyond the filling out stage,” said Moody, citing the lack of deal flow.

Moody, a former NASA engineer, became intimately involved in the startup community when his son, Josh Moody, then a high school senior at Little Rock Catholic High School, founded a startup firm called Overwatch that integrated combat video with real-life paintball and laser tag matches. After later changing its name to BattleMap and relocating to Bentonville, the younger Moody app was able to attract nearly $300,000 in seed investment, according to Crunchbase.

The elder Moody, who chronicled his son with his popular Startup Dad blog, said good matchmaking and deal opportunities in Arkansas for startup firms and investors have taken several years to reach critical mass. Now through pitch contests, several fintech accelerations and entrepreneurial service organizations such as the Little Rock Innovation Hub, Startup Junkie, Little Rock Tech Park, The Venture Center and the state's Small Business Technology and Development Center, Arkansas is better able to vet startup opportunities alongside trusted VC investors.

“It just takes time to build the right ecosystem. All of it feeds upon itself,” Moody said. He noted the success of homegrown startup Apptegy that now has nearly 200 employees. The Little Rock-based education technology company founded by startup George Jeston in 2013 was named to Forbes inaugural list of the top 500 startup employers in America in 2020. “They are an Arkansas success story,” he said.

Through his work at Ark Angel Alliance, founded in 2019 by Arkansas-based investors Alese Stroud, James Hendren, Bryan Hosto, Jeff Amerine and Gary Jones, Moody said his goal is to continue finding well-run, high potential startup companies and match them with the right investors. His consulting firm, Jacksson David LLC, is also focused on startups and small businesses with significant growth potential.

Moody also said the Arkansas startup community needs to invest more in diversity, equity and inclusion so that women, Black-owned firms and founders of color have an opportunity to participate and grow through VC investment.

“We need to get those folk in the (VC) pipeline from both the investment and startup side,” he said.

Meanwhile, the new report by NVCA and Pitchbook shows that Arkansas is not the only state that has experienced strong venture capital growth during the pandemic. According to the new report, global VC investment activity mirrored the U.S. and reached new highs in 2021. The U.S. accounted for 49% of $683 billion invested globally and 40% of just over 40,000 VC deals. The U.S. share has steadily declined since 2004, Silicon Valley and the rest of the country accounted for 82% of dollars and 74% of deal count.

“On the surface, 2021 posted extraordinary numbers,” said Franklin. “The remarkable year was paved by several years of a healthy startup and funding environment. The industry started 2022 on a high note, but in some cases, the topline, record-breaking figures don’t tell the full story given the dynamic, evolving and growing ecosystem.” 

Franklin said that continuing to encourage new company formation and making capital more accessible to underrepresented communities were important priorities to ensure the continued health of the ecosystem, which has played a pivotal role in the U.S. economy. He added that VC is “addressing the country’s long-term needs in sectors like climate-tech, life sciences and cybersecurity.”

To download the NVCA 2022 Yearbook, go here: https://nvca.org/wp-content/uploads/2022/03/NVCA-2022-Yearbook-Final.pdf  

Photo Caption:

David Moody, executive director of Ark Angel Alliance