NEW YORK -- Texas has long been considered a major hub of venture capital investing -- one of the largest, in fact, behind Silicon Valley and Boston.

But apart from Austin Ventures, which oversees $3 billion and is by far the largest firm in the state, few if any firms are making money off their operations in Texas, said one investor who recently compiled the returns of Texas firms. This has limited partners wondering whether the state's reputation is more swagger than substance.

Indeed, one of the biggest shock waves the venture industry endured last year was generated by a Texas firm, Sevin Rosen Funds. The Dallas firm decided to abandon its efforts to raise a 10th fund, blaming venture capital's "fundamental structural problems."

There are other signs of trouble. Earlier in the year, Wayne, Pa.-based TL Ventures shut down its Texas office when three investment professionals resigned to join Guggenheim Partners to start a new VC business. And smaller firms have had problems exiting their investments in the state profitably.

Dallas-based CenterPoint Ventures, which also has an office in Austin, has exited from only one company since 2005, selling NetBotz Inc. to American Power Conversion Corp. for $31 million after investing $27 million in it, along with five other firms. Meanwhile, Sewickley, Pa.-based Adams Capital Management, which has two of its five general partners in Austin, has exited from only one Texas portfolio company since forming its first fund more than seven years ago. It sold payment technology company Works to Bank of America Corp. in 2005.

Some of the problems these firms face are due to Austin Ventures' dominance in the state.

"There are a small number of proven entrepreneurs that have demonstrated they can make money for our shareholders," said Austin Ventures General Partner John Thornton. "We have tried to convey the message that if you try to build a company in Texas without us, it's a mistake."

But the issues go beyond that. Texas is producing far fewer funding opportunities than it historically has, losing VC dollars every year between 2000 and 2005. In 2005, VCs poured $1 billion into Texas companies, less than half the $2.6 billion they invested in 2001, according to industry tracker VentureOne, which is owned by Dow Jones & Co., publisher of this newswire.

Texas was hit particularly hard by the technology bust. Because the state's entrepreneurial activity is focused almost entirely on software and semiconductors, firms investing in the state had little choice but to continue to back information technology startups. Contrast that with Boston, where VCs were able to turn to life-sciences investments to ride out the storm.

That legacy may be holding Texas back, giving other regions of the country the chance to surpass it. Deal flow in southern California, for example, has grown steadily since 2003, and the firms that invest there are enjoying profitable exits. For example, Princeton, N.J.-based Domain Associates LLC, with an office in San Diego, announced last month that one of its California portfolio companies, Orexigen Therapeutics Inc., had filed to go public, while another, Cerexa Inc., was acquired for $480 million.

Most firms based in Texas remain optimistic, buoyed by recent plans by the state's government to ask the large limited-partner Teacher Retirement System of Texas to set aside up to $600 million for investments in state startups.

Beyond that, Texas was doing better in 2006 for the first time in years, with VC firms pouring $1.2 billion into the state, up from $1 billion in 2005, according to VentureOne. With IT starting to climb out of the hole it fell into after the bubble burst, Texas may also see its fortunes revive.

"I look at the next 10 years," Austin Ventures' Mr. Thornton said, "and I like the cards we're holding."