Regional Innovators Start Work to Promote Texas Ecosystem as a Whole

In building thriving startup ecosystems, experts say density is key.

The idea is to have a critical mass of founders, investors, mentors, and executives mixing and mingling together. That sort of serendipity allows ideas to fully blossom. Think of Kendall Square or Sand Hill Road.

But, for communities not on the East or West Coasts, meeting that definition of density has proved elusive. It’s difficult to retrofit some communities that developed around the automobile, which enabled sprawl. Houston, for example, has multiple industry hubs—around healthcare or energy—in different parts of the city.

Now, things may be changing across Texas, and elsewhere. “We believe you can build communities and support entrepreneurs anywhere,” says Andy Stoll, senior program officer at the Kauffman Institute’s Ecosystem Development in Entrepreneurship program. “In order for them to increase their densities, they have to increase the size of the area in question.” (Which might seem counterintuitive, but read on.)

That’s the intent behind a recent announcement by the Capital Factory in Austin and the Dallas Entrepreneur Center that the two are working to create a “Texas Startup Megatropolis.”

“Launching in Texas gives access to four of the 11 largest cities in the country that are within driving distance of each other,” Joshua Baer, Capital Factory’s founder, wrote in a blog post earlier this month. “No Texas city will be a world-class startup hub by itself, but the Texas Startup Megatropolis can take on any other city, state, or country in the world.”

Capital Factory’s members now have access to the Dallas Entrepreneur Center’s mentors, investors, programs, and investment competitions. The DEC will have similar privileges in Austin. Next month, Capital Factory is hosting two events at the DEC, both of which will be live-streamed back to Austin. “Many of the events that we have traditionally done in Austin will now rotate monthly from city to city around the state,” Baer writes. “We’re going to get people moving from city to city more often—and we’re optimistic that will result in more money flowing from city to city, too.”

Other U.S. regions are seeing wisdom in this approach—though it may be too early to point to any results yet. Earlier this year, an effort called Launch Florida started to bring together entrepreneurial communities—accelerators, founders, investors, and others—in that state’s widely spread cities of Tampa Bay, Miami/Fort Lauderdale, Orlando, and Jacksonville.

In December 2015, Xconomy brought together Michigan leaders for an “unconference” to discuss breaking down silos that existed between the innovation ecosystems of Ann Arbor and Detroit. As attendee Gerry Roston, CEO of Civionics and an executive-in-residence at TechTown in Detroit, pointed out, the distance between the two cities is nearly identical to that separating San Francisco and San Jose—so why is one called “the Bay Area” while the other is known only as its parts?

“Entrepreneurship is a community sport,” says Stoll of the Kauffman Foundation. “And the community’s ability to connect their entrepreneurs to the resources and knowledge they need is fundamental to grow entrepreneurs. … The answers that Dallas might need could exist in Austin and San Antonio.”

Barbary Brunner, the Austin Technology Council’s CEO, says her organization’s goal is to enable 10 technology companies to reach $1 billion in revenue in 10 years. But so far, at least, that’s not likely to happen without business investment and expertise from outside the city limits. “If you’re going to raise a $40 million round as Phunware did [last fall], you have to go out of market,” she says.

The statewide push espoused by Baer comes as the innovation ecosystems in each of Texas’s major cities have experienced drastic growth. Capital Factory started in 2009 and, as the birthplace of the South By Southwest Interactive festival, Austin is home to multiple co-working spaces, tech startups, and investment firms. The DEC was founded in 2013, joining accelerators such as Tech Wildcatters and Revtech. San Antonio’s tech startup roots stem from initiatives such as the founding of co-working space Geekdom and the San Antonio Angel Network, as well as a burgeoning cybersecurity sector and efforts to bring a biotech incubator to town.

Meanwhile, Houston political and business leaders are working on an effort to create an innovation district that could jumpstart tech entrepreneurship in areas that are within the city’s natural economic strengths, such as industrial applications and energy exploration. That effort is also being championed by co-working space Station Houston, which started last year with the intention of being a hub for this sort of activity.

And new connections between the cities seem to be emerging. As a venture capitalist, Michael Girdley says he isn’t bound by geography—he’ll invest in a good company where he can find one. Still, having a group like Station Houston on the ground makes it easier for him to decide to go spend a day in Houston scouting for investment opportunities.

“For someone like myself who wants to invest in a community, [Station Houston] is super useful,” says Girdley, co-founder of the Geekdom Fund in San Antonio, which raised a $20 million fund earlier this year. “They will set up a day for you with space and help you meet companies. It just makes it easier.”

For Richard Bagdonas, an Austin-based health IT entrepreneur, a key factor in promoting more statewide collaboration in healthcare is the Texas Medical Center’s Innovation Institute. Founded in 2015, the institute, which hosts medical device and digital health accelerator programs as well as a biodesign fellowship, presents itself as a “third coast” health ecosystem—competing with other national hubs—that happens to be based in Houston.

That mindset has helped foster more collaboration between Houston and Austin, Bagdonas says. “We believe our backyard is all of these Texas cities … but the opportunity to cooperate with folks in Houston wasn’t there before,” he says. “The TMC’s creation is what’s led to these inter-city relationships.”

With the University of Texas Dell Medical School—along with an adjacent innovation district—coming online, Bagdonas says he expects that activity to increase.

Taking a bigger-picture view will also entice out-of-state investors to consider setting up shop in Texas, some tech leaders say. Right now, nearly 80 percent of venture capital is directed to only three states, which happen to be where a lot of investors live and work (California, New York, and Massachusetts), AOL co-founder Steve Case said in a TechCrunch article in May. “The reason [investing outside those states] doesn’t happen as much as it could is because most venture capitalists get in their cars and drive to these companies,” the article quoted Case as saying.

Case is trying to remedy that venture capital distribution through his organization, “Rise of the Rest,” an effort which is focused on helping develop tech ecosystems in different geographies to attract investment.

Even in a known startup hub like Austin, it can be difficult for startups to access capital, says Brunner at the Austin Technology Council. “The reason we don’t have funds of substantial size is our tech industry hasn’t produced enough big players,” she says. “The last two tech companies that produced an outpouring of talent and wealth [were] Tivoli and Trilogy; it’s been a while. We have a lot of early exits and don’t wind up with our own homegrown capital.”

In 2016, Texas attracted $1.35 billion in venture capital, with Austin accounting for $830 million of that, according to an analysis of PriceWaterhouseCoopers MoneyTree report data by longtime Austin entrepreneurs and educators David Altounian and Stephen Straus. But that figure is dwarfed by, say, the $18.5 billion raised by San Francisco companies or the $6.36 billion raised in New England during the same time period.

Greater connections between Texas cities’ tech communities, however, will lead to meaningful investment growth, according to Baer at the Capital Factory. “Instead of talking about why Dallas might be better than Houston, we should be talking about how we can work together to get our share of venture capital dollars more in line with our population size and startup activity,” he writes. “More connections means more business, more investors, and more growth.”

To be sure, Texas is a big state and geography will always be an obstacle of some sort. But Paul O’Brien, a startup advocate in Austin and founder of Media Tech Ventures, says policy makers could help bridge the distance by supporting infrastructure projects like a bullet train linking San Antonio, Austin, Dallas, and Houston. Face-to-face interaction is still important, he adds.

“Old-school connections still make so much more difference than a teleconference,” O’Brien says. “If we don’t invest in high-speed rail, we can write off being an innovative ecosystem.”

Angela Shah is the editor of Xconomy Texas. She can be reached at ashah@xconomy.com or (214) 793-5763. Follow @angelashah

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