Tag: Kauffman Foundation

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Accelerators McNair Center

MassChallenge: Connecting Startups and Big Business

MassChallenge was located at One Marina Park Drive until 2014.

Corporations and startups are moving toward early stage interactions. MassChallenge, a highly successful nonprofit accelerator, has been connecting corporations and startups since its 2010  launch in Boston. MC has several US and international locations, which accelerated 372 startups in 2016.

MC delivers positive results and has been listed among the Best Startup Accelerators by the Seed Accelerator Rankings Project, led by Baker Institute Rice faculty scholar Yael Hochberg.  There are over 1,000 MC alumni, who have collectively raised more than $1.8B in outside funding, generated $700M in revenue and created over 60,000 jobs. According to a 2016 MIT study, MC startups are 2.5 times more likely than non-MC startups to hire at least 15 employees and three times more likely to raise $500,000 in funding.

With seven years of history, notable MC alumni includes Ginkgo Bioworks, which designs custom microbes to produce chemicals, ingredients and industrial enzymes. As a startup, Gingko Bioworks raised $154M in funding and signed a deal for 700 million base pairs of designed DNA — the largest such agreement ever made — with Twist Bioscience. Other remarkable graduates of the program include Ksplice, Turo, Sproxil and LiquiGlide.

An Attractive Alternative for Startups

MC is similar to other startup institutions such as Techstars and Y-Combinator. However, the nonprofit differentiates itself by not taking equity. Entrants to the accelerator must be early stage startups, defined as companies with no more than $500K of investment and $1M in annual revenue. As part of the four-month program, selected startups receive mentoring, co-working space, access to a network of corporate partners, tailored workshops and the chance to win a portion of $2M in zero-equity funding. Additional prizes are provided by partners such as The Center for the Advancement of Science in Space (CASIS) and Microsoft’s New England Research and Development Center.

For entrepreneurs in regions with mature ecosystems like Silicon Valley and Boston, MC is one option among an array of accelerators and informal networks. This  density of resources is called  agglomeration, a geographic concentration of interconnected entities increases interactions and the productivity. The MIT study suggests MC acts as a complement to the prior advantages of startups in established ecosystems by providing key resources and access to social capital  and also found evidence that startups founded in regions with higher access to early stage investors had on average higher quality ideas, but that their chances of success were not higher conditional on the quality of their idea.

For startups in nascent ecosystems the resources provided by MC can become the only option to pitch their ideas to investors and advance their company at no cost other than the time invested on the program. Of equal value is the endorsement received as a MC graduate inferring the quality of the startup venture.

A Model Built on Strategic Partnerships

As a nonprofit, MC depends on the support of a network of public, private and philanthropic partners, with the vast majority of their funding coming from corporations. Governments and philanthropic foundations fund MC with the goal to foster regional economic growth. Founders John Harthorne and Akhil Nigam, former consultants at Bain & Company, garnered early support from the Commonwealth of Massachusetts, successful entrepreneurs and large corporations such as Blackstone, Microsoft and the nonprofit Kauffman Foundation.

MC could have faced financial challenges by providing accelerator programs at no cost and with no equity commitment. However, MC was able to become a bridge between large companies’ need for innovation and startups’ need for capital. Large companies have the scale of resources, customer information and market experience, but may lag in innovation. Startups, on the other hand, lack the resources but innovate with sometimes disruptive and successful ventures, frequently taking incumbents by surprise (Airbnb, Uber).

MC serves as a channel between startups and established companies to meet the need for fast-paced innovation. Companies like Bühler and PTC partner with MC to source high-potential startups for the development of advanced technology. Companies can also source tailored programs or tracks for specific needs.

A study done jointly by MC and innovation firm Imaginatik looked at how startups and corporations interact in new collaborative ways. The research team surveyed 112 corporations and 233 startups from various industries. 82 percent of the corporations considered startup interactions important, and 23% stated that these interactions are “mission critical.” Startups have a high interest in working with corporations with 99% stating it is important for them to interact with potential corporate customers, marketing channels and strategic partners.

Expansion

MassChallenge was located at One Marina Park Drive until 2014.

MC communicates its impact and vision to donors by demonstrating the cost-effectiveness of alliances between startups and corporations. A solid accelerator program, global vision, robust network and a sustainable funding strategy have set up MC for success. As stated in the MC Impact Report 2016, the accelerator is committed to running 12 locations annually by 2020, including at least one on each populated continent.

Before establishing an MC accelerator, the metropolitan area is evaluated for the quality of its research universities, urban setting, level of entrepreneurship opportunity and investment capability. As government and private stakeholders partner, a sense of shared ownership becomes crucial to consolidating efforts. This engagement guarantees that the resulting ecosystems are seen as a shared legacy.

The next MC sites are yet to be announced. Currently in five locations with global impact, MC’s 2020 vision is on a path to become a tangible reality.

The author and editor would like to thank Tay Jacobe for assistance with researching and drafting this post.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/24/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Austin’s Venture Capital

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Martin follows up on her previous analysis of Austin’s booming entrepreneurial ecosystem. Martin highlights Austin’s decreases in VC investment and deal closures from 2016 as signs of a slowing in growth. According to a report released by PitchBook, 2016 brought substantially fewer deal closures than 2015 for Austin startups. Martin suggests that increased perceived risk among investors and a recent decline in startups are byproducts of an over-investment into Austin startups in previous years.

Still, Martin remains optimistic about the health of Austin’s entrepreneurial ecosystem going forward, predicting that the city “ will see investment increase again after VC investment balances out.”

Big Food Looks to Startups for Ideas, Innovation

Annie Gasparro, Reporter, Wall Street Journal

When the Kellogg’s and General Mill’s of the food industry realized that they couldn’t quell rising consumer obsession with healthy and unprocessed products, they started investing in food startups.

In recent years, many prominent names in the food processing and consumer goods industry began creating VC funds to invest food startups. According to CircleUp, a company that acts as an investment marketplace for food startups and PE firms, big players in the consumer good industry saw roughly $18 billion of their market share swept away by smaller competitors between 2011 and 2015. These partnerships are also mutually beneficial. Emerging food startups gain access to resources and credibility, and larger corporations receive valuable insight into the successful marketing strategies and recipes of their new competitors.

Why Some Startups Succeed (and Why Most Fail)

Patrick Henry, Founder and CEO of QuestFusion, Contributor, Entrepreneur

In his article for the Entrepreneur, successful entrepreneur and startup consultant, Patrick Henry, analyzes startup failures and successes. Henry reinforces the relevance of his post by citing an article by FastCompany, which states that 75% of venture-backed startups fail. Henry frames the question in two ways: what makes startups fail, and what makes startups succeed? Citing studies from StatisticBrain, CB Insights and Compass,

Henry attributes most business outcomes to company leadership. More often than not, successful startups have CEO’s or c-suite members with general and industry-specific business knowledge. Think Google’s Eric Schmidt, Ebay’s Meg Whitman or Apple’s Steve Jobs. Commons reasons for startup failures, such as raising too much capital too quickly, running out of cash or ineffective marketing, signal poor decision-making at the management level. Company founders should consider adding “seasoned” business veterans who the possess “domain expertise” to best support their strong technical team and existing product design.

According to Henry, startups should not undergo more than two pivots. Pivots are changes “in course of direction that result in a material change in the product-market strategy.” While young businesses should be equipped to adjust to market fluctuations, they should avoid being so flexible that they lose sight of their founding mission.

The Megatrends of Entrepreneurship are Key to Job Growth

Wendy Guillies, Contributor, Forbes

Wendy Guillies, President and CEO of the Kauffman Foundation, discusses the megatrends of entrepreneurship.

The first major trend involves demographics. Despite America’s growing diversity, the country’s entrepreneurial population has remained largely stagnant. Women and other minorities remain largely underrepresented in business ownership. According to Kauffman Foundation data, minorities and women are half as likely as their counterparts to own a business that employs people.

The second key trend focuses on geography. Entrepreneurial activity is becoming increasingly concentrated in urban centers. According to Guillies, this phenomenon is largely a function of population shifts, as more and more people relocate to cities. From the 1980s to 2017, the share of small businesses based in rural communities dropped from 20 to 12 percent. “Increasing urbanism” also has spurred the spread of entrepreneurial activity from the major coastal hubs, “ driving geographical equality.”

The third trend involves job creation and technology. According to Guillies, “in the past, as companies scaled their revenue, jobs scaled in an almost linear fashion.” Now, this is no longer the case. For example, in 1962, when Kodak reached $1 billion ($8 billion today) in sales, the corporation employed over 75,000 people. When Facebook surpassed similar sales targets in 2012, the company employed a mere 6,300 workers. Despite promoting capital efficiency, digitization has slowed job creation from the startup sector, However, there is a significant upside to these web-based technologies: such platforms lower many of the barriers to market entry for small businesses.

According to Guillies, “these three megatrend…are sources of both concern and optimism.” If entrepreneurs and policymakers can better understand and take advantages of these trends, they can “enhance job opportunities for the benefit of us all.” For instance, if minorities alone started as many businesses as non-minorities, the economy would add more than 9.5 million jobs.

QA with Jared Bakewell on the 2017 Annual State of Entrepreneurship Address

Silicon Prairie Team, Silicon Prairie News

The 8th Annual State of Entrepreneurship Address took place this past weekend in Washington D.C. Jared Bakewell, CEO and Co-founder of Proseeds, an Omaha-based startup, recently sat down with the Silicon Prairie Team to discuss the event’s key takeaways. The Kauffman Foundation’s Guillies delivered the address,and she focused on the three major trends of entrepreneurship.

In the interview, Bakewell stressed a general consensus among the event’s attendees, which included entrepreneurs, venture capitalists, and politicians: government policy should remove early barriers to success for startups and small businesses. For entrepreneurs in the midwest and rural areas, access to capital is a concern.Currently, most of the nation’s VC flows toward the coastal hubs. Additional concerns for startups looking to expand operations are instabilities in both healthcare and immigration policy. Bakewell optimistically concluded the interview, adding that many of the attending politicians appeared open to the suggested solutions to these challenges.

IBM Watson joins Indiegogo to back a crowdfund-to-production service for entrepreneurs

Khari Johnson, Reporter, VentureBeat

Last week, IBM Watson and Arrow Electronics announced a new partnership with crowdfunding website, Indiegogo. IBM spokesman Deon Newman shared with VentureBeat that the partnership will expand Indiegogo’s operations from purely fundraising to also incubating and accelerating startups.

Indiegogo cofounder Slava Rubin reiterated the strategic shift, telling VentureBeat that the company plans on evolving its platform into “a springboard for entrepreneurs.” All startups that participate in the partnership’s services will gain access to IBM Watson’s Bluemix. Bluemix, along with IBM Watson’s other AI services, will offer smaller companies the opportunity to apply machine learning processes to their existing infrastructure. Some successful participants will even participate in Bluexmix’s global entrepreneur program and receive $50,000 in capital from Arrow.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 12/02/2016

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Keep Austin Entrepreneurial

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In 2016, Austin was ranked as the number one U.S. city for startup activity by the Kauffman Foundation. Austin’s entrepreneurial ecosystem began in the 1970s and 1980s, and was originally focused on computer and semiconductor manufacturing.

Austin’s “Silicon Hills” has diversified into “more than the computer chip and semiconductor industry that first enabled its growth.” The annual South by Southwest Festival draws thousands of tech startups to the city and provides excellent networking opportunities for entrepreneurs. The University of Texas at Austin adds thousands of skilled employees to the city’s labor force each year. Additionally, UT Austin’s boasts the Austin Technology Incubator, a startup-focused incubator run by the university’s IC2 Institute.

Austin provides entrepreneurs with supportive policy infrastructure, skilled and energetic laborers and access to valuable mentorship opportunities. If efforts to grow Austin’s economy continue on their current path, the city will be well poised to solidify its presence as a thriving entrepreneurial ecosystem.

Overtime Rules in Limbo: What Businesses Should Do Now

Jeremy Quittner, Reporter, Fortune

Last week, a federal judge judge in Texas granted a preliminary injunction against the Department of Labor’s new overtime rules that were set to go into effect on December 1st. The new overtime rules would have increased the threshold salary for overtime workers to $47,476 from $23,600. Many small business owners, acting in preparation for the new rule, made the difficult financial decision to switch salaried workers to hourly status.

The preliminary injunction still must go through an additional 60 day period of court hearings before it becomes an official injunction. Additionally, the Obama administration’s Department of Labor could still appeal the judge’s decision to the U.S. Court of Appeals for the 5th circuit. It is not yet clear if the administration will challenge the judge’s decision. Even if the decision is appealed, success on appeal is doubtful; in the court’s recent history, the U.S. Court of Appeals for the 5th Circuit has tended to challenge the Obama administration.

McNair Center’s Catherine Kirby previously examined the effects of new overtime labor laws on small businesses in her blog post Small Business and Overtime Regulation.

One simple way billionaire investor Peter Thiel identifies game-changing startups

Eugene Kim, Reporter, Business Insider

Peter Thiel, serial VC investor and founder of PayPal, is known for his profitable investments in successful billion dollar startups, such as Facebook, Palantir, Stripe and SoFi. Business Insider’s Kim reports possible insights into Thiel’s keen eye for return on investment.

In an interview at VC firm Khosla Ventures’ KV CEO Summit, Thiel recently said, “I think in some ways the really good companies often couldn’t even be articulated…we didn’t quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading.” Thiel cautioned investors away from startups that rely on buzzwords, such as big data or cloud computing, in their pitches. Thiel said, “…when you hear those words, you need to think fraud and run away as fast as you can. It’s like a tell that you’re bluffing, that there’s nothing unique about the business.”

White House expands platforms for inclusive entrepreneurship

Kate Conger, Reporter, TechCrunch

The White House recently announced “new and expanded plans to improve diversity and inclusion within the startup economy.” The plans are focused on promoting diversity in higher education, investment and entrepreneurship. The initiatives reflect the Obama Administration’s commitment to improving minority representation in universities, investment firms and tech companies. By focusing the initiatives within the private sector, these efforts will hopefully continue after his departure from office.

More than 200 universities, all members of The American Society for Engineering Education, have signed a pledge to promote diversity in their engineering programs. Additionally, more than 30 VC firms and accelerators signed a pledge to diversify access to seed and early stage capital for underrepresented entrepreneurs and reveal information regarding their portfolios’ diversity. Furthermore, 46 tech companies, including Xerox, have joined the Tech Inclusion Pledge, demonstrating a commitment to publicly publish recruitment goals and diversity metrics.

Tom Kalil, deputy director for technology and innovation at the White House Office of Science and Technology Policy, reportedly told TechCrunch there is existing data that indicates diverse firms are more diverse are more likely to be successful. According to Kalil, “A lot of innovation comes from diversity, people with different backgrounds.”

Data science startup Civis Analytics raises $22 million

Ken Yeung, Contributor, VentureBeat

Civis Analytics recently announced that it bagged $22 million in its latest Series A funding round. Civis Analytics was born out of President Obama’s 2012 reelection campaign. Though originally focused on political campaigns, the data science company’s cloud-based platform provides data analytics tools and methodologies  to organizations focused in areas such as health care, media and education. Since its inception, the startup has relied on revenues, rather than funding, to support its operations. However, the startup announced its recent funding will go toward hiring more engineers and data scientists.

Civis Analytics CEO, Dan Wagner states the importance of data analysis to business success: “Everyone knows that they need to be using data, but most don’t know where to start. Or, if they are using data, they aren’t necessarily asking and answering the right questions.”

Stripe Investment Makes Cofounder The World’s Youngest Self-Made Billionaire

Ryan Mac, Reporter, Forbes

Brothers Patrick and John Collison are cofounders of San Francisco-based startup Stripe. Stripe is a tech company that enables private individuals and companies to engage in transactions via the internet and on mobile apps. MIT and Harvard dropouts, respectively, Patrick and John Collison recently joined the ranks of the world’s youngest self-made billionaires. Stripe recently announced a successful funding round, which doubled the startup’s valuation to $9.2 billion. CapitalG and General Catalyst Partners jointly invested $150 million in Stripe during its latest funding round.

Despite their early success, the Collision brothers are still hungry for more; Patrick Collison told Forbes in January of 2014 that, “Heartening as the success to date has been, we are so early in accomplishing the goals that we set out for ourselves. If anyone here believes that Stripe has already made it, that would be hugely problematic for us.”

QA with Kauffman’s Victor Hwang on entrepreneurship in the heartland

Ryan Pendell, Contributor, Silicon Prairie News

Victor Hwang, Vice President of Kauffman Foundation, and Phil Wickham, Executive Chairman of Kauffman Fellows set out on a road trip through America’s Midwest earlier this month to “take the pulse of entrepreneurship in America’s “middle.” Despite a nationwide political narrative that depicts the Midwest in a state of slumping stagnation, caught between booming coastal economies, Hwang and Wickham report that Midwestern entrepreneurs are actively seeking out business solutions to improve the quality of life within their communities. Since the benefits of the tech boom have been focused on the coasts, Hwang and Wickham cite the biggest challenges to Midwestern entrepreneurs as access to capital.

According to Hwang, the need to build infrastructure and capital should be considered both a challenge and an opportunity for Midwestern entrepreneurs going forward. Hwang expressed optimism for the future of the Midwestern economy, claiming that the region’s culture of “civic mindedness, that willingness to pitch in, that willingness to take risks and help others reach their ambitions” is still alive.

Policy Changes Needed to Unlock Employment and Entrepreneurial Opportunity for 100 Million Americans with Criminal Records, Kauffman Research Shows

Ewing Marion Kauffman Foundation

According to a report recently published by the Kauffman Foundation, rethinking America’s “occupational licensing policy could counter recidivism, encourage entrepreneurship and boost the American economy.” Currently, occupational licensing requirements prevent individuals with a criminal history from securing licenses that could open the door to financial stability and self-sufficiency. Many occupations that require occupational licenses are on low-skilled and high-skilled professions; increased labor participation, productivity and entrepreneurship by released inmates within these fields could therefore produce benefits for the overall economy. According to the Kauffman Foundation’s study, over 60 percent of inmates released each year from state or federal prison are still unemployed after one year of their release.

The Kauffman Foundation’s Emily Fetsch notes that the high levels of recidivism and unemployment among ex-convicts indicate a fundamental issue with the country’s occupational licensing policy: “Hundreds of professions that require occupational licenses could provide paths to economic independence for those formerly incarcerated, except for the fact that their criminal histories alone may ban them from receiving licenses, even if their convictions had no relevancy to the job.”

Fetsch recommends reforms to occupational licensing policy that would exclude only criminal defendants who pose a a public threat or when convictions are recent and relevant to the context of an occupation. Additionally, Fetsch proposes offering the formerly incarcerated opportunities to earn rehabilitation or restoration certificates, thereby preventing inmates from automatic disqualification for consideration of occupational licenses solely on the basis of their arrest. Lastly, Fetsch contemplates disposing of occupational licensing requirements altogether, expressing skepticism for the regulation’s effects in promoting public safety and health.

An Incubator for (Former) Drug Dealers

Maura Ewing, Reporter, Bloomberg

“Amid calls for more job training, less automatic background searching and other changes that would make it easier for ex-felons to become employees” Bloomberg’s Ewing reports on an alternative perspective solution on the fight to curb recidivism and unemployment  among the formerly incarcerated: encouraging them to start their own businesses.

The public and private sphere should continue to push programs that support formerly incarcerated individuals, as well as tackle the structural problems that face these prisoners as they re-enter society. However, Ewing asserts that more emphasis should be placed on the potential returns on fostering entrepreneurship among this commonly dismissed population.

Defy Ventures, a nonprofit incubator based in New York, certainly achieved success in this regard by transforming ex-convicts into entrepreneurs. Over the past six years, Defy Ventures has trained upwards of 500 released felons and successfully incubated over 150 companies. What’s more, the recidivism rate among the incubator’s alumni within five years post release is an astonishing 3 percent, compared to the national average of 76 percent. Defy Venture’s efficacy in curbing recidivism rates suggests that future initiatives to support released prisoners should be focused on entrepreneurship.

Ewing’s article tells the story of another incubator underway in Hartford. The incubator, TRAP House, focuses on supporting former drug dealers as they start new, legal companies. The incubator’s name makes a clever reference to slang for drug-stash locations and is “short for transforming, reinvesting and prospering.”

Happy Holidays from the McNair Center for Entrepreneurship and Innovation. The Entrepreneurship Weekly Roundup will return in January.

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McNair Center Startup Ecosystems

Keep Austin Entrepreneurial

Austin, Texas

Ranked number one for startup activity in the last two years by the Kauffman Foundation, Austin, Texas is one of the strongest emerging entrepreneurship ecosystems in the United States. Austin’s history of entrepreneurship and supportive government has facilitated Austin’s emergence as an entrepreneurial ecosystem.

Austin’s History of Entrepreneurship

During the 1970s and 1980s, Austin’s entrepreneurial ecosystem focused on computer and semiconductor manufacturing. Efforts by the Austin Chamber of Commerce, such as low mortgage rates for relocating staff and tax incentives, fueled the move of several major companies to Austin: IBM in 1967, Texas Instruments in 1969 and Motorola in 1974. A doubling in student attendance at the University of Texas in the early 1970s increased the educated workforce in the region.

The selection of Austin as the home of the Microelectronic Computer Corporation (MCC) in 1982 accelerated this concentration of high-tech companies. Facing fierce competition from Japan’s Fifth Generation Project, major U.S. companies banded together and created MCC, one of the largest computer research companies at the time. MCC chose Austin instead of Silicon Valley and Route 128 because the University of Texas offered MCC a subsidized lease and the Chamber of Commerce facilitated low-cost loans and reduced mortgage rates for staff moving to Austin.

Austin, Texas
Austin, Texas

Initially, the Austin ecosystem was primarily large businesses, such as IBM and Texas Instruments. This focus changed after the oil slump and savings and loan crises of the late 1980s and early 1990s crippled the Texas economy. Austin was not spared. It had one of the highest commercial real estate vacancy rates in the country and companies laid off large numbers of employees.

In response, the University of Texas formed the Austin Technology Incubator (ATI) in 1989 to jumpstart the local economy through high-tech startups with high-growth potential. In 1989, Greg Kozmetsky, the brain behind ATI, founded Austin’s first angel network, the Capital Network. These initiatives provided a foundation for growth during the 1990s dot-com boom. Austin companies such as Garden.com, an online gardening shop that raised $50 million in venture capital, and DrKoop.com, an “Internet-based consumer health-care network,” that was worth more than $1 billion, found success in Austin.

In 2000, thirty Austin venture capitalists invested over $2 billion in entrepreneurship ventures. The subsequent burst of the dot-com bubble in the early 2000s hurt Austin. After the 2001-2003 economic downturn, the region experienced major industrial restructuring and a renewal of entrepreneurship.

In 2003, the business community raised $11 million for Opportunity Austin, an economic development program. Opportunity Austin focused on recruiting new businesses, marketing Austin effectively and stimulating entrepreneurship and emerging technology sectors.

Less than five years after the last economic downturn, the Great Recession of 2008 set back many new Austin businesses. While venture capital and small business creation are not at the level they were during the dot-com boom, the rate of startup growth is currently 81.23 percent.

Entrepreneurship in Austin Now

Austin is experiencing yet another entrepreneurship boom. Austin now has the supportive policy structure, mentors and sector diversification required to finally establish a lasting ecosystem.

Austin’s cultural support of local businesses and responsive state and local government policies are fueling its start-up growth. The absence of state income tax incentivizes young professionals to work and settle in Texas. The local Austin government provides services for people considering starting a business such as BizAid Business Orientation and Small Business Program. The Entrepreneur Center of Austin and the Indus Entrepreneurs of Austin specifically provide support for start-ups. The University of Texas’ Herb Kelleher Center for Entrepreneurship, Growth and Renewal connects Austin entrepreneurs with resources.

As a result of Austin’s strong history of entrepreneurship, mentorship opportunities for nascent entrepreneurs are readily available. Austin companies, such as Dell, offer mentorship and accelerator programs. Entrepreneurial hubs, such as Tech Ranch Austin and Capital Factory, serve as an intersection between Austin incubators, accelerators, coworking spaces and also offer mentorship programs for entrepreneurs.

While known as “Silicon Hills,” Austin’s entrepreneurship economy is much more diversified than the computer chip and semiconductor industry that first enabled its growth. According to a 2015 Austin Technology Council report, approximately 14 percent of the $22.3 billion value of Austin’s tech companies came from semiconductors. Computer and peripheral equipment contributed 31 percent. Both Austin-born and transplanted companies focus on the bioscience, energy, clean-technology, water and IT/wireless industries. Austin has an extremely strong tech-focused entrepreneurship industry, but it also has successful media, education and social and craft/lifestyle ventures.

Venture Capital in Texas and Austin

Texas’ venture capital investment has decreased by 19 percent over the past ten years. To maintain a healthy entrepreneurship ecosystem, it is imperative that venture capital investment increases in the coming years.

Austin’s ecosystem lacks capital. In 2014, Austin saw 99 venture capital deals worth $739 million. In contrast, Silicon Valley saw 1,333 deals worth more than $27 billion. While there is no shortage of capital in Texas, there is a lack of capital access, information and government support. The majority of Texas capital is invested in oil, gas and real estate. These are considered by many to be less risky than entrepreneurship ventures. However, as oil prices fall, Texans should consider trying to raise growth and investing in entrepreneurial ventures.

Austin’s most prominent venture capital fund, Austin Ventures, closed in 2015. Phil Siegel and David Lack left to form Tritium Partners to provide capital for startups in Austin. Its first fund of $309 million is a fraction of the $900 million Austin Ventures raised at its peak. Silverton Partners and S3 Ventures have tried to fill the void left by Austin Ventures. However, none of these Austin venture capital funds have the capital or assets that Austin Ventures had.

Entrepreneurial Resources in Austin

Austin has a plethora of resources for entrepreneurs. The annual South by Southwest Festival provides networking opportunities. Companies are taking advantage of the 100,000 college students that graduate each year in the greater Austin area. The University of Texas at Austin boasts the Austin Technology Incubator under the IC² Institute, which has raised almost $700 million in investor capital to achieve this goal. Additionally, the Central Texas Angel Network provides capital and mentorship support for entrepreneurs in the Central Texas region.

What Starts in Austin, Changes the World

Austin’s entrepreneurial ecosystem is moving towards national recognition. Favor, a food delivery app, is an alumni of ATI and backed by Austin’s S3 Ventures and Silverton Partners. HomeAway, an Austin based online rental marketplace, was established in 2005 and acquired by Expedia for $3.9 billion in 2015. In the upcoming years, it is critical that capital investment continues to support new ventures such as Favor and HomeAway. Austin’s ecosystem has the policy, talent and mentorship to be successful, but private and public efforts must continue to ensure its success.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 11/18/2016

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Nationalism is not putting a damper on this trillion-dollar sector

Elaine Pofeldt, Contributor, CNBC.com

CNBC Contributor Elain Pofeldt observes that the United States and Europe are witnessing a rise in nationalist and anti-globalization sentiment. She cites Mr. Trump’s election and the Brexit referendum as evidence. The trend may reflect a global desire to redistribute market and government benefits domestically – and a disapproval of corporations that send wages abroad and profits to the already wealthy.

In this uncertain climate, one economic principle remains key: Entrepreneurship fosters economic growth.

The Kauffman Foundation’s recently released Global Entrepreneurship Index emphasizes the importance of entrepreneurship to economic growth. This annual index rates countries on the health and quality of their entrepreneurial ecosystems. There is a strong correlation between a country’s GDP and its technological advancements. Governments should support a strong entrepreneurial ecosystem if they are truly serious about encouraging the country’s economic growth.

Currently the U.S. ranks number one on the index. The index suggests that the strength of the U.S. entrepreneurial environment lies in a strong perception for opportunity. One area of opportunity that U.S. entrepreneurs are increasingly tapping into are the regulated sectors, such as health care, energy and education.

Social entrepreneurs is also on the rise. Jonathan Ortmans, a senior fellow at the Kauffman Foundation, notes how this relates to national policy: “We’re now seeing a much larger number of public-sector leaders — government at the national and local level — jumping in and asking, `How do we tackle this and build stronger entrepreneurial ecosystems?'”

The Role of Entrepreneurship in Job Creation and Economic Growth

Margarita Hakobyan, Contributor, Huffington Post

Huffington Post’s Hakobyan emphasizes the role of entrepreneurship in job creation and economic growth. According to a report released by the Small Business Administration in 2012, small businesses created 60 percent of new jobs in the previous decade.

New businesses challenge existing markets and encourage competition by offering new or improved products. Successful entrants often steer customers away from existing companies. Disruptions in the market consequently force existing companies to innovate or watch their market share diminish.

Although the manufacturing sector suffered job losses from advancements in automation and other technologies, its productivity and scale have both risen considerably.

Manufacturing is an exception – many market disruptions create jobs. For example, Netflix, dismantled the video rental industry but created jobs by feeding a demand for large-scale processing of DVDs and maintenance of the grocery store kiosks that sell these DVDs.

Small businesses can also contribute to economic growth through their flexibility and diversity. Flexibility allows startups to react quickly to market conditions. Startups can meet consumer demands faster than established corporations because large companies often must follow long administrative processes before implementing reforms.

Venture Capital Firm Navigates Uncharted Course to Success

Michael J. de la Merced, Reporter, New York Times

The Times’ Merced reports on venture capital firm, Spark Capital. The firm is known for early investment in promising startups like Twitter, Tumblr, Slack and Oculus.

Spark is also wading into uncertain industries. It recently invested in Cruise Automation, a San Francisco-based startup that develops software for self-driving cars. At a time when Google and Uber declared self-driving vehicles “among their top research priorities,” the success of less funded and less established startups competing to break into the same market seemed doubtful. Big industry players already dominated the research on self-automated cars, so most VC firms turned to alternative ventures within less-explored markets. Despite the industry’s conventional wisdom, Cruise Automation was sold to General Motors for $1 billion within months.

Spark adopts a nontraditional process for investment decisions that focuses on products rather than markets. Instead of specializing in certain industries or markets, partners at Spark can bring any prospective venture to the table. Investors then debate the merits of pursuing the opportunity until a consensus among the partners is reached. Spark accredits its most successful decisions to an “appreciation for good product design.”

In total, Spark manages $3 billion in investment funds. Its fifth venture fund will have a first-close target of $400 million.

Ever Wanted to Back a Start-Up? Indiegogo Opens the Door to Small Investors

Stacy Cowley, Reporter, The New York Times

Indiegogo is a popular crowdfunding site that enables small venture capitalists to invest personal money into promising and creative ventures. The major crowdfunding site is the first to take advantage of a new securities rule, which allows “ordinary investors to risk up to a few thousands dollars a year backing private companies.”

Before the rule was passed, only accredited investors, or those with an annual income greater than $200,000 or net worth of $1 million, could invest personal funds in these riskier ventures. With the passage of the new rule, crowdfunding backers can own equity stakes in the companies they invest in.

The new rule addresses an issue raised during Oculus’ acquisition by Facebook. Oculus raised millions of dollars on crowdfunding sites during its early investment stages. The startup used the investments raised by crowdfunding backers to prove to venture capitalists that there was a market demand for its products. Investors poured money into the company, and Facebook subsequently acquired Oculus. The firm’s original crowdfunding backers reaped no gains; angel and venture capital investors took home the profits.

The Reason Silicon Valley Beat Out Boston for VC Dominance

Anil Gupta and Haiyan Wang, Contributors, Harvard Business Review

The Boston-Cambridge and Bay Area have histories in technology entrepreneurship and venture capital (VC). However, since the 1990s, Silicon Valley has consistently snatched a larger share of all VC investments in the US than its Northeastern counterpart. New England’s share in VC investments plateaued at roughly 10 percent. Meanwhile, the Bay Area’s share of VC investments has grown from 22.6 percent to just over 50 percent.

HBR’s Gupta and Wang identify cultural factors and state-level policies as possible explanations for the divergence between the two coastal VC hubs. For example, Massachusetts, unlike California, allows businesses to include noncompete covenants in their employment contracts. Noncompete covenants offer company loyalty, but they can also remove the need for fast-paced innovation that many Silicon Valley entrepreneurs face.

Additionally, New England and Silicon Valley differ in the type of investors and companies that they attract. The Northeast dominates in the life sciences; in the first three quarters of 2016, 60 percent of New England investments involved ventures focused on biotechnology and medical devices. Silicon Valley, on the other hand, is home to many of the startups that develop platform technologies integral to the digital age.

According to Gupta and Wang, California’s stronghold on the digital and tech industry has resulted in a “growing agglomeration effect.” Increasingly, entrepreneurs are migrating to or launching their businesses in the Bay Area to gain access to these synergies that come from being immersed in the world’s greatest entrepreneurship ecosystem.

And in startup news…

Womply bags $30M to Help Small Businesses Harness Data

Tomio Geron, Reporter, The Wall Street Journal

San Francisco-based Womply raised $30 million in its most recent round of financing, bringing its funding total up to $50 million since 2011.

The startup’s platform offers a “web-based suite of software tools” that allows small businesses to analyze performance data on sales, marketing, consumer behavior, revenue and online reputation.

Womply serves a diverse set of clients, ranging from salons to legal firms, but focuses on supporting service-oriented small business. The startup allows small businesses to gain valuable insights into their performance and consumer base. President Cory Capoccia says Womply is helping small businesses increase their efficacy “by “building technology to help grow, protect and simplify running small businesses.”

Rice Entrepreneurs

Spotlight on Rice Entrepreneurs: East-West Tea

Carlin Cherry, Research Assistant, McNair Center for Entrepreneurship and Innovation

East-West Tea is a student-run business that sells boba tea to Rice University students. Initially developed as a project for an undergraduate marketing class, East-West launched operations last month. The McNair Center’s Carlin Cherry interviews operations manager Andrew Maust.