Tag: VC

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McNair Center Women

Wanted: More Women Entrepreneurs

Introduction

The increase of women in the workforce in the twentieth century drove U.S. GDP growth to new highs. However, as U.S. growth slowed, so did the rate of women entering the workforce. Pushing for equal representation in fields where women have been historically underrepresented may be the key to stimulating our economy.

Women’s entrepreneurship is one of these fields. Lauded by the Kauffman Foundation as an “economic tailwind that will give a boost to twenty-first-century growth” in the global economy, there is a lot of excitement surrounding the potential of women in entrepreneurship. By looking at characteristics of successful women entrepreneurs, we may gain a better understanding of how to make entrepreneurship more accessible to women.

Characteristics of Successful Women Entrepreneurs

The Kauffman Foundation and Stanford University uncovered some interesting results by surveying 350 founding CEOs, presidents, chief technology officers, and leading technologists of tech startups founded between 2002 and 2012. First, women in tech entrepreneurship are highly educated. Ninety-four percent have at least a bachelor’s degree and 56 percent have graduate degrees. Their educational training centers around business, the liberal arts, and STEM. Female entrepreneurs clearly represent a highly educated slice of the population. In comparison, only 33 percent of women in the United States possess a bachelor’s degree or higher; further, only 12 percent of women possess a graduate degree.

Performance

Research shows that female entrepreneurs experience success. On average, female entrepreneurs of all types (not just tech industries) perform seven percent better on the Kauffman Opportunity Entrepreneurship Share than male entrepreneurs. The KOES tracks the percent of new entrepreneurs who come from prior employment each year; these entrepreneurs leave their jobs to start businesses because they identified market opportunities. This indicates that women are better at identifying the market “gaps” where entrepreneurs thrive. Furthermore, women start their equally successful companies with 50 percent less capital than their male counterparts.

Nonetheless, some research finds that women entrepreneurs perform worse than men. Studies by Fundera found that women-owned businesses earn 30 percent less annual revenue than men. This could be creating a vicious circle, though; when companies make lower revenue, it is harder to access credit, making it more difficult to increase revenue in the future.

Gender Gaps

If women entrepreneurs tend to experience success, why are there so few women involved in entrepreneurship as a whole? Female-owned businesses only represent 16 percent of employing firms. Even then, these firms tend to be small, usually with employee counts in the single digits. Among high-growth, high-technology firms, women represent a mere 10 percent of founders.

https://www.flickr.com/photos/ges2016/27831680936
Penny Pritzker (U.S. Department of Commerce Secretary), Ruth Porat (CFO and Senior Vice President of Google and Alphabet Inc), and Ann H. Lamont (Managing Partner at Oak HC/FT) speak at the Global Entrepreneurship Summit in June 2016

Female entrepreneurs cite lack of available financial capital, lack of mentors or advisors, and the high requirements for time and effort as some of the toughest challenges in starting their businesses. Seventy-nine percent of women surveyed by the Kauffman Foundation reported using their own personal funds to start their business.

Male founders are more than three times as likely as female founders to secure financing through angel donors or VCs. Research at Babson College indicates that this difference may be linked to gender discrimination: “Because women entrepreneurs do not conform to the ‘role’ of the entrepreneur in the high growth venture, role incongruity may lead to greater perceived risk on the part of venture capital investors.”

Supporting Female Entrepreneurs

If women entrepreneurs are unable to secure funding on an equal basis with men, it may be impossible to ever see equal gender representation in entrepreneurship. We need to address gender-based biases of VC firms and other investors. Recruiting more women to the venture capital industry could help reduce unintended gender discrimination when making investments. Employee bias training programs may also help in this process.

Private and nonprofit efforts to encourage women’s leadership and entrepreneurship can be helpful as well. Initiatives like Women’s Entrepreneurship Day, the Women’s Entrepreneur Festival, and the Microsoft’s Women Think Next network are all examples of non-governmental programs that try to address women’s representation issues. Lean In Circles—small support groups made up of women in local communities and around the world— also serve as valuable tools to promote women’s economic involvement.

Government programs may also be successful in jump-starting greater women’s involvement in entrepreneurship. The City of Atlanta provided 15 women entrepreneurs the opportunity to incubate their businesses for 15 months through their the Women’s Entrepreneurship Initiative in 2016. On a federal level, implementation of more programs like the State Department’s African Women’s Entrepreneurship Program may benefit women, especially those in minority groups. One of the greatest challenges for women entrepreneurs is finding mentorship opportunities; local and state government initiatives to pair mentors with women entrepreneurs could help address this problem.

The U.S. economy is at a tipping point. In early 2016, Forbes magazine pointed out that female entrepreneurs are an “under-tapped force that can rekindle economic expansion.” However, despite strong evidence for growth potential and data supporting female entrepreneurs’ power, many barriers still exist. Through integration of more women into entrepreneurship ecosystems, we can achieve a brighter economic future for all.

Related Posts

To learn more about treatment of women within top tech companies, see the McNair Center’s blog post here.

To learn more about women in STEM fields, see the McNair Center’s blog post here.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/3/17

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:

Crowdfunding

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe analyzes a relatively new phenomenon in capital fundraising: crowdfunding. Crowdfunding enables startups and entrepreneurs to raise capital for their businesses, without going through more formal sources of funding like angel investors, bank loans and VC funds. Although Indiegogo and KickStarter are by far the largest and most successful crowdfunding websites, many additional crowdfunding platforms have emerged in recent years. In 2015, the crowdfunding industry was valued at roughly $17.25 in comparison to $58.8 billion for VC funds.

While startups may find success in raising cash on crowdfunding sites, there is still no guarantee that the startup will be successful. This uncertainty holds for VC-backed startups as well, but unpredictability becomes a particular concern for crowdfunding-backed startups; the success rate of Kickstarter’s startups stands at 35.72 percent.

According to a study conducted at the Wharton School, a differentiating factor between startups that go through successful crowdfunding campaigns is strategic and longterm planning. Jacobe believes that “crowdfunding has potential to shake the dynamics of investment in the coming decades.” In order for crowdfunding to reach its full potential as an alternative platform for entrepreneurs to raise capital, policymakers should implement regulations that support and empower the crowdfunding environment

Startups Seeking Funding Should Consider Corporate Venture Capital Arms

Richard Harroch, Contributor, Forbes

In recent years, many large corporations, like Google, Nokia and Qualcomm, have been sprouting “venture capital arms.” Venture capital arms or corporate venture arms are VC funds that are separately owned or subsidiaries of a parent company. According to Forbes’ Harroch, corporate venture arms typically participate in seed, Series A and Series B investment rounds. These funds often look out for startups that offer the parent company a strategic or synergistic edge.

Among other positive outcomes, the corporate venture model benefits startups by providing credibility, a larger consumer base, access to an expansive network of resources and connections and strategic and industry-specific guidance. However, as pointed out by Michael Yang, the Managing Director for Comcast Venture, “there is no shortage of capital for the best startups.” Because the most promising startups can easily choose from a wide range of investing options, corporate arms distinguish themselves from traditional VC funds by leveraging their in-house expertise and ability to benefit companies post-investment.

Venture capital arms are a strategic and financially attractive option for many large corporations. Parent companies gain access to new and disruptive technologies, potential industry partners, budding industry talent, insight into alternative business models and additional sources of cash inflow.

Tech Startup Market Sinks to Lowest Point in Three Years

Sarah McBride, Journalist, Bloomberg

Stock markets have been enjoying a post-election rally amid expectations of infrastructure spending, decreased regulations and corporate tax cuts. Since January 26th, the Nasdaq Composite Index soared 13% percent and the Dow Jones Industrial Average broke the 20,000 mark.

However, Bloomberg’s McBride points out under-performance by one key segment of the market: private technology startups. While private tech startups are also likely to benefit from the Trump administration’s proposed tax cuts and deregulation, stricter immigration rules for the H-1B visa program could prove harmful. Bloomberg’s U.S. Startups Barometer measures startup deal-making in the U.S. at 37 percent below its level from December, putting the startup sector at its lowest point since April of 2014.

Although private market deals tend to reach a lull at the beginning and end of the year, deal flow in 2017 seems unusually low when compared to previous years. According to McBride, many VCs are now facing “the prospect that they had overpaid for many investments” in previous years, “particularly the coveted unicorn startups valued at $1 billion or more.”

Fortunately, the recent slow in deal flow is not symptomatic of a lack of capital; according to the National Venture Capital Association, U.S. venture funds raised $41.6 billion in 2016, “ the most since the dot-com days of 2001.” Despite the current trend, McBride expects more VC-backed private technology firms to go public.

And in startup news…

More bad news: JackThreads, Stayzilla shutting down

Dana Olsen, Financial Writer, PitchBook

Pitchbook’s Olsen reports on recent layoffs by VC-backed startups. In 2016, many startups halted operations and trimmed down their work forces. Last year, employees at many startups like Sonos, Pebble, Shyp, Optimizely, Yik Yak and Github faced waves of layoffs. Unfortunately, layoffs in the startup sector seem likely to continue into 2017. Munchery, Joyable, JackThreads and Stayzilla are four startups that have already instituted mass layoffs ahead of March. According to Olsen, VC-backed Stayzilla and JackThreads are also considering shutting down operations due to unsound financial practices and lack of profitability.

SoftBank set to invest more than $3 billion in WeWork

Brian Sullivan, Reporter, CNBC

WeWork is reportedly set to receive over $3 billion in investment from Japanese VC firm, SoftBank. WeWork, founded in 2010 in New York City, provides coworking spaces, networking opportunities and educational services to entrepreneurs, small businesses and freelancers. Since opening its original office location in New York City in 2010, WeWork has expanded its operations nationwide and globally, with a new location likely to open in downtown Houston later this year, The startup currently offers over 150 coworking spaces, with locations in most major U.S. cities and over 15 countries.

At the time of its last investment, WeWork was valued at approximately $17 billion. With the deal, WeWork’s valuation would surpass $20 billion. In recent years, this successful startup has accumulated over $1 billion in capital from prominent VC firms like Goldman Sachs, Benchmark and Hony Capital.

SoFi Raises $500 Million Led by Silver Lake for Global Expansion

Selina Wang, Reporter, Bloomberg

Founded in 2010, San Francisco-based Social Finance Inc. (SoFi) provides modern underwriting services. Using SoFi, customers can purchase financial products, such as student loan refinancing, mortgage loans, personal loans, wealth management and life insurance online.

In its latest funding round, SoFi raised over $500 million, drawing investments from SoftBank, GPI Capital and some sovereign wealth funds, but PE firm Silver Lake Partners led the charge. The recent funding round will support SoFi’s efforts to break out into international markets and expand its financial product offerings. Many SoFi executives have expressed interest in providing customers with an larger set of personal financing tools, such as mobile deposit.

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Government and Policy McNair Center Small Business

Crowdfunding

What is crowdfunding?

Crowdfunding is constantly evolving and hard to define. Elizabeth M. Gerber at Northwestern University defines crowdfunding as “an open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.” Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds.

A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.

History

The first popular online crowdfunding platform, AristShare, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors.http://i.vimeocdn.com/video/590376642_1280x720.jpg

After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful, raising more than $1 billion from 11 million backers.

A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo’s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo’s history.

In 2015, Crowd Expert estimated that the crowdfunding industry was worth approximately $17.25 billion. In comparison, Venture Capital in 2015 was estimated at $58.8 billion.

Successes and Failures

The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning. “Crowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,” Mollick asserts. Kickstarter’s records back up this claim. Kickstarter’s success rate is only 35.72 percent, meaning that only about one third of projects reach their goals.

Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, “There is a possibility of the existence of a hidden variable that would help us classify better.”

Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016, selling its key assets and intellectual property to Fitbit. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive and the SONDORS Electric Bike. Both of these startups have grown since their campaigns and expanded their product lines.

Economic Implications

Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their lifetimes.

A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual “formation of clusters of expertise and capability,” encouraging collaboration across the world. Adding to the “efficiency and productivity in the community value chain,” researchers also speculate that crowdfunding has the potential to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.

Crowdfunding Policy

Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.

In 2011 and 2012, mainstream media brought attention to the Facebook Problem. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC’s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended mainly to help companies like Facebook, it inadvertently affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.

In May 2016, another SEC regulation update gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can involve themselves in users’ crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm’s ability to raise follow-on funds later in the process.

Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in certain cases of issuers not keeping promises. They may also pay too little attention to the size of businesses/individuals that use crowdfunding to raise funds.

Conclusion

Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.

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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 Startup Ecosystems

Austin’s Venture Capital

Austin, Texas
Austin, Texas

In my previous blog post, I discussed Austin, Texas’ strong history of entrepreneurship and the many resources in the ecosystem. Supportive Austin policies have resulted in the creation of the Entrepreneur Center of Austin, and resources like Capital Factory and Tech Ranch Austin have emerged. Austin’s entrepreneurial ecosystem appeared to be healthy.

A recent PitchBook Report discussing venture capital in Austin shows the ecosystem to not be as healthy as previously thought. In 2014, Austin saw 286 deals closed at a value of $1.4 billion. Similarly, in 2015, 296 deals closed or $1.3 billion. 2016 saw a substantial decrease in the number and value of deals closed with 199 deals closed at a value of $978 million.

Austin’s ecosystem reflects a nationwide trend in declining deals. According to PitchBook, the number of deals closed nationwide had been rising steadily since 2009, peaking in 2014 with 10,501 deals closed. 2015 and 2016 both saw decreases in the number of deals closed; 10,293 and 8,136 respectively. The 8,136 deals closed in 2016 is the lowest number of deals closed since 2012.

An insufficient supply of startups and an increased perception of risk are decreasing VC investment in the Austin ecosystem. Investors likely fear that the oversupply of capital that has been invested in the system in 2014 and 2015 has led to slumping returns, so they are pulling back their investments. Once VC investment balances out, it is likely that Austin will see investment increase again.

Outside investment in Austin-based companies soared in 2014 and 2015, as respectively, 396 and 370 investors from outside the Austin metropolitan statistical area invested in Austin-based ventures. In 2015, Austin had the most venture capital invested in its first financings with $324 million. However, venture capital activity in the United States overall has declined. Austin’s most prominent VC fund, Austin Ventures, closed in 2015. After the two-year boom period from 2014 to 2015, the rate of VC investing in Austin startups has slid considerably over the 2016 period.

Austin’s diverse ecosystem is an asset to the stability of VC investment in the area. While the majority of VC activity occurs in the software industry, the pharmaceutical and biotech industry also attract significant VC investment. In 2015, 12 deals were closed in health care devices and services, and in 2016, 11 deals. The opening of the Dell Seton Medical Center and Capital City Innovation, which will work to connect entrepreneurs with healthcare research, will likely contribute to increases in VC for health care devices and services.

According to a McNair Center Report, VC investment in Texas is falling. Yet Austin’s relatively low costs and the boom of angel/seed investment have given Austin a reputation as a thriving startup ecosystem in a state where VC investment is dropping. Despite decreases in a 2016 VC investment in the region, it is likely that Austin will see investment in crease again after VC investment balances out.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/17/17

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:

The International Entrepreneur Rule: The US Startup Visa

Ramee Saleh, Research Assistant, McNair Center for Entrepreneurship

During the last days of the Obama Administration, the United States Citizenship and Immigration Services (USCIS) passed the International Entrepreneur Rule. The legislation intends to attract international entrepreneurs to the U.S. by granting them “discretionary parole.”

Under the rule, entrepreneurs can apply for temporary five year visas, as long as they partially own a startup that has received at least $250,000 in VC funding from “established U.S. investors” or $100,000 from “government entities.” If a startup fails to meet these funding requirements, the applicant must prove that a “significant public benefit” would result from the his or her entry into the United States. Due to the strict standards, the Department of Homeland Security estimates the program to admit only 2,940 entrepreneurs annually.

Scheduled to go into effect July 17, the International Entrepreneur Rule is still subject to change by any reforms to the H-1B visa program by the Trump Administration.

With $6B in Deals in 2016, ID Management Is a Hot Sector You May Have Missed

Joanna Glasner, Contributor, TechCrunch

In 2016, startups involved in identity management collectively claimed over $6 billion in acquisitions from private equity buyers. Identity management startups also experienced successful funding rounds, raising over $200 million from VCs. These startups are responding to a growing need for improvements in health care IT and authentication. Last year,ECRI Institute, a global nonprofit focused on patient safety, listed “patient identification errors” as the second most important safety concern for health care organizations.

TechCrunch’s Glasner highlights tech unicorn Otka, an identification management and authentication platform provider, that has raised over $200 million from VCs. Otka is considering going public this year.

Lawmakers Try to Stop State-Sponsored Retirement Plans

Anne Tergese, Reporter, The Wall Street Journal

Last week, Republican Congressmen introduced measures to prevent small businesses from automatically enrolling employees in state or locally sponsored retirement plans. The bill comes as several states have enacted retirement savings programs that automatically deduct earnings from employee’s paychecks for deposit into individual retirement accounts.

These programs only affect residents who do not have access to a workplace retirement plan; AARP estimates that this number stands at 55 million people nationwide by. AARP executive vice president Nancy LeaMond has publicly stated that Congress should take steps to support, rather than end, these state savings programs.

Supporters of the bill believe that state-sponsored retirement plans “discourage small businesses from offering private-sector plans” by forcing employees “into government-run plans with fewer protections and less control over their hard-earned savings.”

Banks Are Finally Sprouting Anew in America

Rachel Witkowski, Reporter, The Wall Street Journal

In the past few months, the Federal Deposit Insurance Corporation received the greatest volume of applications for “startup banks” since the financial crisis.The increase reflects an improving economy and expectations for future deregulation of the financial sector.

Startup, or “community,” banks are traditionally viewed as banks that hold less than $1 billion in assets. According to Q3 FDIC data from last year, community banks are responsible for 43% of loans to small businesses. The Wall Street Journal’s Witkowski reports that many community bankers believe that “the decline in the number of banks has led to fewer lending options for startups and small businesses.” Supporters of deregulation believe that greater numbers of community banks spur economic growth and job creation.

Don’t Panic Labs Pioneers “Dev-for-Equity” Model to Help Startups

Christine McGuigan, Reporter, Silicon Prairie News

Don’t Panic Labs is an offshoot of the engineering arm of successful VC fund, Nebraska Global. Don’t Panic Labs adopts a “dev-for-equity” model, assisting startups and entrepreneurs with software and product development in return for company equity. The firm also provides software development services for publicly traded companies that do not require capital investment.

Despite serving established companies, Bill Udell, Integrator for Don’t Panic Labs, told Silicon Prairie News that the firm’s “DNA is in creating startup companies.” In 2016, the firm poured $396,000 of dev-for-equity investment into startups. Don’t Panic Lab focuses on product development and training for its clients’ in-house software engineers.

PitchBook Brings Company Financial Data to Its Mobile App

John Mannes, Writer, TechCrunch

MorningStar, Chicago-based investment research and management firm, acquired PitchBook in 2016. Pitchbook is an industry leader in providing investors with up-to-date coverage of VC, PE and M&A transactions. According TechCrunch’s Mannes, PitchBook, although known for its comprehensive coverage of tech firms, is also increasingly expanding its database to include coverage on non-tech companies as well.

PitchBook recently announced plans to add financial data for 226,000 private companies to its mobile app. The update will provide the database’s 7,000 active members with previously unavailable insight into the financials and revenue figures of private companies.

And in startup news…

Ford to Invest $1 Billion in Artificial Intelligence Start-Up

Mike Isac, technology reporter based in The Times’s San Francisco bureau, and Neal E. Boudette, Reporter, The New York Times

Many automakers are hoping to achieve some of the success that many Silicon Valley startups have found by investing in autonomous vehicle technology and ride-hailing services. Ford recently announced that it will invest $1B in Argo AI, startup focused on utilizing artificial intelligence to develop self-driving cars. Mark Fields, president and CEO of Ford, told reporters last week that the automaker hopes to become “part of the ecosystem of Silicon Valley.”

With the rise in popularity of “mobility services,” car ownership is growing increasingly unnecessary for consumers living in urban centers. Ford’s move suggests an industry-wide shift in strategy, as traditional automakers must adapt to shifting consumer attitudes. For instance, last year General Motors invested $500 million in ride-hailing startup, Lyft, and acquired Cruise Automation, a startup geared toward developing roadway technologies that support autonomous vehicles.

Fields explains the motives behind Ford’s investment: “If we can combine the best of a start-up and marry that with proper equity compensation, then that’s the best of both worlds.”

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/3/17

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:

Reducing Recidivism through Entrepreneurship

Catherine Kirby, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest piece, McNair’s Kirby highlights the promise of entrepreneurial programs in curbing recidivism among newly released inmates. Beyond supporting local economies and communities, reducing recidivism increases productivity of the formerly incarcerated – an often overlooked and underutilized portion of the labor force.

Many ventures that offer entrepreneurial education programs in prisons have witnessed high returns on their investments. For instance, alumni of the Prison Entrepreneurship Program, a Houston-based nonprofit, boast a 100% employment rate after one year of their release and have created more than 2,000 small businesses.

Report: Trump Plans H-1B and Other Work Visa Reforms

Ingrid Lunden, Writer, TechCrunch

President Trump’s recent executive order on immigration was criticized by some Silicon Valley tech firms, including Google, Facebook and Microsoft. According to a report published by Bloomberg, the administration plans to announce another executive order that will reform the H-1B visa program. A draft of the order circulated by Bloomberg reveals an emphasis on protecting American workers.

Many tech companies rely on H-1B visas for recruiting  foreign employees who possess specific skills or talent that cannot be found domestically. However, there is a bipartisan consensus that the visa program needs reform as many outsourcing firms abuse H-1B visas.  Some legislators propose adding wage requirements to increase competition and quality in foreign recruitment.

Snap Said to Choose NYSE over Rival Nasdaq for Upcoming IPO

Sarah Frier and Alex Barinka, Reporters, Bloomberg Technology

Snap Inc.’s IPO will go through the New York Stock Exchange for its IPO, which is expected to come sometime in March. Snap’s choice reflects a reversal in tech IPO’s, as an increasing number of tech firms are choosing the NYSE over the Nasdaq to debut their shares. This transition follows Facebook’s botched IPO on Nasdaq in 2012.

In other news, Snap Inc. is developing technology that will update Snapchat’s in-app lenses to include filters for environments and landscapes. The AR features, though not scheduled for a near-term launch, also offer an attractive “range of options for potential advertisers.”

Small Businesses Uneasy over Border-Adjustment Tax Plan

Ruth Simon and Richard Rubin, Reporters, Wall Street Journal

The U.S. House Republicans’ proposal to reform the tax code includes an important section on border adjustment. Border adjustment restricts businesses from deducting the costs of imports from their taxable income. Some skeptics fear that the provision will pressure firms that rely on imports to raise their prices.

However, small businesses that rely on imports for obtaining cheap raw materials worry that border adjustment will bring higher operating costs. According to House Representative Tom Reed (R – N.Y.), a member on the House Ways and Means Committee, lawmakers are considering offering “safe harbors”  for small businesses to avoid increased expenses.

The proposed plan exempts domestic purchases and adopts a flat corporate tax rate of 20%. Supporters of the plan believe that “the dollar will rise to offset the tax change” through cheaper imports.

And in startup news…

Lyft Cuts Sales Staff, Reorganizes Team as the Startup Chases Uber

Eric Newcomer, Startup Reporter, Bloomberg Technology

San Francisco-based startup, Lyft, was founded in 2012 as ride-booking app.Despite trailing Uber in overall market share, Lyft has found success in marketing directly to customers. By cutting fares, the startup also now serves 20-40% of consumers in large U.S. cities. Coupled with recent cost-cutting efforts, Lyft plans to turn a profit by 2018.

Recent trims in its labor force are helping Lyft gain a competitive edge over other ride-hailing apps. The company also plans to partner with more governments and health-care organizations going forward. In January, Lyft announced a collaboration with National MedTrans Network to offer “2,500 rides a week for medical appointments” in New York City.

Cafe X Opens in San Francisco, Bringing Robots to the Coffee Shop

John Mannes, Reporter, TechCrunch

Cafe X founder Henry Hu is transforming the traditional coffee shop with his latest startup. With Cafe X, customers order their drinks at an on-site kiosk using a mobile app, and a “robot” prepares and serves their coffee. The startup opened its first American location in San Francisco this past week. Hu hopes to expand the company’s operations into a franchise, with each shop locally sourcing its coffee beans.

Hu’s startup received backing from a successful seed round from last year that drew in $5 million from prominent VCs, Khosla Ventures, Social Capital, Jason Calacanis, Felicis Ventures, Silicon Valley Bank and the Thiel Foundation.

With Cafe X, customers save time and money (only $2.25 for an 8 oz drink). Furthermore, automation introduces a marketing advantage, as profits can be spent on sales rather than labor costs.

Comparably Raises $7.25 million to Help Match Employees with the Best Companies

Ken Yeung, Staff Writer, VentureBeat

California-based startup Comparably collectively raised $7.25 from VC firms in its latest funding round. Competing with Glassdoor and LinkedIn, the startup offers job-market monitoring services and publishes relevant information on industry salaries and company culture for job hunters.

The startup’s recent funding totals enable Comparably to expand its monitoring services and partner with more companies. Comparably co-founder Jason Nazar told VentureBeat in 2016 that the company’s mission was “to make work better” through “transparency around compensation and culture.”

The Weekly Roundup is taking next week off and will return on February 17.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 1/27/2017

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:

The Right to Entrepreneurship

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe focuses on the link between entrepreneurship and human rights. While the intersection between activism and entrepreneurship has yet to gain significant traction in the U.S., international collaborations between the two sectors have found success. Jacobe points out that “Human rights and entrepreneurship have the ability to reinforce one another,” citing reports from Fordham University and Pontifical Catholic University of Peru on the potential of human development-centered entrepreneurial ventures. According to Jacobe, U.S policy should reflect a balance that advances entrepreneurship and promotes protection of human rights.

Prairie meets CES: Top 10 trends to watch in 2017

Keith Fix, Contributor, Silicon Prairie News

The annual Consumer Electronic Show (CES) took place earlier this month in Las Vegas. Silicon Prairie’s Fix shares his 2017 predictions for major trends to shake consumer technology, and artificial intelligence, smart homes, intelligent systems (Amazon Echo), wearables, self driving cars, virtual reality, and drones are among his top picks. Fix expects the industry to experience further fragmentation and democratization as startups continue to develop new technologies in order to keep pace with consumer expectations.

In a tech-saturated world, customer feedback is everything

Jeremy Bailey, Contributor, TechCrunch

TechCrunch’s Bailey emphasizes the importance of gauging customer feedback throughout the design process in the tech industry. Too often, design teams undervalue the power of customer interactions. As evidence, Bailey cites AirBnB’s notorious success in growing its consumer base by 200% after meeting for one afternoon with its early users. In order to achieve a dynamic and responsive design model, companies should restructure their “internal bureaucracy” and adopt a “customer-centric” mindset. Bailey suggests that design teams take a simple approach: development of a problem statement, collaborative hypothesis-generation, and constant reevaluation.

Most Small Businesses Create Fewer Than One New Job a Year, Study Finds

Ruth Simon, Senior Special Writer, The Wall Street Journal

According to a recent study from JPMorgan Chase & Co. Institute that spanned the payroll records of 45,000 small business in 2015, small business hiring has been sluggish and inconsistent. In fact, the sector’s median level of employment growth sits at less than one new full time position per year. Although small businesses are often considered the crucial driver of the American economy, most do not expand. While small businesses employ 17% of America’s labor share, 89% employ fewer than 20 workers. Professor Scott Stern, who studies entrepreneurship at MIT, explains that the “belief that entrepreneurship in general is a driver of economic growth and prosperity” might be misguided.

How to Find and Start Your Next Entrepreneurial Effort

Nathan Resnick, Contributor, Entrepreneur

Nathan Resnick, founder of Sourcify, a startup based in Tel Aviv that helps connect entrepreneurs with trusted manufacturers, offers helpful advice for millennial entrepreneurs who are considering their next venture. Resnick advises entrepreneurs to consistently gauge audience feedback during early planning stages as audience responses help narrow the focus of a project.  Resnick emphasizes the importance of an entrepreneur’s willingness to acquire new skills and embrace market competition.

Fintech Companies Could Give Billions of People More Banking Options

Jake Kendall, Author, Harvard Business Review

Harvard Business Review’s Kendall is the director of Digital Financial Services Lab, an early stage incubator that supports entrepreneurs who launch fintech startups in developing companies. Financial technology, or fintech, refers to the high-tech industry involved in computer software development of innovative financial services, such as digital banking programs. Despite investment into fintech increasing eight-fold since 2011, its benefits have largely been restricted to mature economies.

Kendall identifies three main challenges that fintech startups operating in developing countries must overcome: “lack of cloud infrastructure, users who are “less digital” than rich-world users, and users who live economically chaotic lives based primarily in the informal sector.” Still, many entrepreneurs are launching fintech startups to support the 2 billion customers living in regions without formal banking services. Plus, an increasing global trend of mobile phone ownership serves as a promising platform for fintech startups.

3 charts that show the effect of venture fundraising on founder ownership

Adley Bowden, VP of Market Analysis, PitchBook

PitchBook released an article illustrating the diluting effects of venture fundraising on founder ownership. The data used in the graphic analysis are taken from the results of a survey conducted by J.Thelander Consulting’s of 380 private venture-backed companies in the US. Although capital raises are a critical and necessary component of any startup’s success, PitchBook’s Bowden emphasizes that founders should understand the diluting effects of venture fundraising on their equity percentages. According to Bowden, “If all goes well and the company’s value increases, this is a win-win situation, but in the case that things don’t go well, the economics can turn against founders fairly quickly.” The article includes three charts that track founders’ shares in their companies – distinguishing between biotech, medical device, and tech industries – through various funding stages. At pre IPO, all three industries reveal founder ownership percentages below 10%.

15 charts that illustrate how the US venture industry looked in 2016

Kyle Stanford, Analyst, PitchBook

PitchBook also recently released an article that depicts the state of venture capital in 2016. The article features 15 charts of the key performance indicators that are frequently used in measuring VC activity. Utilizing standard industry metrics, PitchBook’s full report offers an in-depth analysis of VC-backed firms in the U.S, including graphics on angel and seed funding, fundraising by quarter, VC-backed exits, and corporate VC participation.

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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.