Austin TX Emerging Ecosystems (Blog Post)

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© edegan.com, 2016

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Austin, Texas:

Ranked the number one American city for new business creation for two years in a row by the Kauffman Foundation, Austin, Texas is one of the strongest emerging entrepreneurship ecosystems in the United States.

Austin’s History of Entrepreneurship

Unlike some emerging ecosystems, Austin has a long history of innovation entrepreneurship. During the 1970’s and 1980’s, Austin established an ecosystem focused on computer and semiconductor manufacturers. A doubling in student attendance at the University of Texas and efforts by the Chamber of Commerce resulted in IBM locating to Austin in 1967, Texas Instruments in 1969, and Motorola in 1974. As the industry grew, major computer and semiconductor manufacturers banded together and created the Microelectronic Computer Corporation (MCC) in 1982.

MCC was one of the largest computer research companies at the time. MCC chose to establish itself in Austin instead of the more traditional ecosystems such as Silicon Valley and Route 128. The University of Texas at Austin offered MCC a subsidized lease near the University of Texas Pickle Research Campus and low-cost loans and reduced mortgage rates for staff moving to Austin. MCC’s location in Austin encouraged the cooperation between local government, business, and the University of Texas.

Initially, the Austin technology industry focused on large businesses, such as IBM and Texas Instruments. However, the oil and savings and loan crises of the late 1980’s and early 1990’s crippled the national 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. The University of Texas at Austin created the Austin Technology Incubator (ATI) in 1989 to help jumpstart the Austin economy through stimulation of high-tech startups with high-growth potential. In 1989, Greg Kozmetsky, the brain behind ATI, also founded the first angel network in Austin, named the Capital Network.These initiatives provided a foundation for growth during the dot-com boom.

In 2000, thirty Austin venture capitalists invested over $2 billion in entrepreneurship ventures. However, the burst of the dot-com bubble in the early 2000’s hurt Austin companies. After the economic downturn from 2001-2003, the region experienced major industrial restructuring and a renewal of entrepreneurship ventures. 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 81.23% (Kauffman Foundation).

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 supportive state and local government policies are fueling Austin’s startup 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; BizAid Business Orientation, Business Solutions Center, Entrepreneur Center of Austin.

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 to encourage entrepreneurship and development. Entrepreneurial hubs, Tech Ranch Austin and Capital Factory, serve as an intersection between Austin incubators, accelerators, coworking spaces, and 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 Austin’s economy to grow. According to a 2015 report commissioned by the Austin Technology Council, approximately 14% of the $22.3 billion value of Austin’s tech companies that was added to the city’s GDP came from semiconductors. Computer and peripheral equipment contributed 31%. 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 ventures in the media, education, social, and craft/lifestyle industry.

Venture Capital in Texas and Austin

Texas’ venture capital investment has decreased by 19% over the past ten years. In order 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 are barriers to capital access, a lack of information, and little government support. The majority of Texas capital is invested in oil, gas, and real estate, which 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. Additionally, Austin venture capital firms, Silverton Partners and S3 Ventures, have tried to fill the void left by Austin Ventures. However, none of the Austin venture capital funds have the capital or assets that Austin Ventures had.

Resources in Austin

Austin has a plethora of resources available to entrepreneurs. The annual South by Southwest Festival provides a networking opportunity for entrepreneurs. Additionally, companies are taking advantage of the 100,000 students that graduate each from universities in the greater Austin area. The University of Texas at Austin boasts the Austin Technology Incubator (ATI) under the 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 Can Change the World

Austin’s entrepreneurial ecosystem is moving towards national recognition. Dell PC’s, Favor Delivery (backed by Austin’s S3 ventures and an alumni of ATI), and HomeAway are among the services Austin entrepreneurs offer across the nation. In the upcoming years, it is critical that capital investment continues to support new ventures. Austin’s ecosystem has the policy, talent, and mentorship to be successful, but private and public efforts must continue to ensure its success.