6 VCs speak the way forward for Austin’s exploding startup ecosystem – TechCrunch

6 VCs talk the future of Austin’s exploding startup ecosystem – TechCrunch


For years now, a rising variety of tech firms — giant and small — have both relocated their headquarters to Austin or opened one other workplace or campus within the Texas capital. They’ve been drawn to the town for a variety of elements, together with its laid-back life-style, no state tax, a business-friendly setting and decrease price of dwelling (for now).

The influence on the town’s startup ecosystem is noticeable within the rising variety of entrepreneurs (a lot of whom labored at a few of the tech giants who’ve a giant presence within the metropolis) and traders calling Austin house.

Most not too long ago, Tesla’s plans to construct a gigafactory within the metropolis and Oracle’s announcement that it was relocating its headquarters right here have made nationwide headlines.

The comparisons to the Bay Space abound — from the burgeoning and maturing startup scene to an overheated and aggressive housing market.

All of the whereas, enterprise capitalists see a number of key areas of alternatives. At one level, Austin was as soon as a giant enterprise software program metropolis. Whereas software program remains to be huge right here, a variety of different sectors are rising together with CPG (shopper packaged items) and actual property tech, amongst others.

What follows is a survey of a few of the prime VCs within the metropolis and their projections concerning the progress of Austin’s ecosystem.

Right here’s who we spoke to:

  • Eric Engineer, S3 Ventures
  • Morgan Flager, Silverton Companions
  • Joshua Baer, Capital Manufacturing unit
  • Carey Smith, Unorthodox Ventures
  • Krishna Srinivasan, LiveOak Enterprise Companions
  •  Zaz Floreani, Subsequent Coast Ventures

The place do you see Austin’s startup scene 5 years from now? The town has attracted a variety of individuals over time, together with extra huge tech and startups very not too long ago. How will it add as much as one thing greater than the sum of the elements?

Eric Engineer of S3 Ventures believes that by 2030, the Texas startup ecosystem may very well be the nation’s second largest.

“Tech ecosystems profit from virtuous cycles. As extra proficient folks transfer to Texas, extra capital will observe them, which can then entice extra expertise, and so forth,” he mentioned.

Morgan Flager of 16-year-old Silverton Companions says since Silverton’s inception greater than 16 years in the past, the state’s largest VC agency has all the time wager on Austin and, extra broadly, on Texas.

“We’ve all the time felt that if Austin wins, we win, and that’s how we’ve run our enterprise,” he says. “However we’re only one group, and now we’re joined by many others who’re additionally betting on Austin and wish to do their half to make this ecosystem higher…Shifting ahead, a essential element of success is fostering this current philosophy of group collaboration, which has already performed an element in making Austin such a horny place to be. Austin is a spot the place folks wish to succeed by serving to their group succeed, and so they aren’t prepared to sacrifice the previous for the latter. If we proceed to carry on to that core philosophy as we develop, we’re in for a tremendous future.”

Joshua Baer of Capital Manufacturing unit believes that in 5 years from now, Austin may have gone from “up and coming” to “arrived” and from the highest of the Tier 2 cities to a aggressive Tier 1 metropolis. Two of the large indicators of this, he predicted, will likely be a brand new cohort of Austin unicorns from the likes of Aceable, Apptronik, Disco, Eagle Eye, Everlywell, ICON, and Zen Enterprise mixed with huge Collection A funding rounds of the likes the town has not seen for the reason that days when there was just one huge VC agency on the town known as Austin Ventures.

Unorthodox Ventures Founding Contrarian Carey Smith hesitates to foretell, noting that it’s laborious sufficient simply to characterize the scene as it’s proper now.

“There are such a lot of firms of so many alternative sizes doing so many alternative issues, and there isn’t actually a unifying attribute past progress and innovation. It actually might go any route,” he says.

LiveOak Ventures’ Srinivasa factors out that Texas has super variety of Fortune 500 firms and, in consequence, people with deep area in main industries corresponding to vitality, healthcare, actual property, hospitality and retail.

“This area data when cross-pollinated with the surging tech expertise from huge tech and startups has already had a multiplicative impact and is additional accelerating entrepreneurial exercise,” he mentioned. Moreover huge tech expertise and the continued maturation of the present startup ecosystem that’s already underway, we’ll all proceed to spawn a fair higher variety of unbelievable class leaders within the years to return. As such, we really feel the Austin startup scene is poised to develop quicker than ever earlier than.”

Floreani of Subsequent Coast Ventures tasks that in 5 years, Austin will see indicators of a maturity of the present market with probably half a dozen unicorns and half a dozen startups lastly going public.

Distant work is pushing and pulling the worldwide workforce. Which means some workplaces will disappear from Austin, even with extra firms transferring in, but in addition extra locals who work remotely for firms elsewhere. How do you see these elements impacting the town’s tech evolution?

Eric Engineer of S3 Ventures says that proficient persons are selecting Austin due to all it has to supply from a life-style perspective – not simply the job. He believes remote work might ease a few of Austin’s rising pains as staff will commute fewer days per week. That can give the town extra time to develop the extra transportation infrastructure it must deal with the continued progress, Engineer mentioned.

Silverton Companions’ Flager thinks distant work shifts the enjoying discipline some as a result of it permits staff extra selection with respect to the place they wish to reside versus the place they need to reside to get the job they need.  And whereas it is going to give folks extra freedom and make sure issues we do extra environment friendly, he thinks most roles would require a hybrid resolution the place distant work is complemented by in-person interactions. “Fortunately, Austin has each — it’s a fascinating place to reside and it has a quickly rising tech group,” he mentioned. “That is a part of the explanation we’re seeing such an inflow of expertise transferring right here in the meanwhile.”

Joshua Baer believes that when folks can work wherever, they received’t really work all over the place. He thinks there will likely be huge winners that entice rather more expertise than different locations, and that Austin will likely be one of many largest winners within the tech migration of the subsequent 5 years. “Extra firms will transfer their headquarters right here, and extra folks will select to work right here for workplaces which have headquarters elsewhere,” he predicts.

Distant work doesn’t work for Unorthodox Ventures’ Carey Smith and he doesn’t imagine it is going to work for Austin long-term. When he briefly labored from house firstly of the pandemic, he felt far much less related to the folks I work with — and but was even busier as distant work added “a lot problem to even easy duties.”

“I actually thrive with face-to-face conferences and respect the hustle and bustle of the workplace. It retains all of us motivated,” Smith mentioned. “Briefly, it’s the lubricant that retains my wheels turning, and I feel it’s required to maintain driving innovation in Austin.”

What trade sectors do you concentrate on inside Austin (and past)? What is occurring in Austin now that you simply’re most excited to fund?

Over the previous 15 years, S3 Ventures has primarily investing in B2B software program firms (two-thirds of its portfolio are on this area). Nevertheless it has additionally had profitable exits in shopper digital experiences and healthcare.

“Texas has an extremely numerous financial system, and so the know-how innovation can also be broad-based,” Engineer mentioned. “We’re seeing enormous sectors of the financial system (monetary companies, actual property, well being care, schooling, expert trades, hospitality, industrial, vitality, manufacturing) that had been slower to digitize, now begin to embrace cloud-based options throughout their complete organizations.”

Silverton Companions has all the time been a generalist fund. That mentioned, there are a number of dislocations occurring in the meanwhile which can be laborious for the agency to disregard, in response to Flager. Particularly, he mentioned, there’s speedy disruption in digital well being, fintech /insurtech, and schooling. “The playbooks in these large industries are being rewritten and we’re actually on the lookout for entrepreneurs who’ve a robust viewpoint relative to what the longer term will appear to be,” Flager added.

Capital Manufacturing unit’s Joshua Baer believes the number of the town’s startup scene is a part of what makes it so vibrant. “If it’s sizzling in tech, it’s occurring in Austin,” he mentioned. A number of the areas which have been huge not too long ago embrace synthetic intelligence and machine studying, shopper packaged items, drones, e-commerce, healthcare, marketplaces, robotics and SaaS.

Unorthodox Ventures’ Carey Smith mentioned his agency is targeted on investing in firms making tangible merchandise that remedy actual issues. And in contrast to many different VCs within the metropolis, and despite the fact that it’s a giant a part of the tradition in Austin, he’s not a fan of software program. “I desire the problem of producing shopper items,” he mentioned. “Past that, software program firms lack range and solely profit a small sliver of society with the roles they create. Manufacturing, then again, helps everybody from GEDs to PhDs.”

LiveOak Enterprise Companions invests throughout just about all industries. Up to now yr, it has backed firms in proptech, fintech, retail, provide chain, enterprise compliance, cyber safety and edtech.

Proptech, particularly, is thrilling to LiveOak, and the town has seen success in firms corresponding to Opcity and OJO Labs. One other space with huge potential are startups working in authorized/compliance. Disco and Mitratech are giant firms headquartered in Austin and there are thrilling quick rising newcomers like Osano, Eventus and Litlingo.

For Subsequent Coast’s Floreani, the elevated variety of profitable B2C startups in Austin hitting scale is promising “because it cements our expertise pool and secret sauce past Austin’s early days of being know as a semiconductor and SaaS city.”

“We nonetheless have nice software program entrepreneurs however we even have the DNA to do shopper and media in the event you take into account EverlyWell, Literati, FloSports, Ambiance, to call a couple of,” she mentioned.

What are a few of the native challenges you’ve encountered or seen founders battle with? Extra usually, how ought to folks seeking to rent in, spend money on, or relocate to Austin take into consideration doing enterprise within the metropolis?

The overall consensus amongst native traders is that Austin’s tech group is welcoming and collaborative and that all of them went to function a useful resource to anybody considering of transferring to the town. S3 Ventures’ Engineer mentioned his agency has had a number of current transplants from each coasts share how they had been pleasantly shocked by this tradition – particularly in comparison with what they had been used to.

Silverton’s Flager acknowledges that transferring is all the time a difficult occasion, however transferring throughout COVID is actually a category of its personal.

“I’ve seen some founders battle with discovering sturdy group ties after relocating to Austin within the midst of a pandemic,” he mentioned. “Nearly all the pieces is digital and that makes integration with a brand new ecosystem harder. A part of my position as an investor and steward of the Austin ecosystem is to facilitate extra connectivity throughout the founder group. Because the vaccine rollouts proceed and in-person contact turns into safer, Silverton is planning to host a collection of group constructing occasions to higher combine founders transferring right here.”

Capitol Manufacturing unit’s Baer believes Texas traders take into consideration loss prevention greater than their friends in Silicon Valley. His recommendation to firms? Develop two totally different pitches and know who you might be pitching to. “The Texas pitch talks about how you may have de-risked the enterprise and the Silicon Valley pitch talks about how huge this may very well be if it really works,” he mentioned.

For Unorthodox Ventures’ Smith advises founders to watch out of organizations in Austin or elsewhere that look to assist entrepreneurs whereas “taking fairness and never giving sufficient in return to justify it.”

“Founders want to ensure they’re selective concerning the traders and advisers they tackle and that they select individuals who provide extra than simply capital,” he mentioned.

LiveOak Ventures’ Srinivasa warns that folks in Austin should not transactional and that in the event you come throughout as being transactional and strictly work together with anyone in a transactional approach and never a relational approach, “it rubs folks the unsuitable approach.”

“Outsiders want to pay attention to this once they come right here,” he mentioned. “When making a hiring resolution, it’s necessary to decide on somebody who is an efficient cultural match, and never rent primarily based solely on resume. From an investor perspective, if you wish to do enterprise right here, it’s necessary to focus constructing sturdy relationships, moreover providing enticing deal phrases.”

Subsequent Coast Ventures’ Floreani notes that hiring progress leaders has been a constant problem throughout her agency’s portfolio. “It will be nice if Austin had a deeper bench of proficient advertising and gross sales leaders,” she mentioned.

Who’re key startup folks you see creating success domestically, whether or not traders, founders and even different varieties of startup ecosystems roles like attorneys, designers, progress specialists, and so on. We’re making an attempt to focus on the movers and shakers who outsiders may not know.

S3: Founders/CEOs – Leo Resig (Ambiance), Jag Bathtub (Favor), Kim Rodriguez (Acessa), Doug Donovan (Interaction Studying), Richard Lebovitz (LeanDNA), Adelle Archer (Eterneva), Andy Ambrose (LiveOak Know-how), Adam Berman (TVA Medical), Dion Cornett (Liquibase)

Traders – Rosa McCormick (Wild Basin), Oksana Malysheva (Sputnik), Adam Lipman (Ecliptic Capital), and Josh Baer / Bryan Chambers (Capital Manufacturing unit)

Service Suppliers – Marc Nathan (E/N), John Gump (CBRE), Lathrop Smith (MLR), Austin Willis (SVB), Paul O’Brien (Mediatech)

Silverton: Heather Brunner and Jason Cohen @ WP Engine, Chuck Gordon and Mario Feghali @ Sparefoot, Jess Ewing @ Literati, Blake Garrett @Aceable, James Garvey @ Self Monetary, Brian Cruver @ Alert Media, John Banczak and T.J. Clark @ TurnKey, Michelle Davey @ Wheel, Rob Taylor @ Convey and several other others. 

Capital Manufacturing unit: http://baer.ly/austinabc

Unorthodox Ventures: Christa Freeland constructed ATX Kit, a startup that helps greater than 40 native meals entrepreneurs together with her Austin-centric snack bins.

Bob Bridge and the Southwest Angel Community (SWAN) help startups aiming to resolve critical societal challenges, together with environmental, well being and social justice points.

LiveOak:  We’re lucky to have many movers and shakers right here in our community. We don’t want to embrace one on the expense of one other; that being mentioned, we do wish to acknowledge Dan Graham, who funds social influence startups by way of Notley Ventures, who has launched a fund to spend money on girls entrepreneurs, by way of the BEAM Angel Community and has performed an lively position within the emergence of CPG. Jim Breyer has been right here for under a yr and in that interval has been an unbelievable advocate in op-eds, weblog posts and interviews for Austin, the native startups and the vitality of this city. That has been a giant constructive addition.

NextCoast Ventures: The founders of those startups have unbelievable progress plans for Austin: EverlyWell, Upequity, Steadily, Eterneva, Literati, FloSports, and Enboarder. Please be aware I could also be a bit biased right here as most of those are firms we’ve backed.

What do you consider comparisons to Silicon Valley? What influence do you suppose the inflow of (huge & small) tech firms is having on the town’s startup scene?

S3’s Engineer believes there is just one Silicon Valley, and that it’s extremely unlikely there will likely be something comparable within the Western world.

However he thinks that whereas a lot smaller right now, if the developments proceed over the subsequent ten years, the Texas ecosystem has an actual shot at rising as giant, if not bigger, than New York and Boston.

Silverton’s Flager was born and raised in Silicon Valley. He went to highschool there and labored there as nicely. Consequently, he’s not a giant fan of the comparability.

“Every place is distinct with totally different execs and cons,” he mentioned. “Will Austin ever overtake Silicon Valley by way of dimension and exercise? I actually don’t know — we actually have an extended strategy to go. To some extent, I’m undecided that issues.”

What he does care about is that Austin retains its vibrant character and that its present progress enriches the town, relatively than dilutes its vitality. “It’s necessary to acknowledge that Austin’s tradition has not been tech-centric,” Flager mentioned. “Austin is a singular powerhouse of reside music, nice meals, arts, outside dwelling and ‘protecting it bizarre.’ ”

He provides: “As I ponder what I love about Silicon Valley and all of the issues Austin must do to be at that degree, I are inclined to spend as a lot time eager about what we might do otherwise.”

Unorthodox Ventures’ Smith believes it’s no shock that “everybody desires to go away Silicon Valley.

“They lastly discovered it’s a catastrophe,” he mentioned. “As extra clever, hardworking and curious folks collect right here, it’s factor for Austin and for VCs extra broadly. One of many issues with Silicon Valley is that such a robust proportion of VC cash stays there or in New York or Boston. We’d like extra capital in Austin and different modern cities all through Center America the place we’re fixing actual issues for the on a regular basis American. As Austin feels increasingly more affect from Silicon Valley, it’s so necessary to fund greater than tech-oriented tasks. Enterprise capitalists have to concentrate on fundamental human wants, too.”

LiveOak’s Srinivasa is aware of that comparisons to Silicon Valley are inevitable, and for probably the most half welcome when these comparisons carry broader nationwide and worldwide consideration to Austin and reinforces its popularity as a metropolis with a booming startup scene.

“There’s a whole lot of vibrancy and momentum to the startup scene right here that’s paying homage to the early days of Silicon Valley — the rising quantity companies being launched, the variety of firms being funded, the quantity of expertise flowing right here wanting to engrain themselves within the tech group,” he mentioned. “But we all know there’s something distinctive to Austin that units it other than some other tech hub—the collaborative spirit of the folks right here. There’s additionally an vitality and pleasure on this group that’s palpable. Austin has nice respect for the successes Silicon Valley has introduced forth, and we’ll incorporate their constructive facets, whereas forging our personal path.”

Subsequent Coast’s Floreani believes that comparability has been overused for a decade. “We’re not Silicon Valley and can by no means be it,” she says. “I’m not saying that in a adverse sense. I grew up within the Bay Space. I merely imagine we develop firms otherwise right here and despite the fact that extra SV expertise and traders are coming to city I don’t suppose we’ll immediately shift to a extra Valley like strategy to rising firms like blitz-scaling. Quite I feel we’ll discover a blissful medium that includes quick progress and sustainability.”



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