Austin: Overnight Success 30 Years in the Making

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It’s that time of year again, the Austin City Limits Music Festival is back and it reminds of a time a friend and I went a few a years ago. “I’ve never heard that band, they’re awesome!” he told me during one of the day shows. I laughed and said: “Yeah, overnight success 30 years in the making.”

This reality is true of long-struggling bands turned ACL rock stars, and it’s equally true of Austin’s entrepreneurial ecosystem. We got to where we are because a lot of business success, infrastructure and talent from 20 or 30 years ago is still feeding this ecosystem today.

Austin is proof of what history does to where we are.

30 years in the making

Everybody wants to recreate Austin, and I always say it’s going to take you a while. It will take decades.

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Tom Ball

Co-founder Next Coast Ventures

Since its capitalistic beginnings, Texas has been a state with a strong history of entrepreneurship. One where risk taking isn’t just accepted, it’s encouraged. From the cowboy era, to the rise of oil wildcatters, to the innovative minds at NASA, Texas has consistently embodied the spirit of an entrepreneur. Michael Dell, John Mackey and Tito Beveridge and their peers are still carrying the torch.

However, the thriving tech and entrepreneur ecosystem as we know it today really began to take shape in the 1980’s. We had the start of SXSW and the rise of Dell, followed by the golden era of software giants Tivoli and Trilogy in the 1990’s. It wasn’t just the human capital these companies brought to Austin, which still remains here today by the way, it was the building of the small city’s reputation as a low-risk, innovative force.

During my 10 years at Austin Ventures as a general partner throughout the early 2000’s, I believe we only added more fuel to that ecosystem. Our portfolio companies like HomeAway, Bazaarvoice, RetailMeNot and Silicon Laboratories showed Austin was capable of big ideas and big exits. We weren’t perfect, but we put a lot of capital to work here, and these successes recruited great middle and senior management talent.

Even big Silicon Valley tech giants that were founded outside Austin realized the benefits of keeping talent in ATX. Facebook, Google, Oracle and Apple all keep large operational hubs here. Amazon is rumored to have Austin on its shortlist for its second headquarters. Samsung keeps its largest facility outside of South Korea in Austin - and the $4 billion facility is only growing. The list goes on and on.

But it’s just not about the history of innovation or the technology giants that have led Austin to this moment.

Liberal mindset in a red state

There are so many cultural and economic factors that have made Austin a heavy hitter in attracting, nurturing and retaining great entrepreneurs.

To put into perspective: Texas is the 10th largest economy in world and the largest exporter of technology goods in the U.S. We have seen 60 percent population growth since 2000 – the fastest rate among U.S. metro areas – with employment rates expanding faster than New York, San Francisco, Los Angeles or Chicago.

Everything’s not just bigger in Texas, a lot of it is better too: We provide a low cost of living, we have no state income tax and have low levels of business regulation.

We also have a strong mentor and community network here. When you combine the feel of a Midwestern town, a pay-it-forward mentality and some Southern hospitality, it creates an atmosphere ripe for innovation. It also creates an atmosphere free from a lot of the baggage and we’ll call it ‘negative aspects’ of venture capital and technology culture on the coasts. Not to mention big attractions like ACL, SXSW, F1 and the UT system to facilitate the networking culture.

Then there’s the natural beauty, the healthy work-life balance and the vibrant arts scene. Years of accruing the ingredients needed to support this hospitable business ecosystem has all given Austin the edge to attract the talent and capital that it has today.

Room for improvement

But there’s still upside Austin has yet to capture.

Sure, it was ranked number one for startup activity and 11th for venture capital funding in the U.S. It is also the 4th largest early-stage investment market in the country, with 22 percent of investment dollars coming from within Texas. In fact, this angel ecosystem boasts over ten local, early-stage firms that are active.

But, Austin needs more professional seed capital to get startups to a better place to raise Series A.

There are so many strong accelerators in the state, but few resources once startups make it past the seed stage, so ideas get stuck. Instead of institutional money flowing into the Live Music Capitol of the World, the early-startup ecosystem is deal dependent – relying on how connected the entrepreneur might be. Local LPs often export most of their allocation to the coasts. But with so many elements of Austin’s entrepreneurial history aligning, I’m confident that it will be the ‘Next Coast’ for receiving institutional investment dollars.

Part of our fund’s founding mission was to be an integral part of helping build startups that are ready for Series A and Series B rounds – ready at a level that would impress not just local LPs, but investors on the East and West coasts.

So, although Austin may have gone from playing an opening act at Stubbs to the main stage at ACL, it’s not quite ready to be the headliner of this year’s festival. There’s a lot of history that’s gotten us here – now it’s up to everybody in the entrepreneurial community today to continue and make it even better for the next 30 years.

 

Tom Ball