By Rachel Lerman
The Seattle Times
WWR Article Summary (tl;dr) Austin’s startup scene is flourishing on the strength of its community and the city’s history of creativity.
The Seattle Times
Willy Ogorzaly had been in Austin, Texas, for only a month before he knew it was the right place to reinvigorate his legal technology startup. The company had been “running on fumes” in Boulder, Colo., and desperately needed an injection of funding and advice.
Now, four months later, his company JustLegal has brought on investors, hired seven people and collected several mentors with the specific technical expertise the startup needed.
“Moving to Austin saved our company,” Ogorzaly said.
Ogorzaly’s experience is typical in the tech-friendly city of Austin, where the strongest part of the growing technology industry may be the intertwined network of young entrepreneurs.
Austin’s startup scene has kept pace with Seattle’s in terms of investor dollars pouring in. But the industry has grown without anything comparable to two of Seattle’s strongest assets, Microsoft and Amazon, instead flourishing on the strength of its community and the city’s history of creativity.
The impact of technology on this city of nearly 1 million people has become palpable. Austin’s heralded annual South by Southwest (SXSW) festival, which starts March 10, has long been known primarily for its film and music showings, cementing the Texas city as a beacon of the arts community. But now, the festival’s technology track, known as “Interactive”, has surpassed the others after it began growing rapidly in the last decade.
More than 37,600 people participated in Interactive sessions last year, compared with more than 30,000 for music and nearly 20,000 for film.
“In a sense, that growth mimics or mirrors the role of technology in our society,” said Hugh Forrest, the director of SXSW’s Interactive festival. “The growth of Interactive also, in a sense, parallels the startup scene in Austin.”
Austinites will proudly tell you that 157 people move to the greater metro area every day. They are drawn by the fame that SXSW brings, the weather, University of Texas, the food and the relative affordability of the city compared to other tech centers.
While Seattle companies likewise tout great universities and beautiful landscapes to attract workers to the Pacific Northwest, one of their most valuable recruiting tools has been the tech powerhouses offering seemingly endless opportunity in the area.
“It’s super important to have had these success stories,” said Tim Porter, managing director at Madrona Venture Group in Seattle. “It shows the ability to create long-term, impactful, lasting companies here.”
Austin can’t compete with Seattle on that score. It is home to computing giant Dell, and a few of its large tech companies, including HomeAway, now owned by Expedia, have gone public in recent years. More Silicon Valley tech giants are also setting up offices in town. But Austin has yet to generate many homegrown mega-successes.
Without the lure of tech giants to bring in talent, Austin’s burgeoning scene has had to rely on its people and the places where they congregate.
One co-working space and tech accelerator has become the unofficial hub of the Austin startup scene. Capital Factory, started in 2009, offers a flexible accelerator program, which helps young companies find mentors and investors while giving them a place to work and entertain customers.
Austin’s tech industry goes back decades to the days of semiconductors, but in recent years it has become a flurry of activity, said Gordon Daugherty, general partner at Capital Factory.
“Now all of a sudden you can see it, and touch it, and part of that did come from the evolution of co-working spaces and accelerators,” he said. “We pulled it out of the underground and gave everybody a place to work together.”
Inside a high-rise in downtown Austin, Capital Factory hosts more than 1,000 events each year, and its gathering spaces are packed on weekdays with startup founders and software engineers.
Capital Factory gave Blake Garrett’s company its start after the Boston transplant joined one of the accelerator’s first classes.
Garrett, who is founder and CEO of Aceable, which developed a mobile driver’s education class, found two early investors in a speed-dating type process through the accelerator’s network. They helped him shape, and ultimately change, the company’s focus.
Aceable now has 60 employees and raised $4.2 million last year.
Austin started out, as many tech hot spots do, not focusing on software but rather on the more basic technology of semiconductors.
That industry grew with the help of big research consortia throughout the 1980s, said Elsie Echeverri-Carroll, a senior research scientist at the University of Texas at Austin. After the dot-com bubble burst and many manufacturing plants closed, the software industry quickly grew.
A UT Austin team researching the city’s startup community identified three phases in the growth of startups. First, people left big tech companies to launch startups, then there were spinoffs from some of those fast-growing startups. For example, workers who left Tivoli, a software company that IBM bought in 1996, created or have led at least 49 startups in the Austin area.
But what makes Austin revolutionary, Echeverri-Carroll said, is the current phase where startups are being created from a community.
“What we see now in some of the most recent startups is that the founders did not have experience working for a large firm or another entrepreneurial firm, but they are very well-connected in the entrepreneurial community,” she said.
Southern hospitality, or rather, Texan hospitality, plays a big role here. Founders are brimming with enthusiasm to introduce new contacts to their friends and mentors. The city also attracts first-time entrepreneurs, who are assured they are walking into a community that will provide a safety net.
At Capital Factory’s “Intro to Austin Startup Scene” events, organizers ask how many in the packed house have been living in the city for more than a year. Daugherty is constantly surprised by how many have just moved to the area. Sixty percent of job offers made by Austin companies are to candidates who live out of the area, according to data from career site Hired.
Startup founders coming out of the big companies in the area are definitely around. “But those are dwarfed by either college graduates that have decided a startup will be their first business venture or basically serial entrepreneurs or people that are moving here,” Daugherty said.
Austin faces a typical startup-industry challenge, the pyramid effect. Most of its hundreds of startups are early-stage companies, destined to never make it to critical mass.
The city has had its fair share of companies graduating out of startup status in recent years, however. HomeAway raised $216 million in its IPO before Expedia bought it for $3.9 billion, Bazaarvoice raised $114 million when it went public, and Indeed was scooped up by Recruit Co.
Still, the vast majority of tech companies are small and will stay that way or shut down. Some business leaders think the city’s culture doesn’t put enough emphasis on creating successful, sustainable companies.
Aceable’s Garrett, whose company was launched with strong support from the Capital Factory, cautioned that it’s possible to overdo the networking meetings. Relying solely on community events and parties can be treacherous for a business, he said.
“You can have 100 meetings, but can you do the hard work?” he said.
The entrepreneurial spirit is sometimes so strong and so celebrated in Austin that the need to expand a business can get overlooked, said Brent Bellm, CEO of e-commerce software company BigCommerce and the former president of HomeAway.
BigCommerce, with more than $150 million in funding and about 500 employees, is one of the largest startups in the area. It’s important to have big successes to keep the community growing, Bellm said, pointing to the number of travel startups created by former Expedia employees.
“If you don’t have a long track record of companies that have done that, then people are betting singles every time, and they keep striving for singles,” he said.
SXSW’s Forrest echoed the sentiment. The festival has always been a reflection of what is strong and popular in Austin, he said, and startups are a big part of that.
“What we need is more breakout high-profile startups to come out of this scene,” Forrest said. “There still need to be more big attention-getting projects that come out of Austin for us to sustain the hype, so to speak.”
Many Austin tech leaders are optimistic that growth will come. First, they are working to fill a void left when longtime venture-capital firm Austin Ventures broke up in 2015.
Small venture firms are springing up, but most funding for bigger Austin companies still comes from out of the area, usually from Silicon Valley investors.
Seattle, too, often faces criticism that it doesn’t have enough local funding sources. Madrona, the largest firm in the area, is one of the few that focuses specifically on Pacific Northwest startups.
Still, Austin entrepreneurs insist that if a company is promising enough, the money will come from somewhere.
That held true for Ogorzaly, whose startup JustLegal recently signed a major customer. The company will continue to participate in Capital Factory’s accelerator program for five more months.
“We went from not knowing if our company was going to be around in six months,” he said, “to having more than 12 months of runway, an incredible team and incredible mentors.”
Austin vs. Seattle
Austin: 2 million
Seattle: 3.7 million
Average home value
Notable big tech company:
Big startup success story:
Austin: HomeAway bought by Expedia for $3.9 billion in December 2015
Seattle: Zulily bought by QVC for $2.4 billion in August 2015
-U.S. Census Bureau, Zillow, Seattle Times archives