Startups Bubbling Up in Houston
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Editor's note: Over the next few months, we'll be taking a virtual tour of U.S. cities to see how the 2008 financial crisis has changed the entrepreneurial landscape, for better or worse. Read the first installment on New York.
If you think Austin is the only Lone Star city with a knack for launching new companies, think again. Head 160 miles east to Houston – the state’s largest city – and you’ll find that the entrepreneurial spirit runs deep, real deep.
“People here are used to drilling holes in the ground and hoping that good stuff comes out,” says Walter Ulrich, CEO of the Houston Technology Center, a 13-year old accelerator and incubator whose graduates range from education software company Reasoning Mind to oil and gas information technology leader Merrick Systems. “Risk taking is part of our DNA.”
In fact, the Kauffman Index for Entrepreneurial Activity ranked Houston among the top big cities for entrepreneurial activity in 2011, the latest data available, better than the likes of Boston, San Francisco and Seattle.
A booming oil and gas industry, which helped Houston withstand the worst of the financial crisis, has made the city attractive to entrepreneurs. A low cost of living and a host of new entrepreneurial resources has made H-Town a good bet, too.
“In the last couple of years there’s been a boom in specialized organizations,” such as incubators, accelerators, hackathons, demo days and meetups, says Jeff Reichman, who moved to Houston from Washington, D.C., three years ago and started January Advisors, a consulting firm that works with startups on everything from business strategy to product design.
These days, Houston's entrepreneurs tend to think differently about their new ventures, too. "The traditional model here was to leave a big company to start a company you could sell back to the company you left,” says Kirk Coburn, co-founder and managing director of the Surge Accelerator, which focuses on companies that seek to solve energy problems. Now, startups are thinking bigger and desiring to stay standalone companies for a longer time, he says.
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Houston’s long tradition as an energy hub – it’s home to more than 5,000 energy-related firms– has helped pave the way for what’s happening today, says Coburn, who lived and worked in Austin for 20 years before moving back to his hometown recently. Not surprisingly, a good deal of start-up activity is focused on energy services and clean energy.
At the same time, the wealth created by the energy business has spilled over to other areas, including education, the arts and healthcare. The Texas Medical Center is the largest medical center in the world and a hub of research and healthcare ventures focusing on everything from curing cancer to improving medical advice.
The city’s universities also have an entrepreneurial bent. The University of Houston boasts one of the top undergraduate entrepreneurial programs in the country; its RED Labs coworking space and accelerator program gives students access to space, mentors and other resources – including unlimited coffee and ramen – to launch their ideas. Over at Rice University, the Rice Alliance has assisted in the launch of more than 250 start-ups since its 2000 inception. Its annual business plan competition will award more than $1 million in prizes; more than 133 of its past competitors are in business today and have collectively raised nearly $400 million.
If there's one drawback to Houston's startup scene, it's that the stable economy hasn't propagated as much entrepreneurial interest as shaky economies in harder hit cities have. For instance, many attribute New York City's booming entrepreneurial landscape to the loss of Wall Street jobs there. “One thing that’s different about Houston is – economically – we’re countercyclical, in part because of energy and health sciences,” says Brooke Farrell, co-founder of RecycleMatch, an online service that connects buyers and sellers of material waste. “Because we didn’t have the same downturn, we haven’t seen the same kind of fleeing from best and brightest [corporate jobs] into entrepreneurial roles.”
Those who do leave the golden handcuffs, however, will find no shortage of advisors eager to help them with their endeavors – and often with no expectation of payment or equity in return. The Houston Technology Center, for example, has more than 200 volunteers spanning all areas of expertise. “Many of my investors are from Houston, and even the people who didn't invest were generous with their time,” says Coert Voorhees, founder of Grammaropolis, an education startup that bills itself as Schoolhouse Rock for the 21st Century. “The only major drawback I see is that the concentration of talent is not as dense here as, say, Silicon Valley.”
While there’s plenty of talent in Houston, many of those developers and programmers are happily working for multinational companies, Coburn says. In fact, a common complaint among entrepreneurs in Houston is that the economy may be a little too good.
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Traditional venture capital isn’t as prevalent as it is in, say, Austin, says Ulrich, but it’s improving. Mercury Fund, for instance, focuses solely on seed and early-stage ventures. Meanwhile, funding is still widely available through the Houston Angel Network, the largest in the state, as well as the venture arms of such companies as Shell and Chevron. “We’d like to have more venture capital, but we have a very solid base,” he adds.
While many of the founders in Houston are born-and-bred Texans or were transplanted here for a job, Houston is also attracting entrepreneurs who are drawn expressly to the low cost of living, favorable tax environment, cultural diversity and the people. “One of Houston’s natural assets is its friendliness,” says Reichman, “an important thing when you’re doing startups.”