Back in November of last year, I wrote an energetic post for this site that in essence introduced me to the Austin tech scene. I was an emerging tech analyst that wanted to meet every startup in town! I wanted to hit every happy hour! My enthusiasm was a little frightening!
Fast forward seven months and I’ve developed encyclopedic knowledge of the city’s coffee shops. I’ve met a bevy of entrepreneurs, a smattering of local tech-focused organizations and a sprinkling of investors. I’ve become so inspired by the entrepreneurial spirit that I’m finally pulling the trigger on my own business. In short, I’ve become more secure in the knowledge that the Austin tech scene is one of the most vibrant in the nation, a fact bolstered by a continuous flow of lists that place us at the top – Forbes’ second Most Innovative City in the US and Kiplinger’s Number One City for the next decade (“arguably the country’s best crucible for small business”), to name a few.
But – and you knew there was a ‘but’ coming – everyone in town wonders where the Superstar is: the tech company that starts in Austin, is funded by Austin, and whose successful exit brings the cache that will solidify Austin as the Silicon Valley of the 21st century. (And make no mistake, that is in our grasp.)
Doesn’t it seem like we’re perpetually *almost* there, standing on a precipice with our toes hanging off? Are we waiting on some nebulous event to occur? Or can we propel ourselves into that elite status on our own terms? My hope is the latter but my fear is the former.
In order for Austin to produce a Superstar and therefore prove our savvy as a nurturer and picker of winners, we need three sectors fully participating and on board with the entrepreneur mentality: entrepreneurs (check), organizations (over-check), and investors (begin new paragraph).
Look, believe me, I know. I’ve been around long enough to know that the startup ecosystem doesn’t exist in which entrepreneurs don’t bitch about investors. There will always be more ideas than money. Period. But there’s a level of frustration toward the Austin investor community that should be acknowledged and addressed. Austin entrepreneurs are increasingly flying to Silicon Valley to seek investment, after months of futile conversations here in town. I won’t give specifics for obvious reasons, but in the last month alone I’ve talked with three startups – innovative, viable startups with real revenue paths – that have given up on Austin money and are in talks with Valley investors. One founder is so frustrated, he’s about to move to the Bay Area. He’s been looking for $200,000 for a year (!) and says it’s time to move on to “people who get it.” That, my friends, is one depressing sentence.
If the hundreds of conversations I’ve had the past 7 months are any indication, I’m not making any earth-shaking pronouncements. So how do we fix this? How do we bridge the disconnect that lies between two very important sectors who very much need each other?
I think the answer lies in that middle sector I mentioned a bit ago – organizations. We’re a city that loves gathering together and it shows in the number of groups that focus on startups. Bootstrap Austin, TechRanch, Conjunctured, Austin Technology Council, Capitol Factory – just check out this list to save my keyboard. We need a coalescence of these groups toward a common goal – integrating the folks with money comfortably into our world. I may be naive but I suspect that productive exposure to the energy of Austin entrepreneurs can only result in more meaningful relationships for everyone.
I’d go so far as to suggest an overarching board or council, one that includes representatives of every sector in the community and works toward no other goal – including profit – but nurturing and producing Superstars. What if we took that list linked above and invited one or two people from each organization to a brainstorming meeting? Would you come? Am I thinking too broadly?
A savvy entrepreneur recently told me, “Austin investors won’t start taking chances on consumer internet [companies] until there are multiple losses – big exits of Austin companies who have Valley money.” I suppose he’s right but I wish he wasn’t. I wish we could fix this problem ourselves before the Valley fixes it for us. A startup scene in which one sector assumes all the risk is one that will not sustain itself. So why not take the plunge and all assume it together?
Great discussion regardless of your viewpoint. Here's another 2 cents . . .
Why not a kickstarter.com site for Austin-based companies?
Most high-tech ideas I've seen lately are all hat and no cattle. Business owners don't want bells and whistles, they want results. Consumers might be impressed with the latest web gadgets for awhile, but in the end they want results too. There's lots of money in not-so-high tech.
Reminds me of a line from an old movie: “They're pretty, but can they fight?”
I couldn't comment on Angellist plans at the time, but I'm happy to share that they are now public and it is in many ways the “list of investors” that some people are looking for.
http://angel.co/austin
They are backlogged on approving people, so there are actually 14 investors from Austin who have applied so far. I'm talking to everyone I know to try and get more investors on the list.
Angellist was a huge help for us in fundraising for OtherInbox and its also been a great source of dealflow as an investor. I highly recommend it!
We are gathering 100 Angel investors from Austin, Houston, Dallas and around the country at the Capital Factory Demo Day next week. This is a fantastic opportunity to meet investors. If you are fundraising for a startup, email me at josh [at] capitalfactory.com and I'll try to make some introductions.
Carla,
Thanks for identifying this missing ingredient. As the owner of a 2 year old tech company that was profitable within 6 months, we are looking for a city where we can settle down and grow, and Austin is very much in the running (thus my search today that landed me on your blog).
Personally, I think venture capital is a double edge sword. We bootstrapped our main company and are already branching out into several subsidiary company divisions. If I were an investor I'd never invest in just an idea, even if I thought it was the best business concept I'd ever heard. Sorry, but it's not ideas or even good business plans that make money and I'd never expect this alone to attract investors. When you talk to seasoned investors they understand something about investing that we who seek funding often miss. I'm still trying to learn it better myself. Most of these investors learned this principle the hard way, principally by investing in ideas that lost them a lot of money. Here is what they tell me: “Tom, I stopped investing in JUST ideas long ago. Now I invest in the right PEOPLE.” Ideas don't run themselves…they don't show up on time…or work late into the night, or find a way to make something work against all odds. People do this…and it’s special people who have already proven out part of their business concepts that attract investors.
Frankly, if a person cannot go on the net and make enough money to bootstrap their own technology ideas then I question if they really know enough about technology to be in the game in the first place. Our company has three mature, technology experienced, owners and each of us have used our tech know-how to make money online (and yes…through very legitimate processes
. It was this ability that gave us the confidence that we could build something of greater substance and develop a larger tech company worthy of investing our own money…and eventually worthy of attracting capital from others. One of the questions we get regularly from investors is one I would also ask if I were investing my money: “How much skin do you have in the game?” After all, why invest in a company that no one else has invested in? That's kind of stupid…isn’t it?
Technology start-ups have a notorious failure rate. There are lots of reasons for this, but it came to a head during the Internet bubble at the beginning of 2000 when investors lost billions and collectively trillions. Since that time investors are more savvy and understand technology concepts much better, and if they don't they have a list of consultants who can help them. One of the things I did before deciding to seek capital is to read all I could on what investors looked for, on the skills involved in being an angel or VC investor. I had forgotten what should have been obvious: Investing is also a business and all investors want to make money…and they HATE losing money. Once I understood their mindset better I knew immediately how I could better position my various companies to make them more attractive investments. It was only after I finished this process that I felt comfortable even asking for money. Now I know we will get funded…and we have several VC firms who have shown more than just a passing interest.
Which brings up a critical point: Because we started our project with our own money and because we spent two years growing, refining our technology, proving out our model, doubling and tripling our sales, we are not DISPARATE. We have much more leverage. We can even turn down an investor if we think they are not a good fit…as we are looking for more than just money. Most start-ups do not have this advantage. They live hand to mouth and will take a check…any check…often giving away total ownership to acquire their funding. We have no intention of doing this. This is one of the great benefits of learning how to grow a company BEFORE you seek additional funding.
We could go to California…and we might. But we'd rather be part of a new Silicon Valley. We'd rather take another part of the country and throw in our 2 cents in the hopes that perhaps a new center of economic gravity might emerge, one that learns how to ATTRACT a larger investment community. Because I promise you…if the Austin tech community were to learn how to build out, shoestring, prove its concepts by making money first, and really learn what investors genuinely want…then perhaps Austin could see more money flow into its town than even Silicon Valley. I know…that probably seems like a long shot…but isn't that what being entrepreneurial is all about? Business is not guesswork. It's not even a mystery. It works along very objective and well proven paths. What young start-up owner’s need are some old, experienced investors who can sit face to face with them and explain what a dollar is truly worth…perhaps for the first time. I thought I knew…but I didn't…I had to learn this by going out and earning my way to profitability before I could begin to understand the mind of the investor. Believe me…this experience has so shaped my life that if I'm ever extremely successful, enough so to perhaps invest in other start-ups…I will know exactly what to look for.
So…we are looking at Austin and so far I like what I see. Someone needs to tell me where you all hang out so I can be sure to meet some of you when we visit.
To your success…
Thomas Rozof
I’ve become a bit disenchanted with the VC’s. Don’t think they really know what they are doing. Everyone needs to go read what David Heinemeir Hansen has been writing on this particular issue. The more I talk to VC’s the more I start to understand that DHH is right on.