While fundraising & hiring have challenged startups nationwide, Austin remains a top destination for tech, according to a roundtable of founders at Next Coast Ventures Inaugural Founder and CEO Summit. Many founders in Austin expressed general positivity around the fundraising environment in Texas.
Guest post authored by Treble PR in partnership with Next Coast Ventures, a leading early-stage venture firm in Austin with more than $500mm in assets under management and one of the most active early-stage investors in central Texas.
In a roundtable survey of Next Coast Ventures portfolio founders at its inaugural Founder and CEO Summit, 9 in 10 respondents reported positive feelings about founding a company in Austin. Moreover, more than half of respondents said their views of Austin as a destination for tech startups have improved since 2022, with just one respondent saying things have gotten worse.
Founders were generally optimistic about financing, hiring and infrastructure support from state and local governments; that said, hiring technical talent remains a sticking point, with a plurality (41%) of respondents reporting finding and hiring technical talent to be difficult in Texas and Austin specifically.
These responses were collected in early November in Austin at Next Coast Ventures’ inaugural Founder and CEO Summit; respondents were founders of a mix of consumer and enterprise early-stage startups in the Next Coast Ventures portfolio. 70% of respondents founded a company in Texas, and most were still headquartered in Texas.
The majority of respondents had raised Seeed and A rounds, with a small number of respondents raising Series B and beyond. All stages of founders were more optimistic about fundraising, as the funding environment in Texas has improved in the past few months after a frigid 18 months.
Next Coast Ventures has certainly seen a pick-up in activity recently, having invested in six new companies in the last twelve weeks.
While deal flow might be trending up a bit compared to the first half of the year, many founders and investors are still reckoning with the dramatic fall of venture deals over the past year. The Q3 report from PitchBook and the National Venture Capital Association, released in October, showed Austin startups had raised nearly $590M across 78 deals in the three months that ended Sept. 30. That was the slowest quarter since Q2 2019 in Austin.
However, the improving environment for funding may also have resulted in a generally optimistic view of founding a company in Texas. The vast majority of respondents, 91%, say they’d start their companies in Texas again, given the choice.
Perhaps no region has received more national scrutiny than Austin’s tech scene. As major companies have moved into the area and invested in critical tech infrastructure here (Tesla, Samsung, Siemens, Oracle), the demographic shift has been remarkable. Housing prices have spiked, and the cost of living has risen dramatically.
The survey also examined anecdotes that tech workers who streamed into Texas after the pandemic were reverting home. The survey findings showed that 25% of respondents had seen team members move back to California or other states experiencing ex-migration. While only a quarter isn’t enough to mark a serious trend, it gives some credence to the idea there’s a return to the mean for tech workers and where they’re concentrated.
Another post-pandemic trend that appears to be here to stay is the hybrid working arrangement. Hybrid work is the model for a majority of respondents and businesses moving forward. 50% of respondents reported a hybrid working style for their firms.
The main challenge to founding tech companies in Austin is hiring technical talent. Both the qualitative and quantitative responses cited a lack of technical talent pool and driven candidates in the Austin market relative to other tech hubs.
It should be noted that one response to the survey reported a lack of municipal infrastructure as one of the challenges to the startup community in Austin. While this wasn’t a major finding, it bears repeating that if the region is to thrive, the city of Austin and the state of Texas should continue to invest in transit, utility and other infrastructure to support the influx of residents. While hybrid working will likely be the mode moving forward, highways and roads aren’t enough to support a commuting workforce the size of the Bay Areas’ or New York City’s.
Meanwhile, public/private partnerships in the Central Texas economic region continue to spur growth and investment.
Opportunity Austin (OA) has completed its most successful 5-year strategic plan yet. Roland Peña, Senior Vice President of Global Technology & Innovation at Opportunity Austin, offered this take on 2023 in business & tech in central Texas:
"Opportunity Austin’s 4.0 strategy was the most successful 5-year campaign thus far. The diversification of the industry base and mix of prospective companies aided the Austin Region in weathering the pandemic much better than other areas of the country. Our intentional focus on strategic industries has not just diversified our economy but fortified it against turbulence. With 816 corporate announcements and over 94,000 jobs announced, Austin's steady diversification in OA 4.0 has propelled us forward. The $73 billion in VC and PE funding underscores our emergence as a top destination for innovation. Together, we illuminate a path where Austin's brilliance in innovation and boundless possibilities continue to thrive."
Other national stories, such as Elon Musk and other “tech celebrities” moving to Texas, have cast a negative pall in the national media. Still, founders generally feel this attention is a net positive for the Austin tech community, with 49% reporting the increased attention brought by Elon has been good for the tech scene.
2024 should prove to be a pivotal year for Austin’s tech ecosystems, as we’ve likely reached the peak of the Federal Reserve's interest rate hiking cycle. If the financing environment continues to improve and certain tech sectors, such as FinTech and B2B SaaS, can recover, the region should see more new startups and success stories among already-founded firms.
Austin would need to take several more significant steps as a region to become “the next Bay Area,” but perhaps it shouldn’t. The more rugged and laid-back environment is supportive of a different, more Austin brand of business formation. Next Coast Ventures and Treble PR remain stalwart optimists about the Austin tech community, and we’re excited to see what 2024 brings!