The State of Austin’s Tech Scene

By SUSAN LAHEY
Reporter with Silicon Hills News

In the ongoing discussion about how Austin stacks up against Silicon Valley, which sometimes feels like a promising adolescent boy eyeballing how he might turn out relative to his all-star older brother, Capital Factory’s Josh Baer said something that should have been definitive: “Silicon Valley is a unicorn. There’s not going to be another Silicon Valley.”
But it wasn’t definitive. And the discussion goes on. The question of whether Austin would ever catch up with Silicon Valley opened a TeXchange panel discussion about the state of Austin’s Tech scene Tuesday night. Panelist Morgan Flager, a partner at Silverton Partners, who grew up in Silicon Valley pointed out a fundamental difference between the two places: that being “laid back” is not considered a virtue in Silicon Valley.
There is a “gross stereotype that doesn’t apply to every entrepreneur in Austin,” Flager said, “that they have a more realistic objective for what they want to do with companies.” In Austin, he said, an entrepreneur who can sell a company for $150 million and walk away with 10 percent of that figures he has done well and made all the money he needs to move on and become an angel investor or start another company. In the Valley, a lot of people have sold companies for $150 million. “They want to push themselves and achieve a bigger outcome….I want to go to $1 billion. That motivates a behavior that does drive Silicon Valley.”
Of course, it helps that there are 40 VCs for every one in Austin, so there’s more competition for deals. But Baer pointed out that Austin is a town with a “bootstrap first mentality. You’re kind of expected to go do something on your own first, be able to build something and get in front of somebody and get some customers. We’re very revenue focused and we’re not focused on spending a lot of money…so those are two things that set us apart from Silicon Valley.” He also, he said, doesn’t believe the conventional wisdom that says companies who become billion dollar companies were aiming for that goal all along. Instead, like all other startups, they started small and grew.
Panelist Brett Hurt pointed out that with the taxes and cost of living in the Valley “You have to hit the ball out the park to afford housing” which adds to the pressure to succeed. In addition, he said, Silicon Valley has numerous events like the TeXchange event, where entrepreneurs have access to top players like the panelists, as well as Rick Timmins of the Central Texas Angel Network, Kevin Callahan of Map My Fitness and Kevin Dasch of Mass Relevance—who moderated the panel. There is an abundance of mentorship. That’s beginning to be the case in Austin, he said. But one thing that would make a huge difference is if companies in Austin would stop selling to companies in California and would instead scale them to a size that would grow Austin’s economy. By not selling Bazaarvoice when he was offered $25 million early in the game, but instead holding on to it until it was worth more than $700 million, he also managed to create an environment where nearly 20 other entrepreneurs could learn how to run a company and spin off into their own ventures.
Hurt revisited this theme several times during the evening, but capitulated when Baer pointed out that, while he agrees with Hurt’s premise, he thinks entrepreneurs only tend to sell early the first time. Hurt sold his first company much earlier, Baer said. “When you’re a first time entrepreneur, that first check looks really exciting. My first company wasn’t a huge exit. But after that my whole life changed. For a lot of them, the money they get from their first company, that’s their security. That lets them go long.”

Too many incubators?

The next question was about whether there was an overabundance of incubators now in Austin. Most of the panelists agreed that the need for mentorship for local startups made the increase in incubators—including the recently added Techstars incubator—a positive development.
“It just depends on what expectations they have,” Flager said. “There is an overpopulation of companies coming out of incubators and not all of them are going to get series A funding. The growth of companies in incubators is going to give more investors an incentive to come here. There’s a better class of people to talk to.”
Baer countered that he didn’t see any awesome companies not getting funded. “There are some not-quite-right companies that are getting funded,” he said. “But I don’t see any companies that should be getting funded that aren’t getting funded.”
The panelists then discussed the role of UT in fostering entrepreneurship. They all agreed that UT has incredible programs for entrepreneurs. But, said Hurt who is serving as Entrepreneur in Residence with Laura Kilcrease at the McCombs School of Business, many of the programs are siloed. When he tweeted that he would be available for consultation one night, he said, the group of students who came were a mix, business students, engineering students, communication students. All those skill sets are needed to start a successful company. But rarely do the schools teaching those skills interact regarding startups.
At schools like Stanford and MIT, Flager said, students either drop out or immediately after graduation jump into a startup because they want to “be at the next badass startup.” That kind of entrepreneurial fervor is created by the ecosystem and Austin isn’t there yet.
After the panel discussion, the room of more than 100 people broke into groups to come up with more questions for the panel. Among them was the question whether it takes a different personality to grow a company to $50 million than it does to take a company from $50 million on.
Hurt said he felt like a founder selling a company because he or she couldn’t figure out how to scale it was, in some ways “the ultimate sign of selfishness. That person should get out of the way and hire someone who can play a different role. If the business prospects aren’t there, fine. Sell.” But if they are, he said, they should do whatever it takes to grow the company. In his case, he hired a CEO coach to help him figure out how to scale Bazaarvoice, rather than sell.
TeXchange is a community of startup founders, business executives, and investors who meet to exchange ideas, and share experiences.