Having previously lived in San Francisco while working for a startup, I am one of the many people hoping Austin can rival SF in its ability to serve as a place where massive companies can start and grow. Austin is the home of Dell, which may be old but serves as a strong proof point that massive computer companies can start and grow here. But that was 1984, is that still true today?
The first thing we must do is disambiguate the two words used to describe what we’re talking about, they are not interchangeable. Those words are “tech” and “startup”. Paul Graham clears this up — a startup is “a company designed to grow fast”. New companies are not necessarily startups, and startups don’t necessarily need to be selling technology.
“Tech”, when used in the contemporary sense, as is being done here, is compute. It’s software, hardware, and anything else that manifests itself in the realm of computers. Sweetgreen was a startup, they grew really fast. But they are not a tech company, they sell salads. Google is a tech company, they make software and sell it to consumers.
There are a multitude of reasons why Silicon Valley (SV) became the world’s capital of technology startups. One can reasonably argue that had William Shockley not have grown up in Palo Alto, or Fred Terman and Bill Hewlett’s dads not taught at Stanford, the Bay Area would still be just that. Regardless of how it became the home for technological innovation and company formation, it’s impossible to replicate the scale it still enjoys. Therefore, I posit we must limit the discussion to whether or not Austin can become a startup hub first, and worry about technology later.
That being said, most startups today have some software that they are selling directly or indirectly. The ops based startups that turned your iPhone into a remote control for the world (DoorDash, Uber, AirBnb), are still software companies at heart. Austin won’t birth the next Google, but it should be viewed as a place that can serve as a home for these real-world-to-software types of companies in addition to startups that aren’t reliant on technical chops (like a new Tequila brand). What does it take to achieve this mission?
There is one hard constraint on any city’s ability to become a startup hub — startup talent. Does Austin have the requisite talent pool to achieve the “hub” status? There are three distinct talent pools needed. Early phase, scale phase, and mature phase.
In the early phase a startup needs a relatively small number of people who are insanely ambitious and equally as hard working. Needless to say, they need to be talented in their domain too. In SV, these people are abundant. Over the past few cycles, there’s been no shortage of people who fit this mold moving to SV, because where else would they go? The only change was the center of gravity shifting from Philz in Palo Alto to Blue Bottle in SoMa.
In addition to the steady stream of immigrants, Stanford and Cal serve as the main pipelines of early talent. This is where I am a bull, the University of Texas at Austin and Rice University in Houston have premier CS programs. I would even go a step further and say they may have even higher caliber recruits as many are immigrants or from scrappy backgrounds that are conducive to producing stellar startup employees. A cursory search on LinkedIn proves that these schools consistently churn out recruits to the hottest growth stage startups.
Secondly, given the fact early startups don’t need that many people by design, it shouldn’t be hard to hire the first ~20 employees from either the local gene pool or import a few one offs as new Texans. Microsoft started in New Mexico.
Scale phase, the hardest problem to solve. What many outside observers seem to miss about the success in SV is that there is institutional know how. When Zuck hired Sheryl, she had spent 6 and half years scaling Google’s ads team from nothing. When Dropbox ditched AWS to build their own infrastructure, they hired Dan Williams who was the first network engineer at FB. His LinkedIn states “I went to Dropbox to build out their Compute and Network Infrastructure”. When DoorDash started scaling they hired Christopher Payne as COO, a veteran operator with stints at Amazon and Microsoft.
How can Austin deal with this lack of human scale? TBD. The surest way to solve this problem is to have one company be the exception to the rule. Having Microsoft in Seattle surely helped Amazon. Los Angeles has a pool of talent that was on the front lines during Snap’s scaling phase. The influx of remote workers ~5-15 years into their careers is a beacon of hope for Austin, especially if they get itchy for IRL. It’s unclear how many people fall under this umbrella, anecdotally I know enough to make me believe the number is not insignificant.
Aren’t all the big tech companies hiring in Austin? Yes, but who? Of 258 openings, FB is hiring 12 engineers. Of 231 openings, Oracle is hiring 4 engineers. Tesla is hiring a ton of engineers, though many are automotive specific. Apple is hiring over 600 hardware and software engineers. Google has 406 openings, 290 of them are in software.
One should note however, these engineering jobs are not a 1:1 expansion of the startup talent pool. There’s a wide margin between the risk appetite of those who choose to work at a FAANG company and those who choose to work at a startup. Some of these people will get bored, seek a new challenge, and head for a startup. Most will make good employees when Austin startups are mature companies. That gap though, is wide.
This data should only serve as a proxy, there are other positions like marketing and operations that are surely needed to scale a startup. But engineers are always needed. The narrative is that tech is moving to Austin in droves, the perceived reality for those who live here is that most of the people working in tech here are actually in sales. The data shows the truth is somewhere in the middle.
It’s important to note that the important factor here is not total venture raised by a city’s community, nor is it headcount. It’s the number of people who’ve seen real scale. There may be 100 product managers, 100 engineers, and 100 sales people in a city, but the other city with only 10 of each that were in one of the massive exits (FB, Google, Uber, Pinterest, etc etc) has a materially better chance at becoming the next hub because those 30 collectively know way more about what’s needed than the 300. They’re also more likely to start massive companies themselves (PayPal mafia includes many jr employees). The 300 could still be very talented! But having seen and solved the problems associated with scaling is what’s important.
There are some promising candidates that may serve this role over the next few years. Royal.io has its roots from the OpenDoor founding team. Bumble is here. Darwin is built by multiple high level ex-DoorDash. And a handful of other promising companies star in the trailer for our unreleased box office smash.
There’s no blind hope for Austin to cross this chasm, but there is a visible path if just one ex-SV expat or a local builder can break through.
Mature phase. A strong possibility for a pool of talent that can serve as the stewards of startups aged well beyond IPO.
Both Tesla and Oracle have moved their headquarters to Austin. Apple is building a new campus, FB and Google have opened new towers. And shops like Intel and Dell still have their footprints. Combine that with the natural influx of more senior people moving from SV because they’ve made their money and/or want a higher quality of life, and you’ve got real potential to build a battle hardened senior operating class.
Austin is also a place that can attract top executives. Take one ride down Lake Austin and you’ll quickly realize this is a place where it’s easy to be wealthy. Beautiful mansions line its banks with many more upon the cliffs above. There’s no shortage of stuff to do. There are great schools. Plus no state income tax. There’s already money here and it’s always sunny (yes it’s too hot for 3 months), so it’s not like convincing execs to move to or stay in Minneapolis.
Austin may have a barbell distribution of talent for now but it can meet the requisite talent needs; will it?
Two top tier venture firms have moved their base of operations to Austin, Bedrock and 8VC. While the capital of capital is still Sand Hill Road, Austin now accounts for a small chink in their armor.
The reality is that while there’s not a surplus of homegrown capital, Austin entrepreneurs benefit from the culture shift in SV that’s more lax on funding startups outside the valley. As a consequence of the pandemic, funding rounds can still be done over Zoom. If the talent is here, money will follow.
Where Austin may lack in institutional capital, it can shine in personal capital. The aforementioned newly minted success stories that have begun moving to Austin (either working remotely or made their money and bounced) could become a powerful network of angels. Again, the people who fit this mold have seen inside the belly of the beast and know what they’re looking for. And Austin, with its laid back style and free thinking culture, is a perfect petri dish for angels open to funding out there ideas. Don’t forget Tim Ferriss has already done it here.
Lastly, there’s crypto money. If there is one technology Austin may soon call itself the capital of, it’s bitcoin. There’s a litany of big time bitcoiners that call Austin home, as well as multiple bitcoin startups including Unchained Capital. And Texas is continuing its push to become the largest mining state in the US. Multicoin Capital, a top tier crypto focused firm, is HQed in Austin.
Where it gets sticky. When looking at the available pool of capital in Austin, the same trend emerges — a lack of scale. As growth stage equity is really what’s in short supply. Vista Equity is here, along with at least one offshoot, but the ability for a startup to raise their Series C,D,E and beyond from Austin based capital alone is likely impossible.
While scaling in Austin may turn out to be difficult due to a lack of growth capital, on top of the talent issue, it should not be a singular death knell in the quest to become a hub by any means. Raising rounds up to B should not be prevented from having an Austin zip code alone. UpEquity, a promising real estate startup, raised a $50m B round last year.
Before moving to Austin, myself and a friend spent a month in an AirBnb located in the Barton Hills neighborhood. It’s a quiet, residential place. The house shared a driveway with another house and both entrances were in back. Across that driveway was an entrepreneur who started a custom woodworking furniture business (highly recommended). The entire operation was running out of his garage (since moved to a larger facility). Instantly it brought me back to my first day at DoorDash.
DoorDash’s second office was a renovated animal hospital on the corner of a residential street. The first office was a house, 565 Stanford Ave, on the edge of Stanford’s campus. It was still being used as a supply depot. Silicon Valley is littered with these seemingly quaint markers of what the infancy of global dominance really happens to look like. You know the names. Austin too has the aesthetic of a warm, sunny, residential town; whose economic horsepower outkicks its coverage. Because that’s exactly what Austin is, a town.
To contrast, NYC has had its fair share of billion dollar exits and IPOs — but NYC is a different beast. It’s the exact opposite of SV, even SF. NYC is beautiful sigmas spending every waking moment either hyper-optimizing or hyper-indulging, all inside a seemingly endless concrete casing. There’s nothing but energy and nothing but extraneous things (to one’s startup) to expend energy on. SV is nerds sleeping in until 10am and coding until 2am every night; only to be interpreted for walking 1 on 1s under the bright blue sky. Austin features a slightly degraded carbon copy of SV’s topographical DNA except with good looking people abound.
The point here is that NYC, often labeled a tech hub, serves as the only exception to this rule (and it’s still nowhere near SV). You need a somewhat boring and sunny (or at least temperate) place where everything around the startup is simplified. Enabling the focus, hard work, and intellectual osmosis to blossom.
Startups are conceived during sleepless nights of crashing on the office couch or air mattress. This doesn’t happen under fluorescent lighting only accessible by keycard. Austin’s got the real estate footprint to house startups in their infancy, and the footprint to house them with ease when they’re big.
Where scaling may be difficult in terms of talent and capital, it doesn’t take much to imagine a landscape not unlike Mountain View and Cupertino, with office parks and campuses set back only yards away from major arteries like MoPac or I-35. Although that dream resembles a world of grownup companies. If they’re in the suburbs as adults, and in the neighborhoods as infants, where are the adolescents to go?
Alas. Again Austin, like the city itself, may have trouble scaling. One thing I’ve noticed is that Austin is lacking a central startup area. In SF it’s SoMa, in NYC it’s Flatiron, now Wynwood in Miami. Austin doesn’t have a single spot on the map that one can point to and say “that’s where all the startups are”. Conceivably, the closest thing to that is East Austin. It’s gentrified (cheaper real estate), has great coffee shops, hipsters, et al — but it lacks a flagship destination serving as a center of gravity. South Austin has the vibes too, but it needs….something.
As noted, The University of Texas is top notch. Perhaps our wanted startup village should form on its shores. Leveraging UT to serve the function of Stanford and Cal is essential, but the culture of UT must allow for it. The one thing about UT is, for all the Keep Austin Weird (which we absolutely should!) it’s actually kind of buttoned up. Most of the businesses and CS kids go to big companies. Nothing wrong with that to start, get your 2 years in at bigCo and learn, but the students that leave must be inculcated with that Keep Austin Weird if Austin is to succeed here. They must be irreverent, they must be recalcitrant, they must be weird. UT itself can shape this by framing the choice to join a startup as less risky than chaining oneself to a desk (which it is!).
The city itself and UT have the potential, how about the populace? The wrap on Austin has always been that it’s a retirement home for people in their 20s. That people “work to live”. Fact check…true. There’s a lot of that in Austin! When I moved here, I was jarred by the sheer volume of people paddleboarding on Lady Bird Lake during the day on any given weekday. Didn’t these people have jobs?
This criticism of Austin, when taken to its fullest extent, is fatal to our experiment. If the town is unambitious and just wants to chill all day, no great company will be built here. The baseline level of ambition here is lower, there’s no getting around that. It could be the end game. No startup will be built without heroic effort, no matter what any critic says. So a hard working talent pool is a nonnegotiable prerequisite. But the longer I’ve lived here the more hard working people I’ve come across.
For every person just kickin it, there’s another out there grinding. The central problem is one of coordination. How can one aggregate the hardest working, most ambitious people and keep out the rest? Any startup’s culture, and therefore their life, will be in jeopardy the moment people start clocking in at 9 and out at 5. It’s the entrepreneur’s job to collate those with the right traits and build the right environment.
I’m unaware of any IRL version of Metcalfe’s law, which states the value of any telecommunications network is n2, but I’m sure the same effect is directionally true with cities. The more hard working, talented, and ambitious people that move to Austin will only increase the speed at which more hard working, talented, and ambitious people move here. Or something like that.
Austin’s culture is conducive to producing the secret sauce. Its greatest strengths — the omnipresent sunshine, the small town vibes inside a larger city, the major university, the craftsmen working out of their garages, et al, all could spell success or defeat in our quest to become the next great startup hub. It’s ours to determine.
Everything discussed here was in comparison to Silicon Valley, but it need not be. Lightning never strikes twice. There is no such thing as a recipe for success. There are certain points on the map that we can look to and say with certainty — they will help, or are downright needed, to put Austin on track to become a world class startup hub. Focusing on these, such as turning a specific neighborhood into a place where startups roam as far as the eye can see, is instrumental.
Will Austin become a “tech” hub? No, probably not. Will Austin become a startup hub? The unsatisfying conclusion I’ve come to is, it can be.
The infrastructure for startups to launch is here. They can get to Series B. The infrastructure for mature companies to thrive is here. They can exist as a public company. The infrastructure for startups to go from one to the other, Series B → IPO, is not. For Austin to become a startup hub, it will need to conquer the same problem the city itself now faces, scale.
For me? Austin++
First published on July 17, 2022