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Recipe for a High-Tech Hub

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Rhode Island’s efforts to drive innovation and subsequent technology jobs to the state aren’t unusual, but building a technology hub is hard. I’ve watched Austin, Texas, where I live and work, fight to get to the point where it can claim to be a technology center and then continue fighting to stay there.

To get there, a city needs three things. Money, big companies and good weather. That last one isn’t a joke; quality of life is important. For example, many people want to live in Austin, while few want to live in Houston. So even though there are a lot of huge companies, money, and a real effort by folks at places like the Houston Technology Center and Startup Houston, building an information economy there is going to be a challenge. Blame it on the humidity. The same goes for places like Tulsa, Okla., Detroit and even Chicago, where weather or other factors such as crime make it hard to convince people to live there. (Note to the Chambers of Commerce in named cities: I said hard, not impossible).

Big companies can push technology innovation in a number of ways. They can act as customers for local startups and also contribute executive talent — preferably talent that has struck it rich with stock options and can work for free or invest in other startups. Dellionaires made great angel investors during the 90s.

If the big companies were venture-backed, their investors are likely happy to back other startups in the region, especially those with executives from former portfolio companies. In Austin, Tivoli, which went public in 1995 and later sold to IBM, fueled most of the enterprise software startups that helped the city make a name for itself in industries other than silicon.

Finally, there are the venture capitalists. Austin initially only had a few of them, but Austin Ventures helped fund scores of startups and bring to the area investors from both coasts. As the boom hit, venture firms sprouted like mushrooms, but only a few remain today. Sadly, AV isn’t really funding many of the social sites that are hot today, nor does it have a clean technology focus that Austin is trying to push.

The fact that Austin is missing those key ingredients of money and big companies has left me kind of down on the city’s technology community right now. There are thousands of talented people, but few folks willing to fund them and few big public companies with growth. It’s 65 degrees and sunny today, but good weather is only part of the equation.

33 Responses to “Recipe for a High-Tech Hub”

  1. I used to ask people at what are the leading USA states in the field of software development I think that quality of live is rather doubtful condition for making start-ups in IT, why not to take into account such things as data centers power or speed of communication services. What’s more.. Such conclusions could be stated without competitors analysis in this certain area.

  2. joshtabin

    Stacey, I posted some additional comments for you here. Here’s a piece from it:

    I think you’re dead on about consumer tech. One of the most gaping holes we have that I believe Austin has in spades is product marketing talent. This is due to the 2nd item needed that you pointed out, a lack of big consumer or software companies in Houston. I am not sure what happened to the minions that left Compaq after HP came in but they don’t seem to be having the same impact that the Dellionaires have.

  3. Stacey Higginbotham

    @Everyone, Weather is really my catch-all for quality of life. I shouldn’t have been so pithy about it, but I am aware that the weather in Austin (like from June to October) can suck. Unless you have a boat.

    @ScottW, I’m not trying to compare Austin to The Bay Area, because I don’t really think there’s much comparison. The Bay Area and Silicon Valley are what these high-tech hub efforts are trying to emulate. Entrepreneurs are important, but I know plenty of excellent entrepreneurs who are spinning their wheels in Austin or have moved elsewhere to raise money or be near customers.

    @Josh, I liked your point about distance, but I would compare it to California. San Jose is almost as far from San Francisco as Sugarland is from The Woodlands, so I’m not sure how limiting that is. I will say that the points in the comments about Houston’s tech scene comprising energy and NASA related tech is something the city should do more to exploit. In all honesty technology helping extract more natural gas more efficiently is far more interesting than another free VoIP platform.

  4. New to Austin

    I wish firms like AV would integrate more in the community. Why isn’t there an AV bbq every few months (ala TechCrunch August Capital)? Stacey — you and GigaOm could get this going! I’ll provide the appetite.

    Coming from the perspective of someone who just moved here, it seems as though the Austin VC scene is small and exclusive. This seems counter to the general feeling of Austin (friendly, no bs). Somehow this should change .

  5. Jeremy

    Wow, I’ve never agreed with more or less of the same post. This guy is like the Ron Paul of commenters.

    So, first off, it’s futile to start another Valley vs. X war like the Seattle one that raged 2 weeks ago on Techcrunch.

    Nobody disputes that AV plays a (the) critical role in fueling the tech community in Austin. Enterprise software, network management, and semiconductor startups clearly need AV.

    But I’d argue that consumer web companies (except for rollups) need less capital, so AV tends to have less influence on Austin’s consumer web startups. Personally, the idea that for a meriad of reasons, Austin tends to force consumer web entrepreneurs to build cash flow positive businesses with little or no capital doesn’t bother me.

  6. Ha. This article and thread is comical. I’ve lived in both places twice (Austin and Silicon Valley). I’m currently living in Palo Alto (although I am in Austin for this weekend a week early for SXSW) but am seriously considering moving back to Austin for another opportunity that I just heard about. I’ve attended both UT and Stanford. I’ve founded/worked at startups in both geographies that have been funded by top notch venture firms (including AV – see below). Stacy – have you ever lived in CA (ie: are you qualified to even comment on this other than as an outside observer that has never really been in the game)?

    On your 3 criteria, if you are saying it is weather then Austin sucks compared to the Valley – there is no comparison and just go home if that is what you want to focus on. If it is quality of life, Austin is way better on some fronts and really lags behind on others. Austin is a much easier place to live, has a way better cost of living, a good core group of people/workforce, plenty of money available to invest in good startups with good entrepreneurs (your statement is wrong about a shortage of money). California has more people (and thus more better entrepreneurs in absolute numbers) that have better ideas and investors that are willing to take big risks and lose all their money on crazy ideas with unproven entrepreneurs. California also has a huge infrastructure problem, all your employees are at risk of getting poached, and a bunch of morons that think they are the next mark zuckerberg but are in fact clueless and really cluttering up the landscape (so does Austin though).

    On your next point around needing big companies, that is crazy and wrong also. Look at the most successful startups – they aren’t generally started by people from big companies so I’m not sure why you make this comment. Facebook, Google, eBay, Yahoo, and “all the (other) hot social sites” were founded by smart, accomplished fundable young entrepreneurs and were mostly invested in by venture funds with initial small dollars to see if they would work (capital wasn’t the constraint – it was smart capital that invested in them). Dellionaires haven’t made a dollar on angel investing b/c none of them had an entrepreneurial bone in their body outside of Michael and they haven’t helped the Austin entrepreneurial community one bit. The angels that have added the most value in the Valley (and made the most money) are former ENTREPRENEURS or former venture capitalists that have made so much money that they are better off investing their own money and keeping everything they make (vs. giving their money to limited partners). Austin has this also (Silverton is some rich old AV guy I’ve heard and some other former successful entrepreneurs that regularly write small checks).

    On the money front, Austin has plenty. AV has more than a $500MM fund, it looks like they are in the process of raising another big fund, and they have a commitment to the community that is bigger than any venture fund in Silicon Valley has to their community. Look at everything they have their name on. There are a few smaller funds/individuals that will invest in deals early also. I get tired of hearing all of the ragging on AV that they don’t do interesting early stage deals. I’ve heard they are doing late stage deals but when I last visited them a couple of months ago they still seem to have a good group of smart guys that are looking to invest in early stage deals. Look at the list of companies above, of all the companies that are successful in Austin (which are frankly few but are amazingly high quality), AV is an investor in every one of those. I’m not sure how right I am on my criteria but if I look at traffic, press, quality of teams that have been assembled, series B investors, etc. I think AV has either chosen all the winners (or been able to influence the winners?). Here is my list:

    Av invested in: (they filed an IPO) (that has to be huge given how many employees they have and the other investors that are in the deal)
    BazaarVoice (looks like they’ve got a great customer list and a great Series B investor)
    Pluck (seems like they have a bunch of good customers too and a good series B investor)
    OnNetworks (they seem to have been successful at raising a lot of money after AV invested also)

    AV didn’t invest in: (Internet Brands) – this may have been a winner for the entrepreneur but a venture firm wouldn’t have made enough money to care here. (Demand Media) – ditto.

    AV invested in:
    Slacker (good luck but is this even in Austin?)

    AV didn’t invest in:
    Minggl (I don’t get it)
    Shangby (what the?) (this can’t work – they have no traffic) (I’m sure this is a nice lifestyle business) (feature not a company) (I love this business but they couldn’t ever get a venture fund the return they need) (are you kidding?) (how is Craigslist working?) (sorry Micky but your traffic blows it looks like and I kind of agree with the other guy as I tried to use it to move to CA one time. You did get Benchmark as an investor though – did AV ever take a look even?)

    Not sure where came from. Are they really in Austin??
    GigaNews – Gee, did Om move to Austin?

    I haven’t heard of these so I can’t comment but I will where I want to.
    MindBites (isn’t it the same thing as expert village – is it the same guy)?
    PeoplePad (real estate is hosed – good luck) (can’t tell what it is but that Josh Baer guy seems smart from what I’ve heard)

    So I’m sure I sound like an AV lover. I did work for an AV backed company in the 90’s. It was an OK outcome and frankly I didn’t have much exposure to the venture guys as I was pretty junior. The fact is they actually turned me down for my last startup. I didn’t agree with them so I moved to CA. Guess what, I couldn’t raise money there even after I moved there. That is pathetic I realize given all the money that is there but in the end I think it just wasn’t a good idea. I then joined a great startup that got sold to Yahoo and I’ve had a good experience out here. As I said I’m thinking of moving back. For me, Austin is the best place I could ever want to live. They only way I will is if AV funds the company that I’m thinking about joining. Could Austin use another great big venture firm? Yes. However, there aren’t enough entrepreneurs/ideas to back in Austin so no one has set up an office. I gotta think if there was an opportunity somebody is smart enough to open an office – for gods sake they are opening offices in India and China. It looks like a bunch of good firms are more than happy to invest alongside AV in later rounds. I’m sure if there was enough demand (entrepreneurs, ideas, etc.) then one would move to town. Its simple economics.

    Really I think AV is responsible for the tech entrepreneurial community even existing in Austin and you guys better hope they don’t really go away (it always seems like so many seem to be cheering against them – I’m guessing its people they turned down). If they do you all are going to be moving to CA and believe me most of you can’t make it here.

    At the end of the day, it is the entrepreneurs that matter. Its whats between their ears, what interpersonal skills they have to be able to sell their idea, and how they do at executing against an idea. So when I look at Austin, it has all the ingredients for success: Money, Entrepreneurs, and ideas. The key is just keeping the balance. If you want more going on and more money, I suspect it will happen when you get better ideas and better people that are fundable in Austin. Frankly, I can’t think of a better place to start a company if you can raise money.

  7. I am sorry that the comments above, which are directed only at uShip and me personally, changed the tone of the discussion. It is disappointing when a disgruntled former uShip member, and competitor, chooses to engage in these types of low brow tactics. I could choose to defend each point, but I would prefer to take the high ground. I don’t think blog comments are the place to air personal grievances and to attack other companies. This topic was about Austin, and the comments specifically about some of the great things going on here, and good things to come. I think it is only fair to the author, and other readers, that we respect the purpose of the post and keep the conversation on track.

  8. Clipper Man

    If Aaustin has any other start ups like, they will be known as the scamming city. uship allows shippers (your friends and family) to be scammed out of transportation money or even their freight.

    There are stories all across the web about boats, motorcycles, trucks getting stolen. There have been scammers on there stealing thousands and uship was well aware but wanted their 13% so allowed the people to be scammed. Uship deleted the forum posts when people try to warn others about the scam they have fallen prey to.

    Do not uship. this is just a blatant way to get your money from you and allow illgal carriers to prey on the innocent. uship is to freight like chat rooms are to pedoephiles.

    Mickey, sit down, be quiet and spell check.

  9. Austin? I don’t know many people that want to move there unless they are the types that have a family, and are overpriced from the california housing market. These kind of people are not the types that will start a startup, when they have a mortgage and kids to jugle around, and way past their prime years of 20s and early 30s.

    The SF Bay area and Boston thrive in startups because smart and young people want to live there, and offer a good quality of life, lots of ameneties, cities that are very walkable and don’t need a car to survive, and lots of liberal minds and spirit.

  10. As one of the co-founders at uShip, I am actually very excited to see consumer tech/internet in Austin begin to take-off again. Our company laucnhed in 2004 and I can’t think of a better place to be doing consumer internet. Austin has tremendous resources, talent, and all at a fraction of the cost of doing business in Silicon Valley.

    That was a good list of companies that are either on the scene, or just coming on the scene, but I also wanted to make mention of UnWired Nation. These guys are doing some very innovative things with mobile technology.

    Anyway, Becuase the circle of consumer tech/internet companies is still a relatively tight group, some of us have been kicking around the idea of starting a group that is purely focused on start-up/early stage internet and interactive consumer. There would be obvious benefits to the companies that have been established for a couple of years, but the other goal would be to foster and grow the next batch of entrepreneurs in this space. If interested in hearing more, let me know!

  11. Stacey Higginbotham

    For those of you in Austin, I’d steer you to the Austin Startup web site at or make your voices known to Alicia Ring at the Austin Technology Council. I’d love to meet with consumer-facing tech startups in town. As for more startups, there’s and Bones in Motion. There’s also an investment group that funds consumer-facing sites such as (I learned about them at Austin Startup).

    @Roy, weather is my catch-all for quality of life. I consider a liberal (or maybe educated) population to be part of a good quality of life. As for the university, I think it’s important, but am torn on whether it contributes more to quality of life and talent or if it should stand alone.

  12. @NewToAustin: I didn’t include Pluck because their target customers are newspapers. By the same token BazaarVoice isn’t a pure consumer play either since they’re selling services to e-commerce sites.

    What’s interesting to me is how many of the consumer startups in Austin were bootstrapped or raised their initial funding outside of Austin.

    Here a few others I just thought of:

    Minggl,, Indeed, Slacker (hq in San Diego), Shangby

  13. New to Austin

    @ John: There is the Austin Tech Happy Hour, but it’s not entirely useful. I’ve been to a few events but didn’t get much out of it. Are you going to Barcamp?

    @ Jeremy: is another one.

  14. John,

    @John, you’re right, there are only a handful of pure consumer tech startups in Austin. I’m racking my brain trying to think of them, but here’s a quick list:
    BazaarVoice (sort of) (Internet Brands)
    GigaNews (Demand Media)

    Then there are some new ones:


  15. Good point on weather – Bangalore is a classic example in India.

    This sleepy town a few hours from the great Southern city of Mysore was chosen after India’s independence as a hub for the new indigenous aerospace industry because the weather was very pleasant and cool – apart from being a nice place for scientists and engineers to work, air-conditioning would not be required to keep equipment and circuitry dust-free, which is a big problem in India.

    Suddenly when India’s economy opened up you had this great cosmopolitan town with lots of tech talent and a global Y2K scare … the rest as they say is …

  16. I didn’t know you lived in Austin, either. I went to UT-Austin, then went to California (LA, SF, SD), worked in tech there for 7 years, then moved back to Austin because of the high cost of housing in CA.

    I’ve lived here for 3 years now, and I’m very disappointed there is hardly any consumer tech job options here. As far as weather goes, the weather is hot/humid here from May through September/October. Then when cedar fever season hits from late December through early February, and you’ve only got about 5-6 months of decent weather (if you don’t like the heat and humidity).

    Surprisingly Austin within “the loop” (basically the inner part of the city) is a little too junky for me. It just hasn’t progressed that much. And property taxes are astronomical, I guess to make up for no state income tax.

    So I’m planning on moving back to CA unless some miracle opportunity arises here. Just not enough interesting in consumer tech going on here.

    Stacey, I’d be interested in meeting up occasionally with other consumer tech/Internet folks here in Austin to share thoughts and observations about living and working in Austin from a consumer tech/Internet perspective. Interested in meeting up with other folks like me occasionally? I’ll organize it.

  17. In addition to the three criteria, there are two more that are crucial for a high-tech hub: 1) world-class research university, 2) liberal culture. The 1st is quite obvious in that most innovation is still done at universities, and their offspring of young grads every year feeds the high-tech cycle locally. Their energy and skills are necessary for a high-tech culture to thrive. The 2nd is not quite so obvious but equally important – creative, thinking-class people do not want to be hindered by the status quo nor a conservative culture. I think this is the very reason why Austin is a high-tech hub in a state that is fundamentally a conservative state. You also forgot to mention that Boston, even with its bad weather is still a high-tech startup hub. Lots of innovation there with a progressive culture and several top universities. Interestingly enough, the internet startup scene is not so hot there, only because the local venture capitalists are very risk-averse in their attitude towards investments opposite to west coast vc’s.

  18. One of the better high tech job incubators in Toronto offers one thing that everyone needs. Cheap rent. Plus some built in high speed access. Give the right people those two things and they can grow. Once things pick up for the companies their rent goes up.

  19. New to Austin

    I didn’t know you were an Austin res, glad to hear.

    Having just moved from MI to Austin I can see your points in full bloom. At least Austin has tech momentum (perception), even if the reality isn’t there. Other cities (MI especially) have a press conference but no momentum, and no real investment in the kind of high tech that inspires entrepreneurs. Like college football recruiting, hot areas need (in addition to your concepts) superstars to attract future talent. These superstars need to attract attention, support their alma-mater, etc.