Challenge Cup
Austin’s Tech Scene: On the Comeback Trail
Free Enterprise staff | March 9, 2014

Across the country, tech entrepreneurs and pop culture fans alike are gearing up for this year’s South by Southwest (SXSW) festival in Austin, Texas, which will feature hundreds of musical performances, dozens of film screenings, and almost 300 exhibitors between March 10 and 20. Some 72,000 people have already registered for the event.

Originally created as a music festival, the event expanded into film and technology in the 1990s, which was around the same time the festival’s host city started to attract attention for its burgeoning startup scene.

These days the city is one of the best places in the country for young entrepreneurs and graduates to start a business, according to Forbes. The southern metropolis is also the number one place for budding entrepreneurs, according to the personal finance website NerdWallet, and the best overall city for tech, says London-based property consultant group Savills.

Going Soft(ware)

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Austin, located in Texas Hill Country, became known as “Silicon Hills” back in the early 1990s when several prominent corporations — among them Samsung, Intel, and Texas Instruments — set up shop in the Texas capital to manufacture computer chips and other semiconductors. Just like Silicon Valley in California, over time Austin’s nickname referred not to its manufacturing roots, but the booming Internet companies based there.

In the early 2000s, the dot-com bubble burst, and the city lost scores of jobs as online retailers and service providers folded. One of those companies, drkoop.com, has become a popular case study for everything that went wrong with tech companies at the turn of the century.

Now, the city is looking to redefine itself as more than just the Texas branch of Silicon Valley. A 2015 report commissioned by the Austin Technology Council says:

“Silicon Hills, as Austin came to be known, is no longer defined primarily by silicon. Indeed, the Silicon Hills moniker should probably be retired for a variety of reasons. Austin’s reputation as a center of innovation and tech-based entrepreneurship has outgrown any need to define the city according to another region’s terms. While many of Austin’s tech employers are based in California, the city has developed a unique tech identify of its own.”

According to the report, semiconductors now account for just a portion of the city’s increasingly diversified tech industry. About 14 percent of the $22.3 billion of value Austin’s tech sector added to the city’s GDP came from semiconductors, while computer and peripheral equipment contributed 31 percent.

A wide variety of well-known tech businesses call Austin home. Zynga, which develops popular mobile games like Farmville, maintains a social game development studio in the city. Localeur, an app that provides reviews of unique local attractions and eateries, was inspired by the city’s famously robust restaurant scene, and has recently become more popular thanks to a recent partnership with JetBlue.

The Economy

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Being a high-tech city is good for the local economy. In 2013, the Austin area economy surpassed $100 billion in activity for the first time in history, according to the U.S. Bureau of Economic Analysis. Meanwhile, in 2014, the Austin Technology Council found that technology companies were one of the driving forces for economic activity. About 4,182 Austin establishments created 108,310 jobs that added a cumulative $22.3 billion to Austin’s GDP.

As a college town, Austin has a steady stream of talented young graduates. More than 100,000 people graduate from the nine colleges and universities in the greater Austin area every year, with approximately 12,000 of them of hailing from the University of Texas at Austin alone. While the Technology Council report indicates that many of those graduates find work elsewhere, quite a few of them choose to stay in the area.

Kevin Callahan, co-founder of MapMyFitness, is one such transplant. Speaking previously to Free Enterprise, Callahan explained why he started his company in Denver, but moved the company headquarters to Austin in 2010. “Imagine if Denver merged with Boulder – you’d get Austin,” Callahan said. “I look at Denver as maybe trailing Austin by about five years in terms of recognition.” The two cities have another big selling point in common, Callahan says. “They’re both active outdoor cities, which I like, and we’re happy to have a big presence in both cities.”

Apparently, plenty of people agree with Callahan. Austin is the one of the 50 largest cities in the United States to achieve double-digit population growth since the 2010 census, according to the Austin Chamber of Commerce, with one estimate projecting 2.6 million people will live in the metro area by 2025.

Show Us The Money     

The only thing that Austin’s startup scene lacks compared to other locations is funding, though the situation is improving. Last year, according to a joint survey by PricewaterhouseCoopers and the National Venture Capital Association the Silicon Valley region, saw 1,333 deals worth more than $27 billion while Austin saw 99 venture capital deals worth a total of $739 million. That’s down from the apex of the dot-com boom in 2000, when 127 Austin area companies received roughly a sixth of Texas’ $6.25 billion in venture capital but still significant growth from 2013, when the entire state only saw $500 million.

“There is a lot of money in Texas. Much of the private equity capital is invested in oil and gas and real estate,” Blair Garrou, a managing director at Houston’s Mercury Fund told online publication Xconomy. “Many individual angel investors are more comfortable with these types of investments than in startup technology and life science companies,”

The city’s most prominent venture fund, Austin Ventures, closed its doors in 2015, but other strong venture capital groups such as Silverton Partners, Live Oak Ventures, and S3 Ventures are all still driving innovation and development in the region.

Groups like Central Texas Angel Network, G51 Capital, and the state’s Emerging Technology Fund help fill the funding void, while technology incubators including Capital Factory, Tech Ranch Austin and the Austin Technology Incubator, part of the University of Texas’ IC2 Institute, and more than 20 business associations, including Austin Technology Council and the Greater Austin Chamber of Commerce, support Austin entrepreneurs, Sheryll Poe wrote for Free Enterprise in 2014.

With a solid infrastructure to support startups, plenty of amenities to attract talented young workers, and the hottest tech and media festival in the world, tech has become a permanent part of the Austin landscape.

To hear how data and innovation can help us tackle some of society’s toughest challenges, please visit the U.S. Chamber of Commerce Foundation’s 2016 SXSW interactive conference in Austin.