Techstars has become quite a force for startups, recently surpassing $1 billion in capital raised for the startups that have graduated from various Techstars program (see the stats breakdown). That is a staggering figure, to say the least. So I decided to kick off the New Year with an interview of our own Jason Seats, Mananging Director of Techstars Austin. I've been proud to be a Mentor of this great program since it launched.
"Jason, you launched Techstars in Austin two years ago. What are your top-three observations on the Austin startup environment as a relative newcomer but with a broad lens?"
Actually just a year and a half ago, although we fit a lot in over that time. Top-three observations:
1 - The startup scene is business model diverse.
From the outside looking in, I expected to find that Austin was a good place for B2B companies, SaaS products, enterprise sales, and bootstrapping entrepreneurs. I found all of those things to be true, but I've also been pleasantly surprised to find a wide variety of startups in every market and of every style. It's a big asset to have a wide base of industries active here and I'm particularly excited to see the growing level of consumer facing companies starting in Austin. Turns out that almost any kind of company can be successful in Austin.
2 - It's small town with big collaboration.
I feel like I've been here for years even though it's been barely a year and a half. The community in Austin is extremely welcoming and as a newcomer it really takes less than a month or two if you really try to get fully acclimated. Josh Baer put together a great overview of people and resources, now maintained by Damon Clinkscales. Part of the reason that Austin is so welcoming and easy to ramp up in is that it's had a lot of practice. This is one of the fastest growing large cities in the US and a really meaningful percentage of the local startup community are imports from other paces.
3 - Austin is an emerging market.
There is a ton of activity here and great overall feeling of energy, but we are very much in the first innings still. From downtown you can see cranes hoisting up new buildings in basically every direction. The startup community here is operating on a backdrop and major tailwind of a massively expanding city and populous. That being said, the actual tech and startup footprint in Austin is still quite small. I say this not as a negative but as a positive, because there is huge opportunity for newcomers to join in the efforts and become part of the legacy of the building of a great tech empire. The trajectory in Austin is fantastic and I feel privileged to have a ticket to watch this thing unfold.
"Thanks for your observations, Jason. I agree with all of them and have even been surprised to find incubators like The Incubation Station (for consumer products) andUnLtd USA (for social businesses) emerge in our great city over the past two years, reflecting that wide diversity of startups. I like Josh and Damon's overview post as well; I also did my best to categorize our scene in these two Lucky7 posts - The State of Tech Entrepreneurship in Austin and Who this New Generation of Aspiring Entrepreneurs Are and the New Golden Age of Tech.
Startup capital is frequently mentioned as lacking here. Do you agree and what are the 'magic bullets' you would fire to make our startup capital situation improve?"
There are many different kinds of capital available to startups, and I like to remind founders of the non-investment sources. I'll take this opportunity to do the same, the short list of easy to forget capital: debt (I know of many startups that have done well accessing low cost of capital debt from banks and alternative lenders), grants (very accessible dollars if you put in the effort - SBIR and NIH, and good old fashioned customer dollars (many large customers will fund product development if you structure the deals correctly). But since your question implies equity financing and that typically is the topic we (including me) belly-ache about locally, I'll answer through that lens.
The two sources of equity dollars are individual angels and institutional venture firms.
I'm not much of a 'magic bullet' believer, but if there was a magic bullet to increase angel investor capital it would be for Austin to have a >20 billion IPO. An event like that would produce thousands of potential investors locally and hundreds of people that were close enough to the action to understand what it takes to get it done. The combo is important because money isn't enough. We need to have folks in town who understand the cycle of deploying risk capital and creating returns. The successes so far in the recent memory are an order of magnitude smaller, and the second order effects are an order of magnitude diminished (hundreds of potential investors and dozens of people who saw how it happened). That's clearly a longterm wish and I don't believe there is a magic bullet to see an IPO of that scale, but if we take enough shots at it, it'll happen.
On the institutional venture side, I'm hoping that as a community we can continue to lure coastal venture dollars back into Texas. When you are sitting in Boston, NY or SF and can walk to your Board meetings it's easy for a VC to forget that Austin even exists. I don't blame them and we have to be careful not to feel too offended by that reality. If you want to get their attention unfortunately today it means you have to get on a plane. If you are a startup in Austin, that'd be my recommendation, it's up to you to go to them. I do think that we are starting to show up on the radar more and more.
My one request to all CEOs and founders in Austin would be to pay it forward. If you have successfully raised venture money from the coasts, please do your part in acting as a bridge for other worthy startups. VCs like to invest in people they know or in people that are in their networks. We have a path from Austin to every brand name firm in the valley, and as a community we need to make sure that our promising companies are able to access those paths.
“That is a good reminder of the many non-investment sources of capital. I would point out, though, that they don’t come with the level of mentorship you get from (the right) angel and VC investors - except for customer dollars. Client dollars were always the most important incoming dollars for us at Bazaarvoice because it came with the most important input you could ask for (‘yes, there is a big market opportunity here and we will pay for your product - plus, we have ideas to make it better’).
I definitely agree that an IPO of that magnitude would create massive ripple effects. And it has already happened but quite a bit back in our past - that company was Dell. The effects Dell has had from our medical school that will soon be open (and undoubtedly will spur biotech and healthcare startup activity and investing in Austin) to the Dell Children’s Hospital and the Long Center have been invaluable for our community. Not to mention the hundreds of businesses that were started up by former Dell employees. If you went back into a time machine and convinced Michael Dell to stay in school and not start Dell, Austin would be much less further along in our tech startup scene as well as our overall community scene, including the arts. And I do agree with you that it will eventually happen if we keep swinging, and we will.
You make a very good point about paying it forward. I spend a lot of my time helping the companies we’ve invested in raise capital from VCs not just in Austin but those I have strong relationships with on the West and East coasts. And the good news is that I’m seeing more interest in Austin than ever (it helps that we’ve had some big liquidity events over the past seven years - capital chases the opportunities).
Let’s shift gears a bit. Over the past Techstars classes, what attributes have you seen in the graduate companies that have been most successful after graduating, and how did you see them transform during the Techstars experience? I’m asking this because I think it would be helpful for those that haven’t yet gotten into Techstars know how it would help them and how to be one of the standout graduates post graduation.”
I don't know Dell's story as intimately as people who lived it here, but the Internet tells me Dell IPO'ed at an $85 million market cap. All of the gains that made it a multi-billion dollar company happened after reaching the public markets. The 80s, 90s, and even 00s were a different time though and the bar to reach the public markets has clearly moved a lot. A $10-20 billion private market acquisition would have the same effect though.
On to the new topic, what attributes correlate with success? Well if there was a formula this would certainly be a whole lot easier.
I'd say the most important quality of very successful entrepreneurs is that they are equally capable of being both absurdly persistent and immensely flexible. A lot of people are either instinctively persistent -or- flexible, but the really great operators understand how to dance between the two. They know how to run full-steam at a brick wall because there's a good chance to break through it and to retreat and change direction on a dime because it's clear there's disaster up ahead. That ability is more art than science and it's hard to cultivate, because you want to encourage both qualities independently. We look for persistent founders who will run through walls, but we also look for founders who are 'coachable'.
As far as transformation within Techstars, based on the above treatment I'd say that mostly founders find and grow the weaker of their two natures. The ones that are already stubborn hopefully learn to be adaptable and those that are inherently malleable gain resolve.
“As you know, it isn’t just the IPO that creates wealth - it is what happens in the years following. Amazon and Salesforce.com, for example, traded sideways for years after they IPO'ed before they really took off and created many millionaires. Dell did as well but then the stock went up over 70,000% in 10 years or so and there are many ‘Dellionaires’ as a result. I run into them all over Austin and they are creating value in many entrepreneurial sectors as well as philanthropically. But we are in agreement that bigger would be better and the ripple effects would be even larger.
On the quality of being absurdly persistent, it reminds me of one of my favorite George Bernard Shaw quotes: 'The reasonable man adapts himself to the conditions that surround him... The unreasonable man adapts surrounding conditions to himself... All progress depends on the unreasonable man.’
Your advice is spot on in my experience. Mentors are very important to startup executives. The best entrepreneurs I know are constantly reading books, building great Advisory Boards, seeking great Board of Directors members, and attracting the capital that can be most coachable. It takes time and is difficult but they know it is well worth it in the end. Holding a mirror up to oneself is very hard. Three books I recommend to help are Egonomics, The Five Temptations of a CEO, and Fierce Conversations.
Last question - what are your three predictions for the Austin startup scene this year? And what would your one New Year’s resolution be for Austin startups?"
I'll take the easy way out and predict 3 things I know are going to happen. In 2015 Austin is going to see an increase in the raw ingredients for startups.
1- Space. There are going to be a number of new coworking and flexible office space options coming online in Austin in 2015.
2- Capital. New funds are on the horizon, and hopefully we'll see a couple of these launch in the next year.
3- Humans. This is the lowest risk prediction of all time. The next 12 months we'll see an influx of great new talent to our city. Don't bet against it ;)
My one New Year's resolution for startups? Do More Faster.
"I think that’s a wrap, Jason. Thanks for all you do for Austin. It is an honor to be involved with Techstars as a Mentor, and I look forward to a great future together."
Do you have any questions for Jason? If so, please write them in the comments below and I'll do my best to get him to answer.