Team Foundersuite just returned from a fun-packed week in Austin at South by SouthWest (SXSW), livers barely intact. There were ample amounts of networking, hustling, and admittedly a fair bit of partying. Our 'Hustle SXSW Like a Boss' guide certainly came in handy.
Taking our own advice to avoid the FOMO, we went with the flow, and were blown away by the vibrancy and creativity of Austin. And without a doubt, the BBQ was by far the best we've ever had!
The Foundersuite team at our demo day at ff Massive
Capital Factory is at the center of downtown Austin; CF is an incubator, accelerator and coworking space. With stunning 360 degree views over the city, a wealth of experienced mentors, and extensive classes and meet-ups, it's become a hub of entrepreneurial activity in the region.
Marc Nathan is a mentor at Capital Factory, and an experienced leader in the technology startup community. I sat down with Marc at Capital Factory over some signature Austin breakfast tacos, to discuss the growing ecosystem, and what's to come in the year ahead. Marc then introduced me to Gordon Daugherty a director at Capital Factory, who also gave me his insight.
What are the defining characteristics of the austin scene, how is it different?
Marc: Austin is uniquely positioned in the startup world: It's neither 'West Coast' nor 'East Coast', but a special blend of both with strong enterprise sales experience from the West and a focus on revenue and profitability from the East. Austin has a long tradition of hardware companies, e.g. MCC, Dell, AMD, National Instruments, Silicon Labs, and Cirrus Logic.
Austin has a newer tradition of enterprise software: Trilogy, HomeAway, BazaarVoice, WPEngine, Indeed, BankVue, Spiceworks, Spredfast, RealMassive, and a few consumer companies like RetailMeNot, Sparefoot, Uship, TrueCar, and TheChive. It also has several major video game studios.
The defining characteristics of Austin are the casual, almost laid-back nature of the business culture. Jeans, not suits are the norm for everyone except for attorneys. We appreciate relationships over transactions and have a genuinely collaborative atmosphere. Marketing and channel partnerships are very common and customer support / customer success are an important element of any Austin company. Almost every business leader will be very accessible for coffee or lunch and we really enjoy bolstering the Austin community itself, including our many non-profits.
Gordon: I would say it is defined by being inclusive and collaborative. Inclusive means there is almost no implied competition between companies even if they are similar. They all aim to help each other. I think this has to do with southern hospitality , it’s easier to get plugged in to the scene and find mentors.
What is the fundraising scene like, is it harder to raise capital here?
Marc: There is a very strong angel investment scene. The Central Texas Angel Network (CTAN) is one of the top most active angel networks in the country and many successful entrepreneurs individually invest at a personal level into new startups. Seed rounds at the $250K-$1m range are common and organizations like the Capital Factory Accelerator help tremendously.
The VC scene is much smaller and has been the subject of endless reports and discussions via various blogs. There is a small handful of local VC's that hover in the $50m to $100m range, such as Live Oak Capital, Silverton Partners, S3 Ventures, Sante Ventures, Mercury Fund (Houston). The general consensus is that startups can raise seed rounds, but must go to the coasts for Series A & B's past the $5m range. It's hard to raise capital, but relatively less difficult than any other area of the country that isn't SF, LA or NYC.
Gordon: Bootstrapping is a definite part of the Austin startup culture. Entrepreneurs have to be scrappy here to get their idea started until they can figure out how to build the product and get paying customers. Investors want proof that a company is working, whereas often in Silicon Valley an idea on a piece of paper can get funded. It’s a delayed process; ideas don’t take off as quickly. This isn’t right or wrong, its just the Austin vibe.
What are some of the break out start ups?
Gordon: I have two that come to mind that were both incubated at Capital Factory. They have reached an interesting point, are still young, at 5 years or less, have both raised Series A and B, and each has about 300 employees. One is called sparefoot.com, an online marketplace for self storage. The second is WP Engine, a hosting platform for Wordpress websites and apps.
What are some of the top accelerators?
What do you see happening in 2016?
Marc: More startups will find more money in Austin. There is a definite trend to move more young workers into more startups and established companies here. We should see a handful of startups receive significant Series B attention and possibly an acquisition or two. The goal of the Austin startup scene is to manage our incredible growth over the last few years and mature to a world-class startup city. Austin is an incredible place to build a company and raise a family and that's why the magic of Austin and all of Texas is drawing so many people to move here.
Gordon: With concerns about “unicorn valuations”, Austin startups will look quite attractive in 2016 because our valuations are typically very reasonable at various stages of fundraising.
Thank you to Marc and Gordon for their insight. We look forward to seeing how things progress in 2016, and returning to Austin again next year for another SXSW.