I hope to expand on this post. Maybe even make it into a series. The reason for my post is the frustration… no make that pure anger I have toward those leading the startup scene in Austin. Before I dive in to this, I want to get the most important statement, just in case you decide to stop reading. The most important takaway from this post is DO NOT start your company in Austin or move to Austin in hopes of getting a job to build a local network for your future idea. Uummmm, so that was a bold statement. Yes, it is a bold statement. I don’t want anyone else to get lured in Austin to have your idea/business end up dismantled or copied by someone in SV, which is what happens to most potential unicorns here in Austin. Having lived in Ausitn for several years, I am not sure how or what data is used to always get Austin on all these top startup cities lists. I will just start with a quick list of what you should expect in Austin.
1. Your startup will not get funded here with any meaningful amount of money or at any meaningful evaluation, without giving up your CEO position or filling your team with 3 or more executives with large exits. Primarily, Bazaarvoice, Homeaway, or some other similar Austin startup. No matter how big/great/thunder lizard your idea is!
2. If you launch your Thunder Lizard idea in Austin and it makes any significant progress, you will be copied by an SV startup, who will out raise you and crush you. No launching in stealth will not help, but will rather just delay the copying.
3. I have never lived in SV, but I am sure there are a lot of mentor/startup wannabes everywhere who hang around like vultures. The problem in Austin is that is what most of the mentors here in Austin are. Vultures! I would go so far as to say 95% of the mentors I have met, here in Austin, are looking to be asked to join your team or at a minimum get equity. See #1 above for the reason the Austin culture is this way.
4. Their is no money! If you look at stats, ATX gets about 2% of VC money in the United States, versus 37% in SV. If you break this 2% down, looking at funding going to teams with first time founders or our founders with no major exits, its miniscule. Here is a list (http://www.builtinaustin.com/2017/01/24/austin-startup-report) where you will see most of the money went to companies that are NOT startups, and most wouldn’t have ever considered them a startup (Snap Kitchen, Phuneware, Pivot3, BigCommerce, LifeSize, NSSLabs, ESO, DrillingInfo, etc…). Research all the companies on the funded list and see how many were started by first-time founders. If you are first-time founder or haven’t had a large exit then avoid Austin! I am understand it is difficult for first time founders everywhere. Research some of the hottest startups in SV over the past 7 years and how much they raised total in seed to series A. Compare that to ATX. Now look at the list of the true ATX startups that have received funding. A lot of them are cause related startups (helping students, helping business via loans, … hippyish). This relates to #7 below. You can’t build VC money here with exits from hippyish companies. Investors want to make a return at all cost, whether they will tell you that publicly or not. Its simple. Sorry its late and I can’t think of another way to say this, but…. startup life is hard and founders dropout or lose steam (sell out, pivot, etc…). When shit gets tough and a VC has invested money do you think they want 1/2 of what the hippy started with or 1/2 of the aggressive money hungry founder started with.
5. Austin is really only a great place to onshore a dev office as its a lower cost of living. +1 for ATX on this point.
6. Don’t believe the hype or stats thrown around about different aspects of growth as a good sign (startup space growing, people moving here, etc…) as it just means their are jobs here. Their are a couple of so called startup leaders here own startup space. They love to quote stats on growth, cost of living, and VC money (see #4 above) in order to get people to move here. They push their snake oil to get you lease space from them. A huge conflict of interest going on here. Heed this advice! Ignore anything said by any startup space owner or you will regret it. To build your hopes and sink your money into Austin. This is the reason a lot of startup founders are angry. They are messing with peoples lives and families!
7. Over the past year, Austin has had an ongoing argument about there not being enough VC money here. That is a correct argument that hasn’t changed. What has changed is the responses, which is funny and good. Good because we are corning them or running them out of excuses (progress). Intially it was “Shut up. Stop trashing Austin. Just build great companies.” The problem with this response is that building great companies costs money. Especially if you are a B2C company, as building a brand is expensive! The reason for the “shut up” is twofold; your hurting the local startup leaders revenue, or at least threatening it (i.e. startup space rental) and your hurting the funded startups chances at recruiting resources for their teams. Threats to the establishment! The argument is now “We need more big ideas (aka Unicorns).” We have big idea companies here, but nobody will back them. Their are a couple of ATX startups that were first to launch/build before anyone in the world. They had their ideas copied by SV companies, which received $5M plus in seed rounds within months of launching, yet the Austin companies can’t raise more than $50k. Ok enough rambling here. Let me finalize by saying BIG IDEAS cost money to build and need money (valuation) if to be taken seriously. The movement on the argument is good news. We are getting them cornered and its close to put up or shut up time for them. The problem is keeping the big idea companies alive or getting them enough cash to get a pulse. Favor, is a example. Great company, but completely under funded. They recently had a strategy and executive change, because they cannot compete with the UberEATS and Postmates money. Almost weekly, Postmates is running free deliveries here in Austin. Sure you can argue “They will run out of money” or I bet it won’t last”, but it doesn’t have to. This isn’t the time or place (even though it relates to Austin’s funding issue), but there are two types of startups; those built to be great longer term companies (i.e. Apple, Google, Yahoo, Uber, etc…) or startups built just for an exit (IPO, merger, etc..). Anyway, the new argument is “Not enough BIG IDEAS to have big exits in Austin, which brings/keeps new $ in/to Austin“. Austin needs to invest big in a couple of “all-hype” companies and get them to exit at over $100M. You know some companies that are overvalued and no real consumer value. Some example that either sold or should of sold (Path, FourSquare, Qwiki, Gowalla, etc…) Austinites would say, no that tarnishes our image or that is what causes bubbles, etc… Those that say these types of things or that theory are problem.
8. Austin will never ever be the startup hotspot, as the city doesn’t want it to be! This relates to some of the hippy stuff in #4. Austin wants to remain and build on being known for the music capital. Thus the statues, paintings, and monuments (current and future) of all the musicians. They want to remain a music town!!! Thus the reason a lot of the funded startups are good causes startups. They are safe and good technology with good wholesome stories. Thus, the reason they voted Uber out. We all know Uber is a money driven company, and Austin hates money driven anything. What are VC’s? Money driven! How do we fix this or have any chance at all? Austin VC’s and angels need to fund the current BIG IDEA startups that currently reside in Austin! Overfund them at high valuations. Make the news, economy and city be driven on/by those companies. Do what SV does to us. SV companies copy other cities startups and they get funding easily/quickly. Turn the tables. Use SV funding as what is hot! When an SV company gets a large seed round then fund the local Austin company that does the same thing. Its what Austin VC’s do anyway. Austin VCs/angels are risk averse. They don’t want to invest until some SV investor does first. Well then, instead of investing with the SV investors, use the SV investments as a tell on what you should be investing in. When an SV startup, with a couple of 23 year olds, gets $4M in a seed round it means there is a possibility of oil in them there hills.
Ok, enough for one night!