Austin goes from strength to strength
The capital of Texas was founded in 1835 (then still as Waterloo, it was renamed Austin in honor of the so-called Father of Texas – Stephen F. Austin) and was granted a city charter four years later. From a European point of view, the city is even in its early infancy. After all, it is not difficult to find towns even in Poland that exceed a thousand years of existence. However, this is a result of geographical discoveries and gradual colonization of the American territories. However, we will not focus on the history of colonialism and city location, but on the history of business.
Austin was for many years a relatively insignificant city, even in Texas, of which it is the capital. Things began to change just after World War II. By 1950, the city had grown nearly 150% in just 20 years. Austin was becoming an increasingly important scientific and commercial center. In the 1990s, it also began to become an important place for business, technology or life sciences.
According to a CBRE report, Austin is the 3rd fastest growing life sciences market in the United States. Pharmaceutical or biotechnology industries are developing in the city. Additionally – Austin has become home to one of the largest music festivals in the United States, with over 2,000 performers playing on nearly 100 stages around the city each March. This is how the capital of Texas became the Live Music Capital of the World.
The city also began to be known as a major software development center. Apple, Google, Dell, IBM, Oracle Corporation, Amazon, Meta or SpaceX opened their offices in Austin. In 2019 alone, about 19.2 thousand programmers worked in the Texas capital. And 185 people are moving to Austin every day. And mostly from Silicon Valley or New York. Why? Because the capital of Texas is growing into a city of innovation and opportunity. Moreover, it is culturally and entertainment attractive, and the cost of living is still lower than in the aforementioned places.
VC funds and startups are moving to Austin
While in Poland a lot of founders dream about their own office in New York or Silicon Valley, in America they often dream about a space in Austin. As PitchBook data shows – VCs in the United States have invested more than 5.5 billion dollars in 412 deals in 2021. Interestingly, the top 10 financings in Austin during this period were $100 million or more.
The Texas capital is becoming a city of unicorns – last year alone, another 5 unicorns emerged on the local scene. In 2021. The Zebra, Firefly Aerospace, Abrigo, ZenBusiness or Iodine Software have all surpassed the billion dollar valuation. All of them are headquartered right here in Austin. This does not escape the attention of VC funds or business angels who move their headquarters from Silicon Valley or New York to Texas.
This is the case, for example, of Jim Breyer and his VC fund 8VC or Geoff Lewis, founder of Bedrock Capital fund. Both have moved their headquarters from Silicon Valley to Austin. In addition, Austin-based Next Coast Ventures announced that it has closed $310 million in capital across three funds. S3 Ventures, on the other hand, raised $250 million to grow its fund.
Although, as many investors point out in an interview with TechCrunch – just 16 years ago, moving to Austin seemed like something absurd, because the VC market in the city was quite ossified and overlooked many talented young founders. Today, blockchain projects, real estate tech, health-tech, med-tech, web3, etc., etc., are thriving in the city.
Is Austin the new Silicon Valley? Not really
Austin resembles Silicon Valley in some respects. Both areas are rich in startups and big-tech, boast world-class universities or are home to innovators. However, while the startup ecosystem or VC market in Texas’ capital city is often created by Silicon Valley insiders, these places are different and have slightly different dynamics.
Silicon Valley is a place that has established itself and will remain so for a long time. Morgan Flager – managing partner at Silverton Partners, in an interview with TechCrunch, admitted that Austin reminds him of Silicon Valley in the 1990s. I.e., a place that is rapidly growing and has a kind of entrepreneurial energy.
While Next Coast Ventures fund cofounder Mike Smerklo believes that Austin and Silicon Valley have a different character. For him, comparing the two places is like comparing New York and Hong Kong – both places are highly developed and innovation is being created here, but they simply have a different character. The capital of Texas is supposed to be a technology city where companies support each other, not necessarily compete.
Austin, while growing rapidly, is not on the same level as Silicon Valley or New York. It will not necessarily be “knocked” off its throne in the coming years, although it is possible that this may happen over time. This is also due in part to the Texas government, which is seen as very pro-business and pro-capitalist.
In fact, officials there are trying to encourage entrepreneurs to launch their companies in the state or create innovations here. The tax system in Texas is also more favorable to entrepreneurs than in California. I’m referring here to the lack of a state income tax. Because of this, there is simply more money left in the circulation of the business or startup ecosystem.
According to a WalletHub report – Texas is the best place to start a business in the entire United States. And Austin itself was awarded as the best city in that state. That’s because of its high job creation rate and numerous VC funding in early stage startups. However, there is one BUT – real estate costs.
These are rising due to population migration, but also due to the state property tax, which is one of the highest in the country. Nevertheless, in terms of taxes California performs much worse than Texas (it is an advantage of federal states that their individual provinces can compete with each other in terms of e.g. income tax. It is an advantage at least for business), although the report praises it for its access to resources, including human ones.
Can Austin withstand tremendous growth?
The Texas capital is widely praised for its rapid growth – both in business, startups and population. However, such rapid growth also brings with it some problems. Austin is an extremely congested city. That’s because the infrastructure can’t keep up with the increase in traffic caused by the many moves.
The migration of people is also causing real estate prices to rise. Housing prices in Austin have risen more than 40% in 2021 alone. Because of this, some Austinites are migrating to neighboring towns or so-called suburbs (housing developments in the suburbs). Rising housing prices have also caused a homelessness problem in Austin. According to official local government data, about 1% of all residents of Travis County, where Austin is located – are homeless. Thus, 10 thousand people per million citizens in this part of the world do not have a home. The Dal United States average is 2506 people per million citizens. Interestingly – as many as 40% of the homeless youth in Austin are LGBT+.
However, buying a home in the Austin metropolitan area is still cheaper than, say, San Jose, California. And cheaper by as much as three times. Another problem is the extinction of micro and small local businesses. Due to rising property taxes and rent – a large number of small business owners are simply closing their businesses. Their place is being replaced by startups and bigtechs. Apparently, reconciling the development of both these ecosystems is practically impossible.
Local government, of course, recognizes all these problems and tries to prevent or solve them, but it will not be easy. Over the next few decades, we’ll probably find out if Austin will outgrow Silicon Valley and New York, or if it can’t keep up the pace and the current leaders will leave it far behind.