INNOVATION IN HOUSTON - Houston Exponential: World …houstonexponential.org/wp-content/uploads/2017/10/Innovation... · INNOVATION IN HOUSTON: A STUDY OF THE BAYOU CITY’S STARTUP

MARCH 2017

INNOVATION

IN HOUSTON:

A STUDY OF THE BAYOU CITY’S STARTUP ECOSYSTEM

ACCENTURE & THE GREATER

HOUSTON PARTNERSHIP

Copyright © 2017 Accenture All rights reserved.

HOUSTON HAS A THRIVING INNOVATION ECONOMY,

BUT POTENTIAL IS LIMITED BY ABSENCE OF A

FLOURISHING STARTUP ECOSYSTEM

Thriving corporate innovation

scene

Up-and-coming environment

for R&D-driven physical and

life sciences innovation

Excellent creative and cultural

institutionsUnder-indexed in high-growth,

high-impact startup innovation,

particularly in tech

Level of maturity & trend in different areas of Houston’s innovation economy:

HighLow

STUDY FOCUS

• Abundant corporate innovation

through internal R&D

• Excellent corporate collaboration,

e.g. between Oil & Gas and Oilfield

services companies, etc.

• Strong concentration in a few

industries, however; under-indexed

in hi-tech corporate presence

• Under-indexed in startup activity

by most measures; not seen as

top destination for entrepreneurs

on the national stage

• No natural center of gravity for

tech startups

• Represents sizable impact in local

wealth creation and significant

potential for economic growth

• Abundant R&D investment at

Universities and research

institutions, ranking 3rd nationally

• Cutting-edge aerospace R&D at

NASA Johnson Space Center

• Increasing commercialization of

intellectual property at the TMC

and UH

• Culinary capital of the south; top

ranked food city by lifestyle media

outlets

• Thriving arts scene; prestigious

performing and visual arts

institutions, including Houston

Museum of Fine Arts, Houston

Symphony Orchestra, Houston

Grand Opera, The Alley Theatre,

and Houston Ballet

CORPORATE STARTUP ACADEMIC / BASE R&D ARTS

3

Copyright © 2017 Accenture All rights reserved. 3

WHY HIGH-GROWTH, HIGH-IMPACT STARTUP

INNOVATION MATTERS

ACCESS TO LATEST

TECHNOLOGIES4

“A large part of why we invest is

FOMO. We want early access

to the latest developments in

tech.” – Houston Corporate VC

ECONOMIC

RESILIENCY5,6

More than 100,000 energy workers

in Texas have lost their jobs since 2014

1/3 Houston’s GDP, 20% salary

income, & 10% employment

directly in energy sector

HOUSTON’S IMAGE4

“Most people have really low

expectations of Houston and

are pleasantly surprised after

coming here.”

INDIRECT

EMPLOYMENT8

The Multiplier Effect: for each

new high-tech job in a city,

five additional jobs are

ultimately created

LOCAL WEALTH

CREATION3

Twitter’s IPO created 1,600

millionaires & a CA state

tax windfall of $479mm

LOCAL JOB

CREATION2

Startup ecosystem now 17th

largest employer in San

Antonio & former startup Rackspace employs 3,300

locals (5th largest)

CORPORATE

RELOCATION7

“GE relocates to Boston for

software talent and innovation”

“Schlumberger establishes Tech

Innovation Center in Menlo Park”

ATTRACT & RETAIN

YOUNG TALENT1

Educated Millennials make up

over 7% local population in only 4 cities: SF, Boston,

Austin, & DC (Houston @

4%)

Source: 1) US Census Bureau, 2) Geekdom San Antonio, 3)

PrivCo, 4) Accenture interviews & analysis, 5) Greater Houston

Partnership, 6) Houston Chronicle, 7) Company Press

Releases, 8) The New Geography of Jobs, Enrico Moretti

Corporations Community Universities Policy makersREASON MATTERS TO:


WE DEVELOPED A STRONG UNDERSTANDING OF

HOUSTON’S ECOSYSTEM TO BEST IDENTIFY OUR

CHALLENGES AND OPPORTUNITIES…

INTERVIEWED 50+ STAKEHOLDERS

• First-hand study of local startup

innovation assets:

STUDIED OTHER INNOVATION HUBS COLLECTED & RESEARCHED DATA

• Data collection: Target talent population survey,

founders survey, potential initiative poll

• Extensive review of existing data and research

on Houston and other cities: NSF,

NVCA, AngelList, Mattermark, Houston Business

Journal, CB Insights, company data, and more

• Founders: 20 interviews with local founders

• Policy makers: GHP Innovation Roundtable, City of

Houston Innovation Taskforce

• Venture Capital: Angel, Corporate, and private firms

• Research Institutions: Rice, UH, TMC

• Corporate Leaders: C-suite of local F500

• Interviews with venture capital, accelerator,

and policy leaders in several ecosystems:

Chicago, Cincinnati, Detroit

• Field trips to startup assets in other ecosystems

• Secondary study of best practices

VISITED HOUSTON

INNOVATION ASSETS


HOUSTON’S STARTUP ECOSYSTEM:

BY THE NUMBERS

Houston is the 4th largest US city but ~20th largest startup ecosystem by many measures

Total VC deals, 20157

Annual avg. VC investment7

Tier 1 Venture Investment Firms3,†

University Entrepreneurship Program Rankings1

41Exits,

2014 - 20164

103 current

startup job

openings

$75,000 avg. salary5

140Total est. active

high-growth startups4

40

Startup social

events/mo.2

Overall US Ecosystem Ranking6Growth in # companies

receiving VC funding7

Total funding of

current startups4

Houston Startup Group Members

Top industries for innovation

companies received

VC funding in 20157

Seed, early and

late stage startups7

14,989

EnergyLife

Sciences

$1.3b

20th

(of 25)0%2010 -

2015

23

National rank where applicable

$238mm

2015

$323

$135 $161

$415

2011

$155

29

Seed, early and late

stage startups

($128mm annual avg.)

Other investment

18

21 in seed,

early & late

stage

startups

#4#1

n

20 24

19

1 Princeton Review, 2 Startup Digest; 3 Houston Business Journal, >$100mm AUM HQ in Houston; 4 CB Insights; 5 AngelList; 6 1776; 7 PWC/NVCA MoneyTree

† other VC firms with >$100mm AUM with a presence in Houston include: Essex Woodlands Health Ventures, Texas Atlantic Capital, S3 Ventures, Santé Ventures


TALENT: STRONG TALENT POOL,

CONDITIONED TO CORPORATE WORK

Source: US Census Bureau, Bureau of Labor Statistics,

US News & World Report, Accenture interviews & analysis

LARGE SUPPLY OF YOUNG, TECH TALENT

& STRONG UNIVERSITY SYSTEMS

HIGHLY SKILLED HOUSTONIANS PRECLUDED

FROM PARTICIPATING IN STARTUPS

RISK-AVERSION TOWARDS TECH

STARTUPS PERMEATES LOCAL CULTURE

300,000

educated

Millennials

240,000

STEM workers

~100k

skilled

immigrants on

work visas who

can’t work at

startups

1983 1988 2001

IPO IPO Bankruptcy filing

2017

• H-1B visas are costly in

time and effort, require

employer sponsorship,

and issuance is tightly

controlled

• Foreign workers are thus

obligated to stay with (a

typically large, corporate)

sponsoring employers or

face deportation

11%

16%

71%

2%

Native

Foreign:

Naturalized

Foreign:

Not Citizen

Foreign:

Not Citizen, H-1B

Houston 18+ Population by

Immigration Status, 2015

High opportunity cost & lack of historical

inspiration deters tech risk taking

Tech startups offer stark contrast to

status quo for many skilled Houstonians

Ways of working: F500 vs. Startups

F500 STARTUP

FTE span of control Single app Full stack

Work hours 9 – 5 A lot

Dev. methodology Waterfall Lean / Agile

Crown jewels BU / Sales Developers

Risk appetite Minimal to none High

Hierarchy Rigid Minimal

5 ranked national universities

& graduate schools

#194 #74 #15

22,000 annual graduates 12,000 FT grad students

Top local rank

(#9 in US) (#3 in US)

STRENGTHS OPPORTUNITIES

T C R I

13


COLLISIONS: MOMENTUM IN POCKETS

THAT NEED TO BE STITCHED TOGETHER

Source: US Census Bureau, Startup Digest, Accenture interviews & analysis

THE LAUNCH OF STATION HOUSTON AND

TMCX CREATING MOMENTUM & BUILDING

DENSITY

LOW DENSITY AND HAPHAZARD

NETWORK CURATION LIMITS POTENTIAL

INDUSTRY NOT HELPING CREATE

OPPORTUNITIES FOR COLLISIONS

Occupancy doubled

in 2 months

50% increase in number

of companies hosted in 2Y

Plenty of recent seminars and social events

creating opportunity to spark innovation

Startup event count, last 3 months

133

Austin

147

117

HOU NYC SV

120 15

68

4

HOU Austin SVNYC

Non-full Day EventsFull & Multi-Day

Events

Opportunity

CITY WEBSITE NEWS JOBS CALENDAR

HOU

NYC

CHI

LA

CINCY

84

71LA 72

62Seattle

SF

101Cincinnati 86

Boston

Detroit

Austin

208

159

84

219

Baltimore 161

Raleigh

Pittsburgh

NYC 5659

NashvilleChicago

56

1935Dallas

Houston

Phoenix

3841

AtlantaSLC

Denver 51Portland

43

25 – 34 year olds with college degree per sq. mi

“We don’t share problem sets. It’s just

not something people do in this industry.”

- Houston O&G exec

“There is no existential crisis gripping

boardrooms, forcing us to embrace

change and look elsewhere for

innovation.”- Houston O&G exec

“Our companies are so spread out and

tight-hole information…There are a ton of

independent and mid-tier firms in town

that aren’t active in the community at

all.” - I&A Director

• total 25-34yo’s

• total 25-34yo’s with a

degree

• density of 25-34yo’s

with a degree

#5#9

#24

T C R I


14


RESOURCES: LOCAL INDUSTRY DOMINATES

LOCAL CAPITAL, CHALLENGES STARTUPS

Source: Crunchbase, Company websites, Houston Business Journal, Accenture

interviews & analysis. 1 NSF 2 TRL: Technology Readiness Lifecycle; 3 HBJ

List of Firms with >$100mm assets under management (AUM) * Using pre-B

round funding as proxy for SaaS MVP development cost

INVESTED CAPITAL GOES 40 - 50%

FURTHER IN HOUSTON VS. SAN FRANCISCO

FUNDAMENTAL INDUSTRY

CHARACTERISTICS PRESENT BARRIERS

TO LOCAL B2B STARTUPS

LOCAL CAPITAL NOT VENTURE-

EXPERIENCED AND GRAVITATES

TO PE OPPORTUNITIES

TRL2

commercialization

period:

Est. spend on

internal R&D vs.

startup innovation

Energy

tech:

10-20Y

Life Science

tech:

5-10Y

O&G Firm:

10:1

Houston industries are capital intensive,

setting high barriers for startup offspring:

Representative development costs ($mm)

$2 $8

$100

$300

Airbnb MVP* Alert Logic

MVP*

1Y Onshore

Rig Capital

Program

$1,000

New drug SpaceX

Falcon 9

Rocket

Energy, Healthcare,

& Aerospace

SaaS

$0

$100

$200

$300

$400

$500

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Fu

nd

s R

em

ain

ing

($

k

US

D)

A $500k investment will cover a 5

FTE team in Houston for ~13

months vs. ~9 in SF driven by

labor & office space cost

disparity

Houston

Chicago

San Francisco

230

(1%)

VC

PE

29,302

(99%)

“All the risk takers in Houston

work for PE backed firms. Do a

midstream play, get your carry,

and cash out.”- Houston investor

AUM of Largest Houston-Area

investment Firms3

Money follows local

industry:

~75%

specializing in

energy

investments

Los Angeles, CA

$1.9

New York, NY

Baltimore, MD $2.8

Houston, TX

$2.7

Cambridge, MA

$1.7

$2.1

85% of the academic research funding goes to TMC

Houston is rich in academic

R&D IP, especially in Healthcare

Top US cities by academic research funding ($B) 20151

Month

T C R I


15


IMPACT: GROWTH AND RETENTION

OF STARTUPS & F500 AT RISK

Source: Surge / Kirk Coburn, Fortune, Crunchbase, LinkedIn, Company

websites, Accenture interviews & analysis

YOU’LL FIND EXISTING, REMARKABLE

HOUSTON SUCCESS STORIES IF YOU

LOOK IN THE RIGHT PLACES

MANY STARTUPS WITH MOMENTUM

LEAVING FOR TALENT AND TO BE

CLOSER TO INVESTORS

STAGNANT STARTUP ACTIVITY STARTING

TO IMPACT HOUSTON’S ECONOMIC CORE

“I’ve had 3 conversations with

Houston companies in the past

month thinking about moving to

Austin.” - Houston entrepreneur / mentor

• TBD’17: “MedDevice startup relocating to Silicon

Valley for C-level talent”

• Oct’16: “CarForce to move operations to San

Francisco to join Launch Incubator program”

• 2014: “Autonomous Marine Systems moves to

Boston for talent and labs space not available in

Houston”

• Sept’13: “RunTitle moves HQ from Houston to

Austin for talent and institutional investor”

• Etc.

“Schlumberger opens Software

Technology Innovation Center in

Silicon Valley”

“GE moves its corporate headquarters

to Boston, citing ambition to gain

innovation and technology edge”

0222

15

SV Boston HoustonLA Chicago

Houston is home to second-most F500 companies

in the US, but hosts no hi-tech F500 firms

Hi-tech F500 firm HQ count by city

$317M

Equity

funding

raised

670 Employees

>$100M

Annual revenue

$140MEquity

funding

Developing vaccines and

immunotherapeutic

approaches to treat cancer

IPO

November, 2014

T C R I


17


PATHWAYS TO SUCCESS:

A REVIEW OF GLOBAL INNOVATION HUBS

PROACTIVE EFFORTS

• Anchored with major academic,

research institutions, or major

tech companies

• Early advantages

• Predominantly attract talent

through art, music, natural

beauty and lifestyle

• Risk-tolerant culture

• Eccentric and inclusive

• International hubs

• Capital rich

• Diverse economic base

• Strong base in a few key

industries

• Existential threat and need to

diversify

ANCHORS COOL PLACES METROPOLITAN PIVOTING INDUSTRIAL CITIES

Advantageo

us starting

point due to

high levels of

R&D

Natural

growth

Acceleration

thanks to

first mover

advantage

Less

inherent

academic &

industrial

strength than

anchors

Slowly

attracting

people

Booms

thanks to

lower cost of

starting

company,

particularly

in tech

City’s

inherent

strength

leads to high

starting

point,

although not

yet a focus

Policies

kick off

rapid

growth

Accelerates

as

ecosystem

grows

Decent

starting point,

slow decline

and looming

crisis

Corporate

and civic

involvement

reverse

trend

Momentum

thanks to

coordinated

effort; more

corporate

buy-in after

seeing

returns

Bay Area, Boston, Bangalore Berlin, Portland, Denver NYC, Chicago, London Detroit, Cincinnati

EX

AM

PL

ES

CH

AR

AC

TE

RIS

TIC

S

STRUCTURAL STRENGTH

SU

CC

ES

S

FA

CT

OR

S

Time

MA

TU

RIT

YP

AT

HS

• Fund-of-funds

• Setup Strategy Office

• Anchor coworking space

• Startup tax incentives

• Setup Strategy Office

• Gov’t direct investment

BEST LEARNING OPPORTUNITIES FOR HOUSTON

18


HIG

HM

ED

IU

MLO

W

SHORT MEDIUM LONG

3723

26

39

27

35

28

25

22

20

18

33

31

38

32

36

30

24

29

40

19

17

16

10

11

3

6

13

7

5

8

12

4

15

1

2

14

921

40 POTENTIAL ACTIONS ADDRESSING OUR

STRENGTHS AND WEAKNESSES WERE EVALUATED

FOR IMPACT AND EFFORT/FEASIBILITY

Impact

Collision

Resources

Talent

Imp

act

Timeframe

POTENTIAL ACTION

EVALUATION

# PROPOSED ACTION

1 BHAG/Thematic Focus

2 Recruit star professors

3 Innovation output in tenure review

4 Be open testing ground for new tech

5 Startup externships

6 Founder visa program

7 Corporate EIR program

8 Int'l startup exchange program

9 Corporate talent matchmaking

10 Nights and weekends co-working program

11 Startup space @ NASA / Starburst chapter

12 Tech education for the underprivileged

13 Recruit Hi-tech anchor firm (e.g. Amazon)

14 Recruit Life science anchor company

15 Recruit /expand Fed research institutions

16 NASA ecosystem participation

17 Innovation district(s)

18 Make innovation district green

19 Metro to innovation district

20 Lifestyle conferences (culinary, gaming)

# PROPOSED ACTION

21 Startup investor & F500 speed dating

22 Open strategy office

23 Ecosystem website

24 Ecosystem news

25 Ecosystem job board

26 Host Innovation conference

27 Channel partners pitch program

28 UHNW Champion

29 Angel education

30 Minimize non-market capital

31 “Freemium” co-working space model

32 Fund-of-funds

33 Local evaluation clause to state VC invest.

34 Marketing blitz

35 SEO campaign

36 Houston startups on TV shows

37 Diversity Campaign

38 Easy-access city procurement

39 Matching gov’t investments

40 City-wide civic hackathon

20


PRIORITIZED ACTIONS ROLLED INTO 10 KEY

INITIATIVES ADDRESSING TOP PAIN POINTS AND

DELIVERING SHORT, MEDIUM AND LONG-TERM VALUE

TOP PAIN POINTS RECOMMENDED INITIATIVETIME TO

EXECUTEIMPACT

LEAD

ACTORS

Houston needs focus – critical mass in specific areas

– and a rallying cry for entrepreneursDevelop Thematic Focus areas for local ventures S Academia

Low density of operationalized tech talent Recruit Anchor Hi-tech firm and/or federal research institutions M City Gov’t

Large number of highly skilled Houstonians on

work visas precluded for startup communityCreate Founder Visa program M Academia

Houston not perceived as embracing startup culture

and values

Send values signal thru policy embracing new tech and becoming the

Testing Ground for cutting edge innovationM City Gov’t

Haphazard community network inhibits collision

opportunitiesOpen Strategy Office with personnel dedicated to community building S GHP

Talent & startup density is low Create Innovation Districts around Tech & Life Sciences L I&A

Local capital isn’t venture-experienced Create Fund-of-funds (absorbing non-market capital) M GHP

Local capital isn’t venture-interestedActivate UHNW Champion to educate, social proof startup investing,

and help with fundraisingM Investors

Houston’s image to the global startup community

is antiquated

Multi-channel Marketing Campaign featuring “the most diverse city in

the US” (inc. conferences)S GHP

City gov’t could do more to embrace startupsCity gov’t should embrace startups through opening procurement,

hosting civic hackathons, and moreM City Gov’t

1

2

3

4

5

6

7

8

9

10

UHNW = Ultra-high net worth; I&A = Incubators & Accelerators (inc. co-working infrastructure)

Time to execute: S = short-term, M = medium-tern, L = long-termTCRI 21


WHAT WILL HOUSTON BE FAMOUS FOR?

ECOSYSTEM DEVELOPMENT EFFORTS

SHOULD FOCUS ON BUILDING CRITICAL

MASS IN A FEW KEY AREAS

1 DEEP DIVE

APPLICATIONS

ACROSS

LOCAL

INDUSTRIES:

Digital oilfield & Smart grids Deepwater & remote operations Plant asset security systems

Telemedicine & wearables Assisted surgery Patient health information security

ENERGY

LIFE SCIENCE

Asset tracking & intelligent cabins Robotic manufacturing Blockchain maintenanceAEROSPACE

Connected car Autonomous vehicles & drones Fleet control assuranceTRANSPORTATION

SOURCE:

1) CB Insights;

2) Markets and Markets;

3) Radiant Insights;

4) International Federation

of Robotics

EXISTING

TALENT BASE APPLICATION ACROSS

LOCAL INDUSTRY ADVANTAGE IN

PHYSICAL PROXIMITYHIGH

GROWTH

Cybersecurity market2

$170

@10%

INDUSTRIAL IOT ROBOTICS CYBERSECURITY

Total industrial IOT

market in

20202

8%Annual market

growth2

$150B

Global industrial

robotics market3,4

Robotics Startup

Funding ($B)1

annual

growth

B in

2020

IIOT Startup

Funding ($B)1

+32%

$0.3

2012 2016

$1.2+45%

Cybersecurity

Startup Funding

($B)1

$1.5

20162012

$3.6+24%$2.1

20162012

$0.7$40B in 2020

Units installed

increase per year 13%

Documents

INNOVATION IN HOUSTON - Houston Exponential: World …houstonexponential.org/wp-content/uploads/2017/10/Innovation... · INNOVATION IN HOUSTON: A STUDY OF THE BAYOU CITY’S STARTUP