The Dark Ages of Austin Startup Capital | Hacker News Reader

The Dark Ages of Austin Startup Capital

techcrunch.com

71 pointscdcro34 comments

To me, the article shows that "startup" means something different outside the Silicon Valley bubble.

Taking 40% for $400k is probably counter productive for an investor shooting for a $1 billion plus exit. Consuming so much equity [the primary asset of an early stage company] so early for so little capital means that equity is not available for bigger rounds later.

On the other hand, for normal capital, if the business grows to $500k a year in profit over the next five years, it provides a handsome internal rate of return for a local group of investors at the Chamber of Commerce scale.

The difference I sense, is that the "Austin" investors are hardening against future rounds of investment rather than encouraging it. With a 40% stake, such investors are likely to be the biggest single shareholder and hence have a high degree of control over future deal flow.

Hmm, I don't see this as a problem at all. Austin was a great place to be a software developer before that 2013 investment record they list. The cost of living is such that bootstrapping is the way things are done.

I don't see anyone hurting and it isn't raining money. So give it a little time, let those funds find a few exits and we can do it all again.

Deep Eddy Vodka and Sweet Leaf Tea aren't tech startups. If anyone wants to know why Deep Eddy Vodka was successful look just as far as the name. It tapped into some deep Austin history that everyone was familiar with. Made it instantly familiar. I'm still sad that tree got sick and they had to take it down.

I can't say that I'm surprised that Austin based VC's are more risk averse than SF counterparts. Austin based startups are higher risk for several reasons. This is the city with a start ups desperately searching for veteran engineers when their CTO is 3 years out of school...

The "startup" of Austin is typically one that adds less value to their vertical than their SF counterparts, has less talented technical staff, and has very poor non-technical talent. ...But people are complaining that Austin based VC's are giving Austin based startups less love. I think some of these startups need to re-evaluate what they're doing and stop blaming VC's for not instantly falling in love with their flavor-of-the-week startup.

Not sure what experience is influencing your comment, but it's simply not true. I know many Bay Area based companies that are hiring more and more technical talent in Austin because they can not find it where they are.

Is there more overall technical talent in the Bay Area? Absolutely, but that doesn't mean the talent elsewhere is "very poor" and "3 years out of school".

You simply didn't read what I wrote. I didn't say there isn't talent in Austin, I'm saying these startups don't have it, and can't seem to attract and keep talent.

Look to the Deep Eddy Vodka acquisition as one. This was a quick exit for Clayton Christopher after his win for Sweet Leaf Tea

Neither of which are tech startups.

I'd argue they're both not even startups. This is not meant degrade both companies in any way - just to clearly differentiate between two approaches suitable for different business models

The classic definition by Steve Blank is: "[A] [...] startup is an organization formed to search for a repeatable and scalable business model." [0].

Selling iced tea and vodka is a straightforward, traditional business model. Nothing to search for.

[0]: http://steveblank.com/2010/01/25/whats-a-startup-first-princ...

Selling advertising is also a straightforward traditional business model.

Seems like a small sample size. His startup got different valuations from different set of VC's, which is a normal occurrence.

I've heard people say that Austin no longer has a better startup scene than Dallas. It's probably not true, but it reaffirms that Austin's startup scene is hurting.

I'm not familiar with the scene in Dallas. Is that a high bar to beat?

I don't think the bar in Dallas is hard to beat, which is where I live, but I cannot truly say.

Short answer: no

Long answer: Dallas has a lot of investment money, however most of that investment money goes towards cash flow businesses like commercial real estate, oil speculation, and banking. However, there has been a pretty sizable uptick in investment dollars willing to put towards tech companies within the last 4-5 years. It's relatively straightforward to find capital in Dallas, but it's insanely hard to find capital willing to stomach high burn early stage tech companies.

Former startup employee here that lives in Dallas.

It's ok, and slowly growing, but it is very hard to raise money. There are groups trying to advocate for more startups but they just can't raise the capital. One such group is http://launchdfw.com/jobs/. SoftLayer was probably the biggest exit Dallas has seen. The money is just tied up in other industries and it won't be risked on high tech startups. The lack of capital being raised results in the lack of start up jobs in Dallas. When I was looking for a new job back in August, I think there was maybe 6 postings - one being my current company.

We are just a very IT / Enterprise heavy area. People are more likely to find a job at Match.com or AT&T.

The start up ecosystem in Dallas has gone through crazy growth in the last 2-3 years. When you then consider the amount of talent and amount of money in Dallas overall, investments are becoming more and more common. I know many companies big and small are moving here along with Dallas having the highest growth rate in the nation population wide.

I live in Dallas, it's a great place to be right now. Growth is crazy and the opportunities are endless. Also, being in the central part of the country, doing business on both coast and in Europe is so much better..no 4 am meetings.

Having been active in the startup scene here in Austin for about three years my anecdotal experience is that it's quite healthy. Yes, many of the startups here do raise money from VCs in the valley, but those dollars go a whole lot farther here.

I grew up in Dallas, have lived in other tech hubs, and I've been to Austin many times. When I came back to Texas, I came to Dallas.

Dallas as far as 'start-up numbers' go might not be ahead of Austin (it's really really close now), but the potential and growth rate in Dallas is crazy. It almost seems like everything is aligning to take Dallas to the next level as far as a global player in tech, business, and start-ups.

6 months ago I'd say it wasn't true either, but as of right now, I'd say yes. I just hired a few developers and it was magnitudes easier than it was 1.5 years ago.

While the amount of seed and early investors nearby I'm sure has a major role in startup culture building I still think Austin is a great city for startups.

Not all startups need to raise money... but most startups need smart people and a fun place to live. I think Austin provides both.

Austin’s funds have less money available for early-stage investments because later-stage deals have eaten up a lot of the fund.

No, Austin has less money available for early-stage investments because Austin has an order of magnitude less VC money, period. Most of the effects that the author observes (not many big exits, lots of smaller investors, etc) can be readily explained by that one simple fact. Wealth concentration isn't just about the 1% vs the 99%, it's also about the 0.001% vs the 0.01%. And Silicon Valley will continue to widen the gap because they can place more and bigger bets, and get bigger and more profitable exits as a result.

Am I wrong to think part of the problem is that the best developers in Austin don't work for Austin companies?

I think that's a symptom of the problem, but the real problem is that startups are using some stupid, non-relevant scheme to determine "fair" compensation, rather than being aggressive about getting the talent they need.

No you're not. The tech companies in Austin are divided in two groups: Bay Area/Boston companies that pay Bay Area/Boston salaries, and Bay Area/Boston companies that pay Texas salaries. One attracts talent that sticks around, the other attracts fresh grads who leave once they realize how much more they're worth.

Is the trend of falling seed rounds confined to Austin or does it extend to other US startup hubs? A report by Compass (earlier Startup Genome) last year showed Boston and Bangalore were among the most funded hubs, but Boston saw a fall in early stage deals while it was the reverse in Bangalore... https://www.techinasia.com/bangalore-worlds-startup-ecosyste...

Spot on. I know a founder who had to go through 15 meetings just to close one VC in Austin.

That's not weird, even on sand hill road. I met with about 75 firms before getting a seed investment, and did probably 10-15 meetings with that one before we closed. First time founder, and they made it clear how serious their interest was at each stage (meetings after the fifth were with every intention of investing, which they did).

Can you describe the progression of what happens in those 15 meetings? What do they need at meeting #14 they couldn't get from meeting #5?

It should be clear if they're serious by the second meeting, and in many cases, the first. The throwaway comment "Spend 88 percent of your time building your business and 12 percent of your time raising money" sounded right. If an investor doesn't understand that, they're broadcasting that they'll damage your business and don't belong on a board. Thankfully, interviews are two-sided :)

As an outsider to tech -- wow. Complaining about a 7% conversion rate on raising money for an idea.

I should have been more specific: Not 15 meetings total, 15 meetings with one VC.

What does something like this imply for an employee that likes to work for startups? Is it much better to live in the bay where there is a much deeper market of open positions to keep developer demand/salary higher?

As someone who lives outside of the valley, what this article says to me is that I should be tougher in vetting the potential sources of revenue that the startup has and not just a startup that I think should exist in the market!

^ this. Austin is still a great place for startups, as a talented professional you just have to be careful about which startup you're jumping in to.

Austin is a great city to write software in, and the salaries are fine. I lived in the best possible location in the city and still saved money. If you're looking for startups, there are plenty. If you have broad interests, you'll be able to find a startup you can passionately work for. That's basically what I did until I caught the blockchain bug. If you're interested in a particular niche (marketplaces, virtual reality, blockchains, etc), the most promising startups in that niche are probably elsewhere, which is why I now work remotely.

One thing I've noticed living in Austin is that the technical talent pool is still not as deep as the bay area, which isn't surprising but is also true. Austin is catching up and in many of the local tech meetups, I've seen people fly down from the valley and give a talk about their tool/company/technology, which is a promising trend.

As others have mentioned, the cost of living is significantly lower, and I would wager that Austin is a pretty nice place to live as a young person, with its great coffeeshops and bars and live music scene.

Reply on news.ycombinator.com