Is the Texas boom town of Austin losing its luster?
Reading Time: 4 minutesTexas has been historically known for its oil booms. Today the state is perhaps better known as a magnet for tech companies and tech talent, especially in its capital city of Austin. But with some startups pulling up stakes, and critical industry participants curtailing their activity in Austin, the Texas dream of taking on tech’s traditional home in California could be hitting some speed bumps.
Managing Director Amos Schwartzfarb, who’s been with Techstars in Austin for eight years, announced that he’s leaving the company; his last day will be February 15. That forced Techstars — which has run 15 programs in Austin — to make a decision about the company’s future in the city.
‘Unfortunately, we are pausing the Techstars Austin accelerator,’ Techstars spokesperson Amalia Lytle confirmed, adding that the organization did not know for how long the chapter would be on hold. Once Schwartzfarb made the decision to leave, Techstars decided that maybe ‘the accelerator program isn’t the best path forward’ in the city, according to Lytle. Instead, Techstars may decide to invest more in other programs such as Startup Weekend or Founder Catalyst, she said.
During the COVID-19 pandemic, investors and startup founders alike flocked to the Texas capital, attracted to the lower cost of living, ‘hip’ lifestyle and business-friendly environment (i.e. no state income taxes).
But as the years have gone by, it appears that some have lost their enchantment with Austin, to the point where companies and founders are also leaving or looking to leave the city. The summers are brutal — 2023’s was the hottest on record with 78 days of triple-digit temperatures. The startup scene, some argue, is lackluster. And funding — especially for midsize companies — can be hard to come by. A perceived lack of diversity is also an issue.
People who moved here for affordability reasons quickly realized the city was not as inexpensive as they expected — especially when it came to housing.
Austin’s housing market went berserk in 2020 and 2021. As recently reported by Newsweek, ‘by mid-2022, prices were more than 75 percent higher in the city compared to before the pandemic.’ What went up is now coming back down, with the same publication reporting that ‘prices in Austin are dropping 10 times faster than the national average.’
Funding is also down. Venture funding in the city totaled $6.75 billion in 2021 and $5.5 billion in 2022, according to PitchBook data. In the first three quarters of 2023, venture funding was down 46% to $2.9 billion compared to $5.3 billion raised in the first three quarters of 2021, and down 36% compared to $4.5 billion in 2022’s first nine months.
Others are moving out of Austin, too
Techstars isn’t the only entity scaling back in Austin, either. In November, unicorn Cart announced that it was moving its headquarters back to Houston after relocating to Austin in late 2021. The company, which describes itself as an e-commerce-as-a-service business, reached a $1.2 billion valuation in June after raising a $60 million Series C round of funding.
‘We feel the move to Houston will unlock a deeper talent pool in these areas based on its position as a hub for major business,’ Goulding said.
It’s also a matter of cost and convenience.
‘Costs in Austin are high relative to Houston’s affordability, [and] Houston is also more accessible,’ Goulding said. ‘It is typically easier and cheaper for employees flying in. It also tends to be easier for employees who drive in from across the state.’
In January, Laundris CEO Don Ward announced that he’d decided to relocate his B2B software startup’s headquarters from Austin to Tulsa.
‘A lot of it [Tulsa] reminded me of where Austin was 10 years ago in terms of the tech ecosystem being built,’ Ward told Tulsa World.
Joah Spearman is a founder who recently relocated to Sacramento from Austin after growing frustrated with a number of things about the city.
Spearman founded Localeur, a travel recommendation service aimed at millennials, in January 2013, and is working on a new startup venture now that is in stealth.
Though he’s not totally sour on Austin, he believes that the weaknesses are constraining its growth.
‘The University of Texas has an unstable funding partner in the State of Texas, given the politics of the state, making it challenging to predict their ongoing investment in the local ecosystem. The cost of living, especially housing, has made it more challenging for middle-class professionals — especially people of color — to buy into the market, which hurts startups that have to compete with the Googles and Teslas for talent,’ said Spearman, who is Black. ‘The monoculture speaks more to the income disparity that is pricing out musicians, artists and hospitality workers who are so essential to the creative culture that makes Austin a great market for startup founders in the first place.’
Spearman went as far as to run for City Council in hopes to help affect change in the city. ‘Eventually it got to a point where I had to stop trying to solve problems on behalf of a city I loved and focus on taking care of myself and pursuing other opportunities,’ he said.
Mike Chang, a 30-year-old founder and angel investor, told Business Insider earlier this year that he regretted moving from Los Angeles to Austin during the pandemic. ‘Austin is where ambition goes to die,’ he told the publication.
One venture investor who wished to remain anonymous recently made the move from Austin to California. He declined to comment further.
Migration still happening
Still, some believe that while people aren’t moving to the city like they were two to three years ago, Austin still continues to attract people from other locales.
‘Anecdotally, I probably still meet someone every few weeks that moved here within the past year or so,’ said Eric Engineer, a partner with Austin-based S3 Ventures. ‘They tend to be in their 20s to 30s.’
And not everyone who is frustrated with the city is actually leaving.
Paul O’Brien, CEO of MediaTech Ventures, posted on LinkedIn that the bellwether of a healthy startup ecosystem is if big businesses, like banks and VCs, fund the ecosystem. But the problem is that Austin didn’t have that support.
In his view, the reason founders (or anyone) might be souring on Austin has to do with the messaging and promotion of the city being ‘inconsistent with the value delivered to the market.’
‘Of course, many of us, myself for example, absolutely love Austin for all that it is good and bad, but many move here hearing that it’s the ‘next Silicon Valley,’ ‘best place for startups,’ or ideals such as the ‘Live Music Capital of the World,’ and it’s not that those ideals are invalid but rather that expectation exceeds reality,’ he wrote.
Reference: https://techcrunch.com/2023/12/07/is-the-texas-boom-town-of-austin-losing-its-luster/
Ref: techcrunch
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