The Party in Austin Ends on a Tuesday

If you ask anyone outside of Texas where the center of startup innovation and activity is here in the Texas they’ll tell you without hesitation it is Austin. Each year startup folks from both coasts fly into Bergstrom airport, check into the Driskill, and stand in line to get their badge for the ‘biggest startup party in the world’ — SXSW. What they don’t realize is that over the past decade most of the startup innovation, activity, and investment has left Austin for greener pastures in Dallas and Houston.

On a side note, I attended my first SXSW fifteen years ago while I was running my first startup — LayerOne. I remember one particularly magical evening. I was in the lobby bar at the Driskill Hotel and over the course of a single evening I was able to chat with Ev Williams (he was running Pyra at the time), Larry Harvey (he founded Burning Man) and Sean Parker (Napster had just been shut down and he was talking about starting a contact management company). SXSW Interactive was a relatively small conference back then and these sort of impromptu meetings were commonplace. Every year I go back to Austin hoping to recreate that magical evening, but as the SXSW party gets bigger and bigger those chance meetings are less and less possible.

SXSW Interactive put Austin on the startup map attracting venture capital and entrepreneurs for years. SXSW ends on Tuesday —today it seems like everyday is a Tuesday for Austin’s beleaguered startups and entrepreneurs. What happened?

The Money. First and foremost the money is gone. Richard Bagdonas, a long-time Austin entrepreneur compared the venture capital situation in Austin to the Dark Ages. While investment capital is shrinking in Austin, early stage investment is growing rapidly in Dallas and Houston.

The People. The Austin talent pool has always been small but it is shrinking as more and more developers move to Dallas, Houston and the Valley. Dallas has 3X the population of Austin and is the largest metropolitan area in the South. With five division one colleges the city creates a massive talent pool of new startup recruits each year. Similarly, Houston has more than 3X the population and five division one colleges creating a similar pool of startup recruits. Startups hiring developers in Austin may get 2–3 resumes for each job posting — here in Dallas it isn’t uncommon to see more than 20 resumes for a single position.

The Cost. Austin is a great place to visit, but living there is a lot more expensive than living in Dallas or Houston — 20–25% higher. The higher cost of living in Austin translates into the need for higher wages, higher rents, and higher associated costs for startups. The low cost of housing and office space in Dallas and Houston is just too tempting for most young entrepreneurs to ignore.

The Politics. Austin’s City government has always been anti-business, but the business climate is getting worse and the rest of the country is taking note. The most obvious evidence of just how bad it is are regulations passed by the City Council effectively banning Uber and Airbnb from the Austin. Paul Graham said it best, “I will go out on a limb and say that Austin has zero chance of being a serious startup hub without Uber…” He’s right.

The reality is that Austin is the ‘Startup Party Capital’ of Texas, while Dallas and Houston are the real startup hubs. So the next time someone asks you where to find startup innovation, activity, and investment in Texas tell them to head to Dallas (you could mention Houston too).