Why Austin is the Place for SmartCities Startups

Austin’s popularity as a leading place to live is conventional wisdom these days.  People move here for the great food and music scene, but the talent and entrepreneurial ecosystem of the city compels startup companies to pick-up and move here as well.  Expectations for our mid-sized city have accordingly gotten so high that some folks start to feel sore when our easy, upward story gets a little more complicated.  Some alarm bells went off for Austin’s startup techies and entrepreneurs this past spring when we drove Uber and Lyft out of the city and, shortly thereafter, lost in the final round of the Department of Transportation’s Smart Cities Challenge.

The lesson for our tech startup community, though, is not to lick our wounds, panic or blame our local government.  In fact, we need to redouble our efforts to build our own, unique startup identity.  Just like Silicon Valley is known for "Search" (among a myriad of other things) and New York is known for “FinTech” expertise, Austin needs to become known as a center of innovation in a specific domain. We believe that that domain is “SmartCities”--which is about using technology to make urban living friendlier, easier, and more sustainable.  Austin’s next wave of entrepreneurial growth will come when we cultivate and grow a critical mass of startups, investors and media professionals that participate in, and buzz about, what will become known as “SmartAustin.”

There are three main reasons why we believe Austin will be at the center of SmartCities:

(1)  Austin's demographics make it the perfect laboratory: With over a hundred people moving into Austin every day, the city is feeling the stress of doubling its population during the past few years.  A population of over 2 million people with a median age of 31 (more than 6 years younger than the national average), means that Austin’s demographics and culture are perfect for SmartCities startups to solve real problems and gain rapid adoption.

(2) Austin has a history of success with SmartCities startups: It is a little known fact that over half (56%) of venture capital investment in Austin between 2000 and 2014 was in “Smart Cities” segments (cleantech, travel, semiconductors, biotech, analytics, and web/social).  Instead of looking at these companies as individual startups, we need to rally around the success and momentum that Austin startups have already achieved in this segment; drawing more awareness, attention and investors to our city.

(3)  The City of Austin is a SmartCities enabler:  With initiatives like the Open Data Portal, hosting the 2016 SmartCities Innovation Summit and a City Council approved resolution to achieve a net zero greenhouse gas emissions goal by 2050, the City of Austin is making the ground fertile to spark innovation, promote public collaboration, increase government transparency, and inform decision making.

We recently set out to test this theory with startups, investors, and city officials.  The following are just a sample of the stories we heard that show how SmartAustin is already real, and already happening.

AUSTIN STORY #1: THE STARTUP THAT HAD TO BE IN AUSTIN

We caught up with Anya Babbitt, the CEO of SPLT, at the Smart Cities Innovation Summit a few weeks ago.  Frankly, it’s hard to find a more “Austin” story this spring.  SPLT contracts with corporations to provide their employees with a ridesharing platform that leverages the built-in trust of the work environment.  The business model is original and thoughtful, in that it targets a standardized and high-volume transportation use-case.  And SPLT has some initial traction in partnerships and funding, as well as in the startup competition circuit.

The Austin part of the SPLT story starts with the founders coincidentally meeting in a hotel room in Austin as both Anya (from New York) and Yale Zhang (from Atlanta) were independently attending a bachelor and bachelorette getaway weekend.  They got to know each other, learned they had similar interests and passions in startups and mobility, and eventually decided to start SPLT together in 2014.  They agreed at the time that Austin had an exciting entrepreneurial environment, but ended up taking advantages of some early opportunities in the Detroit area as that city, of course, “has an enormous amount of cultural inertia around the car”.  But as SPLT started gaining traction and national recognition,  Anya and Yale ultimately decided to move the company to Austin.  Our city offered “an active entrepreneurial ecosystem, a growing population and, and strong culture of people who are willing to experiment with new lifestyles for positive social impact.”  What’s more, they were amazed by “the intersection of government and corporate experimentalism and the engagement in Austin by thought-leading institutions such as the Rocky Mountain Institute.”

Amazingly, on the day that SPLT arrived in Austin... Uber and Lyft left.  Although  Anya and team are not entirely celebrating that event (Lyft is actually a partner of SPLT’s), they do acknowledge the opportunity to play an active role in addressing Austin’s traffic and congestion challenges.  Whether it’s getting connected with the City of Austin, engaging with the Texas Transportation Institute, pitching to the Central Texas Angel Network or receiving introductions to potential customers and partners, they’ve been amazingly pleased by the support of the entrepreneurial ecosystem: “The investment and startup community here is incredibly hands-on, it is willing to make introductions, and it is willing to dream with you.”  

“The money in Austin is smart money,” Anya continues, but she does acknowledge some limitations.  “The angel community is fervent and engaged but, as you know, the VC community is lacking.”

AUSTIN STORY #2: THE NATIVE AUSTINITE HELPING TO FOCUS HER NATIONAL INVESTMENT FIRM ON ATX OPPORTUNITIES

We weren’t surprised by Anya’s observations about the investment ecosystem in ATX, but it’s still no fun to be reminded. We connected with Christine Primmer of SJF Ventures, a venture capital and private equity fund with offices in NY, the Bay Area, and Durham, to dig deeper into the investor perspective on our city.  SJF focuses on renewable energy, sustainable technologies, transportation, and mobility, and finds the “Smart Cities” category to be a very useful one in defining one of their spheres of interest.  To our delight, Christine, an Austin native herself, saw major opportunity in the city for her firm:

“We did an analysis that showed that 60% of VC investment goes through Tier I Cities, such as SV, NYC, and Boston.  We balance our portfolio a bit differently and only invest 20% in those cities.  Silicon Valley valuations can be outside our strategy and there’s just as much talent in Tier II and III cities and perhaps not as much available capital to support the ecosystem.  In Austin, for instance, while there are some great earlier stage investment firms, there’s not as much growth capital available, especially since Austin Ventures broke up.  The city represents a great opportunity for SJF to come in.”

SJF has made investments, thus far, in education and sustainable food companies in Austin, which “speaks to the richness and variety of startups in the local scene.”  Austin, Christine continues, “has the the attitude that ‘We want to be a center of innovation, and focal point for smart cities.’  We love that.”

We are proud of Austin but asked Christine if Austin is really that different from other aspiring tech hubs: “A key aspect of a good entrepreneurial scene is a place where recruiting talent is easy.  An interesting advantage Austin has,” she said, “is that people want to live in Austin and are moving here even without jobs!  For startups, this makes recruitment relatively easy.  Also, interestingly, there are fewer Fortune 500 companies here than in some of the other mid-sized cities we visit.  In those cities, universities focus on placing their grads in big companies, and the startup ecosystem suffers as a result.”  

Christine further argued that many technologies being developed in Austin (in energy, transportation, recycling/reuse, and health and wellness) fit the ‘Smart City’ label Austin would like to advertise.  She continued, “But it's really important that people see Austin’s own transportation challenges, for instance, as the source of innovation that they are: while it’s true that Austin will have to find new solutions to keep its lifestyle so attractive, as more and more people come here, the city is so lucky to have a focused and talented pool of startups working on solving those problems.”

AUSTIN STORY #3: THE EMPOWERED AND INNOVATIVE TECHNOCRAT WITHIN THE CITY OF AUSTIN

The city is also lucky to have a government that gets the challenge: It was thrilling for us to connect with Ted Lehr, the City’s IT Data Architect, and a key adviser for the Smart Cities Challenge.  Ted has been empowered by his colleagues and City management to think big and to leverage his many years of business and tech experience to help bring Austin into the Digital Age.

Earlier this year, Ted worked with Austin’s Smart City team to bring together business and tech leaders in a conference that was critical to Austin’s strong performance.  We were excited to learn that the lost grant has in no way deterred Ted or the Smart City team’s enthusiasm: “What we have now is a series of excellent ideas that are begging for implementation.  The question is, ‘What will the mechanism be to get these done?’  When we look around the country and the world, it’s clear that we need to find new funding models and that we need to be inventive about how we leverage our award-winning Open Data Portal to attract partnerships.”

Ted cited the partnership between Copenhagen and Hitachi as one that demands a closer look and believes that government and business will have to get together to help take recent planning to the next stage.  We signed up to support that new challenge and will be inviting startups and investors to join together with us to engage, in the coming months.

FINAL THOUGHTS

We began our interviews with a hypothesis, but we left with something more akin to a sense of wonder: the special openness, engineering-savvy, and civic pride of Austin really are attracting the varied brew of characters we need to demonstrate to the world how digital business can yield human results in an urban setting.  That is what Smart Cities are all about, and we can think of no better hotbed for a Smart Cities Center of Excellence.  We are excited to be on the ride and hope that you’ll join us.