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McNair Center Rice Entrepreneurs Startup Ecosystems

How to Make Texas More Startup-friendly

profileOver the last decade, Blake Commager (@commagere) has raised over $12 million in venture capital funding, started seven companies and sold fiveincluding the first version of Facebook Causes and some of the most popular apps on Facebook, such as Zombies and Vampires. Born and raised in Midland, Texas, Commager graduated from Rice in 1999 and moved to the San Francisco Bay Area in 2003.

Commagere is the CEO of MediaSpike and an angel investor, advising several startups in the Bay Area. His varied experience in the tech startup space, from founder to investor and mentor, gives him a comprehensive perspective on the Silicon Valley startup ecosystem. As Commagere worked at a startup and tried to start a company in Austin before moving out to Silicon Valley, I was interested in learning why he chose to move out to the Bay Area and what Texas could do to better support startups.

Iris Huang: What brought you to the Silicon Valley?

Blake Commagere: I had always been interested in solving the problem of address book updating. In 2003, a friend of mine and I were working on our own company in Austin, and while doing competitive analysis, we found out Plaxo, a startup in Mountain View, California, was trying to solve the same problem. I liked their solution and they already had funding so I moved here to join the company.

I also felt the pressure to move to the Bay Area. By virtue of having a high concentration of tech talent, the Bay Area created a gravitational pull for even more tech talent. You see that with a lot of industries—they blow up largely in a few cities and as the ecosystem develops around them, the momentum increases, which makes it harder for other cities to compete. The more talent it has, the more successful the industry becomes in the region, the more new talent comes. The concentration of talent creates a virtuous cycle—in the Bay Area, the former successful startup founders become the next generation angel investors and venture capitalists, who fund and help more startups succeed.

The concentration of talent in the Bay Area has two main advantages:

The sheer concentration of talent and ecosystem make the process of building a startup easier, not a lot easier, but even if it’s just 2 percent easier, that makes all the difference. Given how hard it is to build a company, anything that makes it a little easier can be incredibly important. The high concentration of talent in the Bay Area makes it easier for startups to hire good employees. Startups will also have an easier time meeting people who can provide advice and introduce them to investors.

The large tech community in the Bay Area also provides a lot of emotional support, which turns out to be extremely important for startup founders. What’s unique about entrepreneurship is the combination of the high level of stress and lack of experience and resources. It’s very intimidating as an entrepreneur when you have a dozen things you have to do today but you have no idea how to do any of them. No business school teaches you what you need at a startup day to day. Sometimes other founders can’t help you either, but at least, you can commiserate with them. For example, after you pitch to a dozen VCs and no one wants to invest, you can talk to your community—they’ve all been through the pain so they understand how you feel. The therapeutic value of the commiseration is really important. You won’t feel so lonely, which, in addition to the hardship of building a company, could be overwhelming.

IH: How can Texas cities become more friendly to founders?

BC: A good ecosystem for startups cannot be developed overnight. It takes several entrepreneur/venture capital cycles—maybe over 20 years.

Someone should have a laser focus on building the tech community so entrepreneurs no longer feel alone in their journey. What entrepreneurs are trying to do is just too overwhelming to do on their own. They will leave for somewhere that has a supportive community if they can’t find the mentorship and network locally. In Austin, most of the time meetings happen by chance. Serendipity is unreliable—someone needs to build a tight knit community and make sure the support network is well-organized.

Someone has to bring capital there. No matter how great the idea is, you need to have money to fund it and make it happen. The number of VC firms and the amount of VC funding in Texas are limited (Note: total VC funding in Austin is $834 million, as compared to $25 billion in Silicon Valley according to the MoneyTree Report from PricewaterhouseCoopers). In Silicon Valley, there are so many funds; a startup can be rejected by a dozen of the top VC firms and still be able to raise funds from hundreds of other VCs. However, in Austin, if you pitch to Austin Ventures and they say no, your fundraising is over.

Also, with a small number of VCs, their time is limited so they can only invest in a small number of companies. Imagine if there are 100 great startups that deserve to be funded but there are only six general partners in your region. Simply for lack of VCs, some of these companies won’t get what they need to survive.

IH: Why is it necessary to raise VC funds locally?

BC: Silicon Valley VCs are unlikely to invest in startups in Texas. VCs have strong motivation to invest in nearby companies because the nature of venture capital investing—95 percent of startups fail—forces them to use their time wisely. VCs usually take board seats at the startups they invest in. Every board seat they take is an opportunity cost, preventing them from taking others. When VCs invest in startups in other cities, they have to travel for board meetings. So the time they spend on that board seat is longer and the opportunity cost for that investment is higher. That’s why you can’t expect Bay Area VCs to invest in Texas startups and when they do, the bar might be three times higher for Texas startups than Bay Area startups.

Funding is not the only value VCs provide for startups; their professional network plays an important role in helping startups succeed as well. However, VCs’ network is geographically dependent. If the startups are far away, they will not be able to benefit from VCs’ powerful network. This lowers their chance of success. This also discourages VCs from investing outside their primary cities.

Raising a fund to start a VC firm in Austin or Houston could be challenging—the new VCs will have to take the extra step to convince potential limited partners that “there is a reason and opportunity to invest here,” instead simply joining all the other VCs are in the Bay Area. However, this is what has to happen. Ideally, the new VCs have built their career and network in Texas for many years, which gives them the motivation and ability to raise a fund locally.

IH: How can Texas cities retain local talent?

BC: It all comes back to the availability of VC funding. Frequently I see announcements that a city is hoping to make the city more attractive to startups with programs for office space or professional services. None of that is a big expense compared to your employee costs. Some people argue that since everything is more expensive in the Bay Area, it makes sense to stay in Austin or Houston. For example, with $1 million funding, you might be able to hire 10 employees in Houston, but in the Bay Area, you can only hire 5 employees with similar credentials. However, this is an unrealistic comparison. In Houston, you are more likely to get $0 funding so really you can’t hire anyone while in the Bay Area, you might be able to get $1 million and hire 5 employees.

Each entrepreneur has their own timeline—when they need to raise funding, if there’s no funding available in Austin or Houston, they either have to shut down their startups or move to the Bay Area and raise money here. Right now everyone just follows the gravity and moves to the Bay Area because that’s the easiest. Texas is losing the tech talents and startups that create so many jobs to the Bay Area. It is very important to break the cycle. Step one is to stop the talent drain with VC funding and keep startups here. As the ecosystem matures, the long-term goal is to make it as easy to raise funding in major Texas cities as in the Bay Area.

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McNair Center Rice Entrepreneurs

Spotlight on Rice Entrepreneurs: Elevator Pitch Competition

What is an elevator pitch?

The 8th Annual Rice Undergraduate Elevator Pitch Competition was held on Wednesday, November 16. Elevator pitches describe a problem or need and a design solution in 90 seconds or less. Judges evaluated the pitches based on technical merits of the project as well as the team’s perselevator-358249_1920uasive speaking abilities.

Who can participate in the Rice Elevator Pitch Competition?

Although the competition was open to any Rice undergraduate student or team with a business concept or idea, this year senior engineering design teams won each of the ten finalist positions. Some of the ideas pitched in the finals included cost-efficient retractable needles targeted toward patients in India, single-arm propulsion wheelchairs for low-income patients who have shoulder injuries and a mechanical hippotherapy device.

The 2016 winners: Diabetes Compression Sock

Jessica Griffiths, Nikitha Cherayil, Crystal Lin, Amy Fox and Lucas Navarro won First Place and the Popular Choice Award for their pitch. This senior engineering design team pitched their plan to design a more effective compression sock for diabetes mellitus patients. The inspiration for team’s design is personal; a team member’s grandfather had to wear traditional compression socks to prevent blood clots. Her grandfather struggled to put on these socks by himself, and resorted to enlisting family members for help. Many patients forgo the socks altogether due to this struggle. Jessica Griffiths says a redesigned compression sock could increase patient compliance in wearing the socks, which in turn would decrease their risk for blood clots.

Benefits of participating in the elevator pitch competition

Griffiths praises the elevator pitch competition for giving senior design teams a unique opportunity to showcase their projects. “[The competition] was good for us and the other teams to compete in, because we don’t usually compete against each other.” She also recommends that non-senior design teams enter the competition, particularly freshman pasted-image-at-2016_12_15-04_51-pmengineering students enrolled in ENGI 120. She says that “The entrepreneurship at Rice is one of the best in the nation because we have such creative students here, the Elevator Pitch Competition is excellent practice to learn to present not only something you’re working on but also yourself.”

Upcoming Rice Entrepreneurship Event

The 17th annual Rice Business Plan Competition, the world’s “richest and largest” graduate-level student startup competition, will be held April 6-8, 2017. Applications are being accepted through February 10.

Hundreds of teams apply to the competition, hoping to receive some of the over $1.5 million in cash and prizes available. Over 180 corporate and private sponsors provide support to the competition and investors from all around the nation volunteer to judge.

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McNair Center Rice Entrepreneurs

Spotlight on Rice Entrepreneurs: An Outlet for Owlets

An Outlet for Owlets: New Opportunities for Entrepreneurship and Innovation at Rice

On November 15, the Princeton Review ranked Rice University’s Jones Graduate School of Business third in the top graduate programs for entrepreneurship. For the past eight years, the Jones School’s entrepreneurship program has ranked in the top 10 in the nation. In addition to the Jones School’s ongoing success, several programs focus on undergraduate entrepreneurship and innovation. Recently launched programs promote entrepreneurship through student-led efforts and university-sponsored initiatives.

Consolidating student-led efforts

At the end of Spring 2016, two undergraduate entrepreneurship clubs, Rice Launch (led by Ben Herndon-Miller and Jake Nyquist) and Rice Conversations (led by Iris Huang and Doria Du), merged to form the Rice Entrepreneurship Club. The new club organizes a variety of events, including casual lunch conversations with entrepreneurs, pitch practices and mentor workshops.

Working closely with the Rice Alliance for Technology and Entrepreneurship and the Rice Entrepreneurship Initiative, the club shares opportunities and resources to encourage greater student collaboration. “I think the merge empowered the student leaders from both clubs to better serve student entrepreneurs at Rice,” said Iris Huang ’17, President of the Entrepreneurship Club. “With the substantial pool of combined resources, we are now able to put on more diverse programs and make a larger impact on the student population.”

Developing university-wide programs

In March 2016, Rice alumnus Frank Liu and his family gave $16.5 million to establish the Liu Idea Lab for Innovation and Entrepreneurship (Lilie). Headed by Dr. Yael Hochberg and Dr. Abby Larson, Lilie gives students access to the expertise and experiences that will help them launch their own enterprises.  Beginning next spring, courses offered through Lilie will encourage students to solve real-world problems while working with faculty and entrepreneurs. The Lilie New Entrepreneurs Grant will help incoming freshmen, starting with the Class of 2020, to fund their business ventures. Before matriculating, freshmen can apply for the $10,000 grant that funds the most creative and compelling business ideas.

Learning from entrepreneurs

Students listen to Scott Novich and Evan Dougal from Neosensory.
Students listen to Rice alumni Scott Novich and Evan Dougal from Neosensory.

Through casual conversations and more formal lectures, the Entrepreneurship Club and Lilie have emphasized directly connecting students with entrepreneurs.

On September 15, the club hosted NeoSensory, a startup co-founded by Scott Novich (Rice PhD ‘16). NeoSensory mathematically maps data streams with temporal characteristics to develop a vest that helps the deaf experience sound through touch. More than 70 attendees learned about the product development timeline, the investment process and university intellectual property licensing through the perspective of a startup.

More recently, on October 19, the Rice Entrepreneurship Club hosted a conversation with Shaan Puri from Monkey Inferno, a San Francisco incubator that turns Internet project ideas into successful businesses. Monkey Inferno sold Bebo to AOL for $850 million in 2008 and currently uses that money to fund new projects. Puri shared his perspectives on forming teams and overcoming conflict and disappointment. Additionally, he advised students to become “learning machines,” always looking to learn more and improve. To achieve momentum, Puri encouraged aspiring entrepreneurs to dedicate time each day to their business idea.

Shaan Puri from Monkey Inferno Skypes in from the Silicon Valley to speak with Rice undergraduates.
Shaan Puri from Monkey Inferno Skypes in from the Silicon Valley to speak with Rice undergraduates.

As part of the Lilie Lecture Series, Dr. Larson hosted an event with Samantha Snabes on October 26. Snabes served as the Entrepreneur-in-Residence and Strategist at NASA and founded re:3D, which makes 3D printing more accessible and scalable. During the lecture, Snabes spoke about taking big risks and establishing strong relationships with peers and mentors. When asked about the differences between the startup cultures of the Silicon Valley and cities in Texas, Snabes noted the benefits of being located in Texas while Austin, Dallas and Houston are growing as centers of startup activity.

Dr. Larson explains, “The Lectures bring together expertise and energies from across Rice and Houston. Each Lecture features the insights of an established entrepreneur or innovator on a question of interest to people working across a range of fields. The Lectures provide an opportunity for the exchange of questions and ideas between people who are innovating in many different contexts, and as such, often lead to new and shared insights.”

Engaging undergraduates in entrepreneurial activity

November 4-6, Rice and University of Houston students used this advice to develop technology ventures at 3 Day Startup. During the event, 45 students worked together in 9 teams at TMCx. Prototypes included an Airbnb-style app that connects travelers with locals for authentic meal experiences, a frictionless rental service for household tools and a marketplace where artists can cater to consumers’ requests for original artwork.

Maintaining momentum

The increased focus on entrepreneurship and innovation on campus is promising. This spark will attract more entrepreneurial talent and advance Rice University’s reputation as a hub for innovation.

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McNair Center Rice Entrepreneurs

Rice Entrepreneurs: East-West Tea

This month the McNair Center is spotlighting Rice entrepreneurs to celebrate National Entrepreneurship Month. To kick off our series, we sat down with Andrew Maust, operations manager for East-West Tea.

East-West Tea

East-West Tea began in the spring of 2016 as a project in Scott Davis’s undergraduate marketing class. Dr. Davis, a post-doctoral fellow at the Jones Graduate School of Business, had students develop business strategies catering to underserved markets on campus. East-West Tea founder Drew Sutherland observed that students frequently went off campus to get boba tea and developed a plan to sell the beverage on campus. At the end of the semester, Sutherland and team members Tommy Bennett, David Cooper, Glenn Baginski and Leo Meiste implemented their plan. East-West launched retail operations on October 12.

Impact on the Rice Community

Andrew Maust joined the team last spring after going to several tea tastings. Since then, he’s climbed the ladder from kitchen worker to operations manager.

Maust describes the relationship East-West formed with Rice as symbiotic. “One of [East-West’s] core foundations is serving the Rice community. While what we do isn’t necessarily the easiest logistically, or makes us the most money on profit margins, we think it’s really important to serve the students and help them out in our endeavors.”

Maintaining a healthy relationship with Rice is a balancing act. Rice Housing and Dining provides East-West with shared kitchen space in Sammy’s. Without their own kitchen, East-West must “maintain operations but also not encroach on other people’s space.”

Maust says another challenge is running a small business and keeping up with schoolwork. He works 15-20 hours per week in the kitchen, which is “more hours than [he] takes in coursework”.

Advice to Rice Small Businesses

Maust also gave some advise to students who want to start their own business: “It has to be a labor of love. Your first goal shouldn’t be ‘Ooh, what can I do to make money?’ Because in order to build something that lasts and is high quality, it has to be something that you put in a lot of time and effort for. Money is great, but first and foremost you have to have that drive, that passion and put forth a great product.”

This resonates with advice Bob McNair gave students at an event at the Baker Institute on August 29th: Strive to create value and success will follow.