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McNair Center Startup Ecosystems

Manufacturing Incubators

In the past few decades, there has been a decline in manufacturing jobs in the United States. Companies have been able to produce goods abroad at a cheaper price due to lower labor costs in developing countries.

Incubators are crucial to the revitalization of U.S. manufacturing. The Fulton-Carroll Center Incubator in Chicago is one of the largest and first manufacturing incubators in the nation. It was established in 1980 with $2.6 million in grants from the federal government. In 2015, the city of Seattle awarded the Industry Space Seattle, a manufacturing incubator started by Johnny Bianchi in 2015, a grant of $100,000.

Importance

Traditional startup incubators provide office space, network access and business advice for tech companies developing things like software and apps. Startups usually pay a monthly/annual membership fee, or pay monthly rent at a rate determined by the incubator. The rent is usually slightly more expensive than what companies need to pay to get a similar office in the same area. However, extra value comes from access to the incubator’s resources. Costs are shared among multiple startup companies, as well as by the incubator sponsor. Sponsors can be nonprofit or for-profit entities.

Incubators are perhaps even more important to the manufacturing industry than to the tech industry. Manufacturing firms require more expensive machines and tools, in addition to basic resources. Incubators that provide those technologies are especially important for manufacturing startups that aren’t ready to invest in their own infrastructure yet.

Providing Equipment

Chicago’s mHub, opened in March 2017, is an innovation center for physical product development and manufacturing. mHub is equipped with ten labs, including a 3D-printing lab, fabrication labs, electronics labs, plastic molding, textiles, welding and grinding, wood shop and wet lab. Overall, they provide a total of more than $2.5 million of prototyping and manufacturing equipment.

Industry Space Seattle gives its tenants the use of 10 overhead crane systems, which can cost up to $80,000 each, along with a $30,000 compressed-air system, a $20,000 forklift and an industrial paint booth.

MHub in Chicago

Other Resources

In addition to the machinery and tools, incubators provide manufacturing startups with general business resources. The Industry Space Seattle partners with Impact Washington. Impact Washington is a nonprofit that provides consulting services and business mentoring to fledgling manufacturers.

The Advance Business & Manufacturing Center Incubator, a program provided by the Greater Green Bay Chamber in Wisconsin since 1987, partners with local universities, who connect college students to startups when extra manpower is needed. When multiple firms work in close proximity, they share knowledge and inspire each other with ideas. The business networking at incubators can also foster collaboration and expansion.

Structures of Manufacturing Incubators

The sizes of manufacturing incubators can range from less than 100,000 square-foot to the size of a city block. On the smaller side, the Industry Space Seattle provides up the ten industrial working spaces, while mHub can serve  hundreds of startups at one time.

Although these incubators provide machinery for manufacturing, not all of their client companies are in the manufacturing industry. Startups service companies, ranging from non-profits to law firms to consulting firms, can rent out only the office space at a cheaper price.

Incubator Sponsors

The up-front investment in a manufacturing incubator is expensive. Although most are sponsored by the government, there are individuals who started an incubator because they believe that incubators offer talented minds chances to succeed. Bianchi bought  and renewed a building into Industry Space Seattle because “there’s a whole bunch of people operating out of garages trying to legitimize their business [and] it’s financially infeasible to grow them.” Elissa Bloom started a fashion incubator because “there’s so much talent in the city, but they’re not getting the know-how to run and launch a business.”

Trends and Barriers

The long-term trend in U.S. manufacturing is of more automation to increase productivity with fewer workers. This trend favors larger manufacturers who can afford the capital investment needed to remain competitive. In recent years though, technologies like 3D printing, CNC laser cutters and other CAD/CAM equipment, have reduced the price and time needed for prototyping and development.  There are therefore now lower barriers to entry to new product development in manufacturing, providing firms have access to the necessary technologies.

Conclusion

Manufacturing incubators take advantage of economies of scope and scale by providing capital equipment to manufacturing startups. This works because a typical piece of equipment will be mostly idle even at a fairly large single firm. Manufacturing incubators have also borrowed some best practices from startup incubators. In particular, they often provide broader business services and access to networks.

However, manufacturing incubators are a recent phenomenon. They are still on their first evolutionary cycle and their funding is largely not tied to their performance. Startup ecosystem participants, by comparison, have now faced almost a decade of competitive pressures. Competitive pressures  select  business models and niches that are aligned with market needs. Manufacturing incubators will likely become more successful when they partner with industry incumbents. A first step towards this is to sponsored by local for-profit firms.

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McNair Center Startup Ecosystems

Entrepreneurship for All: Washington D.C.

Washington, D.C. is known for its politicians and bureaucrats, but it’s also where the top-20 U.S. government contractors are based. In recent decades, high-tech, high-growth entrepreneurship has been on the rise in the U.S. capital. Startup ventures, coupled with a diverse economy, largely fueled by the federal government, have led D.C. to emerge as a strong entrepreneurial ecosystem.

History of Entrepreneurship

The diversified needs of the federal government have led to a varied ecosystem. Feldman 2001 concludes that two unique conditions impacted the development of D.C.’s entrepreneurial culture: underemployed skilled labor caused by federal job cuts and the commercial exploitation of intellectual property rights from publicly funded research.

Changes in federal employment policy through the Civil Service Reform Act of 1978 led the federal government to outsource goods and services in an effort to reduce civil service jobs.

The Federal Technology Transfer Act of 1986 created the Cooperative Research and Development Agreements (CRADAs) as a mechanism whereby nonfederal entities can collaborate with federal laboratories on research and development projects. CRADAs aim to promote technological competitiveness and technology transfer to marketable products.

Biotech found a partner in the federal government through CRADAs. Proximity to federal labs has created an important biotechnology cluster attracting Merck and Pfizer among others, as well as startups MedImmune and Human Genome Sciences, later acquired by GlaxoSmithKline.

Other notable startups that emerged under the public-private sector collaboration include Stinger Ghaffarian Technologies, Inc. (SGT), who provides scientific and IT service solutions to a wide array of federal government agencies nationwide including NASA and the U.S. Department of Transportation.

Government outsourcing opportunities benefitted the Information and Communications Technology (ICT) industry. The earliest ITC entrepreneurs were government contractors, who began working on ARPANET, the predecessor of the internet.

When the federal government removed the commercial restriction on the use of internet in 1989, former contractors became tech startups with ample opportunities to grow their ventures.

Resources in D.C.

AOL is a prominent ICT company launched in the D.C. metropolitan area during the 1990s dot-com boom. AOL is also credited for shaping the region’s entrepreneurial ecosystem. Prior to its relocation to Manhattan, AOL funded Fishbowl Labs, a business incubator located at its Dulles campus. Fishbowl Labs provides resources to startups at no cost and a mentorship program through its employee network.

The company also invested in firms such as the D.C.-based tech hub incubator 1776. The incubator is modeled after 1871 in Chicago and the General Assembly incubator in New York. Notable companies currently working with 1776 include Babyscripts, Cowlar and MUrgency. 1776 organizes networking events for the government innovator community to promote the interconnectivity of startups and D.C.’s main consumer, the federal government.

Washington D.C. boasts four top universities in the immediate area with entrepreneurship programs: The Sustainable Entrepreneurship and Innovation Initiative at American University, Startup Hoyas at Georgetown University, Mason Innovation Lab at George Mason University and The Office of Entrepreneurship and Innovation at George Washington University.

Current D.C. Startups

Washington D.C.’s economy is stable and diverse. As of February 2017, the area had an unemployment rate of 2.5% and the gross product of the area was $471 billion in 2014, making it the sixth-largest U.S. metropolitan economy.

D.C.’s ecosystem has historically been linked to government agencies, but more recently, the startup community has had greater diversity. Notable startups out of D.C. include LivingSocial, iStrategyLabs and CoFoundersLab. Advertising company iStrategyLabs has created devices and advertising campaigns for 21 Fortune 500 companies. CoFoundersLab connects entrepreneurs via an online network.

The success of LivingSocial has invigorated the D.C. ecosystem with a new generation of startups. Borrowing Magnolia, a wedding dress rental business, Galley, a freshly prepared food delivery service, and online custom framing business, Framebridge, are among the ventures founded by LivingSocial alumni.

Venture Capital in Washington, D.C.

The D.C. startup scene is home to a number of influential venture capital firms that help invigorate the ecosystem. Venture Capital investment in D.C. has reached around $350 million in investment for years 2014 and 2016, with investment lower than $200 million in 2015.

According to a report from the Martin Prosperity Institute detailing worldwide VC investment in high-tech startups, D.C. is ranked eighth in the world with a total cumulative venture capital investment of $835 million until year 2012 (the most recent year these detailed data are available).

Data indicating the number of first-round deals in D.C. illustrate a stable ecosystem with an average of 36 first-round deals per year in the last five years.

One of the largest venture capital firms in the world, New Enterprise Associates (NEA), calls both D.C. and Silicon Valley home. In 2015, NEA’s fourteenth investment fund closed with $3.1 billion in investor capital, making it the largest venture capital fund ever raised. NEA invests in technology and health care companies around the world, but continues to support companies in D.C. such as online movie player SnagFilms and software producer Cvent

A diverse portfolio of venture capital firms are settled in the ecosystem to guarantee funding sustainability. Fortify Ventures, an early stage technology investment fund, nurtures investors and entrepreneurs. Fortify has received $100,000 in funding from the D.C. mayor’s office. D.C. startup, Social Tables, recently raised $13 million in Series B funding from Fortify Ventures and other investors.

Other notable venture capital firms in the D.C. area include Groundwork VC, a fund for minority founders, New Atlantic Ventures, a firm that invests in early stage startups and NextGen Venture Partners, which transitioned from an angel network into a venture capital firm this year.

D.C. venture capital investment is strong, but compared to areas such as San Francisco, which posted over six billion dollars in venture capital investment, San Jose (approximately $4 billion) and Boston (approximately $3 billion), VC investment in D.C. still has room to grow.

Startup-Friendly Government Policy

Local government policy incentivizes companies to move to or remain in D.C. The District waives corporate income taxes for the first five years and provides new-hire wage reimbursements for startups. However, D.C.’s regulatory environment still implies high costs for obtaining business licenses and permits.

Washington’s venture capital firms, angel networks and private investors cannot compete with the extensive network and resources in established ecosystems like Silicon Valley or the Research Triangle in North Carolina. According to Dow Jones VentureSource, about 50% of all venture capital invested in the United States goes to companies in Silicon Valley.

Despite Silicon Valley’s dominance, D.C.’s location, culture and resources position it as a strong ecosystem. D.C. will continue to take advantage of the resources and opportunities presented by the federal government.

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Read the Houston Entrepreneurship Pipeline Report

This paper examines the startup training institutions in Houston, Texas, and what they are doing to open up the city’s pipeline of startup firms.

Recent academic research has shown that startup training institutions can have an enormous positive effect on an ecosystem’s growth. A good ecosystem pipeline turns out a large quantity of high-quality startup firms that have received top-tier training. Houston’s accelerators and incubators do not perform at the levels of benchmark institutions. The quality of deal flow coming from its accelerators, incubators, and hubs will be crucial to Houston’s future.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 12/02/2016

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:


Keep Austin Entrepreneurial

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In 2016, Austin was ranked as the number one U.S. city for startup activity by the Kauffman Foundation. Austin’s entrepreneurial ecosystem began in the 1970s and 1980s, and was originally focused on computer and semiconductor manufacturing.

Austin’s “Silicon Hills” has diversified into “more than the computer chip and semiconductor industry that first enabled its growth.” The annual South by Southwest Festival draws thousands of tech startups to the city and provides excellent networking opportunities for entrepreneurs. The University of Texas at Austin adds thousands of skilled employees to the city’s labor force each year. Additionally, UT Austin’s boasts the Austin Technology Incubator, a startup-focused incubator run by the university’s IC2 Institute.

Austin provides entrepreneurs with supportive policy infrastructure, skilled and energetic laborers and access to valuable mentorship opportunities. If efforts to grow Austin’s economy continue on their current path, the city will be well poised to solidify its presence as a thriving entrepreneurial ecosystem.


Overtime Rules in Limbo: What Businesses Should Do Now

Jeremy Quittner, Reporter, Fortune

Last week, a federal judge judge in Texas granted a preliminary injunction against the Department of Labor’s new overtime rules that were set to go into effect on December 1st. The new overtime rules would have increased the threshold salary for overtime workers to $47,476 from $23,600. Many small business owners, acting in preparation for the new rule, made the difficult financial decision to switch salaried workers to hourly status.

The preliminary injunction still must go through an additional 60 day period of court hearings before it becomes an official injunction. Additionally, the Obama administration’s Department of Labor could still appeal the judge’s decision to the U.S. Court of Appeals for the 5th circuit. It is not yet clear if the administration will challenge the judge’s decision. Even if the decision is appealed, success on appeal is doubtful; in the court’s recent history, the U.S. Court of Appeals for the 5th Circuit has tended to challenge the Obama administration.

McNair Center’s Catherine Kirby previously examined the effects of new overtime labor laws on small businesses in her blog post Small Business and Overtime Regulation.


One simple way billionaire investor Peter Thiel identifies game-changing startups

Eugene Kim, Reporter, Business Insider

Peter Thiel, serial VC investor and founder of PayPal, is known for his profitable investments in successful billion dollar startups, such as Facebook, Palantir, Stripe and SoFi. Business Insider’s Kim reports possible insights into Thiel’s keen eye for return on investment.

In an interview at VC firm Khosla Ventures’ KV CEO Summit, Thiel recently said, “I think in some ways the really good companies often couldn’t even be articulated…we didn’t quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading.” Thiel cautioned investors away from startups that rely on buzzwords, such as big data or cloud computing, in their pitches. Thiel said, “…when you hear those words, you need to think fraud and run away as fast as you can. It’s like a tell that you’re bluffing, that there’s nothing unique about the business.”


White House expands platforms for inclusive entrepreneurship

Kate Conger, Reporter, TechCrunch

The White House recently announced “new and expanded plans to improve diversity and inclusion within the startup economy.” The plans are focused on promoting diversity in higher education, investment and entrepreneurship. The initiatives reflect the Obama Administration’s commitment to improving minority representation in universities, investment firms and tech companies. By focusing the initiatives within the private sector, these efforts will hopefully continue after his departure from office.

More than 200 universities, all members of The American Society for Engineering Education, have signed a pledge to promote diversity in their engineering programs. Additionally, more than 30 VC firms and accelerators signed a pledge to diversify access to seed and early stage capital for underrepresented entrepreneurs and reveal information regarding their portfolios’ diversity. Furthermore, 46 tech companies, including Xerox, have joined the Tech Inclusion Pledge, demonstrating a commitment to publicly publish recruitment goals and diversity metrics.

Tom Kalil, deputy director for technology and innovation at the White House Office of Science and Technology Policy, reportedly told TechCrunch there is existing data that indicates diverse firms are more diverse are more likely to be successful. According to Kalil, “A lot of innovation comes from diversity, people with different backgrounds.”


Data science startup Civis Analytics raises $22 million

Ken Yeung, Contributor, VentureBeat

Civis Analytics recently announced that it bagged $22 million in its latest Series A funding round. Civis Analytics was born out of President Obama’s 2012 reelection campaign. Though originally focused on political campaigns, the data science company’s cloud-based platform provides data analytics tools and methodologies  to organizations focused in areas such as health care, media and education. Since its inception, the startup has relied on revenues, rather than funding, to support its operations. However, the startup announced its recent funding will go toward hiring more engineers and data scientists.

Civis Analytics CEO, Dan Wagner states the importance of data analysis to business success: “Everyone knows that they need to be using data, but most don’t know where to start. Or, if they are using data, they aren’t necessarily asking and answering the right questions.”


Stripe Investment Makes Cofounder The World’s Youngest Self-Made Billionaire

Ryan Mac, Reporter, Forbes

Brothers Patrick and John Collison are cofounders of San Francisco-based startup Stripe. Stripe is a tech company that enables private individuals and companies to engage in transactions via the internet and on mobile apps. MIT and Harvard dropouts, respectively, Patrick and John Collison recently joined the ranks of the world’s youngest self-made billionaires. Stripe recently announced a successful funding round, which doubled the startup’s valuation to $9.2 billion. CapitalG and General Catalyst Partners jointly invested $150 million in Stripe during its latest funding round.

Despite their early success, the Collision brothers are still hungry for more; Patrick Collison told Forbes in January of 2014 that, “Heartening as the success to date has been, we are so early in accomplishing the goals that we set out for ourselves. If anyone here believes that Stripe has already made it, that would be hugely problematic for us.”


QA with Kauffman’s Victor Hwang on entrepreneurship in the heartland

Ryan Pendell, Contributor, Silicon Prairie News

Victor Hwang, Vice President of Kauffman Foundation, and Phil Wickham, Executive Chairman of Kauffman Fellows set out on a road trip through America’s Midwest earlier this month to “take the pulse of entrepreneurship in America’s “middle.” Despite a nationwide political narrative that depicts the Midwest in a state of slumping stagnation, caught between booming coastal economies, Hwang and Wickham report that Midwestern entrepreneurs are actively seeking out business solutions to improve the quality of life within their communities. Since the benefits of the tech boom have been focused on the coasts, Hwang and Wickham cite the biggest challenges to Midwestern entrepreneurs as access to capital.

According to Hwang, the need to build infrastructure and capital should be considered both a challenge and an opportunity for Midwestern entrepreneurs going forward. Hwang expressed optimism for the future of the Midwestern economy, claiming that the region’s culture of “civic mindedness, that willingness to pitch in, that willingness to take risks and help others reach their ambitions” is still alive.


Policy Changes Needed to Unlock Employment and Entrepreneurial Opportunity for 100 Million Americans with Criminal Records, Kauffman Research Shows

Ewing Marion Kauffman Foundation

According to a report recently published by the Kauffman Foundation, rethinking America’s “occupational licensing policy could counter recidivism, encourage entrepreneurship and boost the American economy.” Currently, occupational licensing requirements prevent individuals with a criminal history from securing licenses that could open the door to financial stability and self-sufficiency. Many occupations that require occupational licenses are on low-skilled and high-skilled professions; increased labor participation, productivity and entrepreneurship by released inmates within these fields could therefore produce benefits for the overall economy. According to the Kauffman Foundation’s study, over 60 percent of inmates released each year from state or federal prison are still unemployed after one year of their release.

The Kauffman Foundation’s Emily Fetsch notes that the high levels of recidivism and unemployment among ex-convicts indicate a fundamental issue with the country’s occupational licensing policy: “Hundreds of professions that require occupational licenses could provide paths to economic independence for those formerly incarcerated, except for the fact that their criminal histories alone may ban them from receiving licenses, even if their convictions had no relevancy to the job.”

Fetsch recommends reforms to occupational licensing policy that would exclude only criminal defendants who pose a a public threat or when convictions are recent and relevant to the context of an occupation. Additionally, Fetsch proposes offering the formerly incarcerated opportunities to earn rehabilitation or restoration certificates, thereby preventing inmates from automatic disqualification for consideration of occupational licenses solely on the basis of their arrest. Lastly, Fetsch contemplates disposing of occupational licensing requirements altogether, expressing skepticism for the regulation’s effects in promoting public safety and health.


An Incubator for (Former) Drug Dealers

Maura Ewing, Reporter, Bloomberg

“Amid calls for more job training, less automatic background searching and other changes that would make it easier for ex-felons to become employees” Bloomberg’s Ewing reports on an alternative perspective solution on the fight to curb recidivism and unemployment  among the formerly incarcerated: encouraging them to start their own businesses.

The public and private sphere should continue to push programs that support formerly incarcerated individuals, as well as tackle the structural problems that face these prisoners as they re-enter society. However, Ewing asserts that more emphasis should be placed on the potential returns on fostering entrepreneurship among this commonly dismissed population.

Defy Ventures, a nonprofit incubator based in New York, certainly achieved success in this regard by transforming ex-convicts into entrepreneurs. Over the past six years, Defy Ventures has trained upwards of 500 released felons and successfully incubated over 150 companies. What’s more, the recidivism rate among the incubator’s alumni within five years post release is an astonishing 3 percent, compared to the national average of 76 percent. Defy Venture’s efficacy in curbing recidivism rates suggests that future initiatives to support released prisoners should be focused on entrepreneurship.

Ewing’s article tells the story of another incubator underway in Hartford. The incubator, TRAP House, focuses on supporting former drug dealers as they start new, legal companies. The incubator’s name makes a clever reference to slang for drug-stash locations and is “short for transforming, reinvesting and prospering.”

Happy Holidays from the McNair Center for Entrepreneurship and Innovation. The Entrepreneurship Weekly Roundup will return in January.

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McNair Center Startup Ecosystems

Keep Austin Entrepreneurial

Ranked number one for startup activity in the last two years by the Kauffman Foundation, Austin, Texas is one of the strongest emerging entrepreneurship ecosystems in the United States. Austin’s history of entrepreneurship and supportive government has facilitated Austin’s emergence as an entrepreneurial ecosystem.

Austin’s History of Entrepreneurship

During the 1970s and 1980s, Austin’s entrepreneurial ecosystem focused on computer and semiconductor manufacturing. Efforts by the Austin Chamber of Commerce, such as low mortgage rates for relocating staff and tax incentives, fueled the move of several major companies to Austin: IBM in 1967, Texas Instruments in 1969 and Motorola in 1974. A doubling in student attendance at the University of Texas in the early 1970s increased the educated workforce in the region.

The selection of Austin as the home of the Microelectronic Computer Corporation (MCC) in 1982 accelerated this concentration of high-tech companies. Facing fierce competition from Japan’s Fifth Generation Project, major U.S. companies banded together and created MCC, one of the largest computer research companies at the time. MCC chose Austin instead of Silicon Valley and Route 128 because the University of Texas offered MCC a subsidized lease and the Chamber of Commerce facilitated low-cost loans and reduced mortgage rates for staff moving to Austin.

Austin, Texas
Austin, Texas

Initially, the Austin ecosystem was primarily large businesses, such as IBM and Texas Instruments. This focus changed after the oil slump and savings and loan crises of the late 1980s and early 1990s crippled the Texas economy. Austin was not spared. It had one of the highest commercial real estate vacancy rates in the country and companies laid off large numbers of employees.

In response, the University of Texas formed the Austin Technology Incubator (ATI) in 1989 to jumpstart the local economy through high-tech startups with high-growth potential. In 1989, Greg Kozmetsky, the brain behind ATI, founded Austin’s first angel network, the Capital Network. These initiatives provided a foundation for growth during the 1990s dot-com boom. Austin companies such as Garden.com, an online gardening shop that raised $50 million in venture capital, and DrKoop.com, an “Internet-based consumer health-care network,” that was worth more than $1 billion, found success in Austin.

In 2000, thirty Austin venture capitalists invested over $2 billion in entrepreneurship ventures. The subsequent burst of the dot-com bubble in the early 2000s hurt Austin. After the 2001-2003 economic downturn, the region experienced major industrial restructuring and a renewal of entrepreneurship.

In 2003, the business community raised $11 million for Opportunity Austin, an economic development program. Opportunity Austin focused on recruiting new businesses, marketing Austin effectively and stimulating entrepreneurship and emerging technology sectors.

Less than five years after the last economic downturn, the Great Recession of 2008 set back many new Austin businesses. While venture capital and small business creation are not at the level they were during the dot-com boom, the rate of startup growth is currently 81.23 percent.

Entrepreneurship in Austin Now

Austin is experiencing yet another entrepreneurship boom. Austin now has the supportive policy structure, mentors and sector diversification required to finally establish a lasting ecosystem.

Austin’s cultural support of local businesses and responsive state and local government policies are fueling its start-up growth. The absence of state income tax incentivizes young professionals to work and settle in Texas. The local Austin government provides services for people considering starting a business such as BizAid Business Orientation and Small Business Program. The Entrepreneur Center of Austin and the Indus Entrepreneurs of Austin specifically provide support for start-ups. The University of Texas’ Herb Kelleher Center for Entrepreneurship, Growth and Renewal connects Austin entrepreneurs with resources.

As a result of Austin’s strong history of entrepreneurship, mentorship opportunities for nascent entrepreneurs are readily available. Austin companies, such as Dell, offer mentorship and accelerator programs. Entrepreneurial hubs, such as Tech Ranch Austin and Capital Factory, serve as an intersection between Austin incubators, accelerators, coworking spaces and also offer mentorship programs for entrepreneurs.

While known as “Silicon Hills,” Austin’s entrepreneurship economy is much more diversified than the computer chip and semiconductor industry that first enabled its growth. According to a 2015 Austin Technology Council report, approximately 14 percent of the $22.3 billion value of Austin’s tech companies came from semiconductors. Computer and peripheral equipment contributed 31 percent. Both Austin-born and transplanted companies focus on the bioscience, energy, clean-technology, water and IT/wireless industries. Austin has an extremely strong tech-focused entrepreneurship industry, but it also has successful media, education and social and craft/lifestyle ventures.

Venture Capital in Texas and Austin

Texas’ venture capital investment has decreased by 19 percent over the past ten years. To maintain a healthy entrepreneurship ecosystem, it is imperative that venture capital investment increases in the coming years.

Austin’s ecosystem lacks capital. In 2014, Austin saw 99 venture capital deals worth $739 million. In contrast, Silicon Valley saw 1,333 deals worth more than $27 billion. While there is no shortage of capital in Texas, there is a lack of capital access, information and government support. The majority of Texas capital is invested in oil, gas and real estate. These are considered by many to be less risky than entrepreneurship ventures. However, as oil prices fall, Texans should consider trying to raise growth and investing in entrepreneurial ventures.

Austin’s most prominent venture capital fund, Austin Ventures, closed in 2015. Phil Siegel and David Lack left to form Tritium Partners to provide capital for startups in Austin. Its first fund of $309 million is a fraction of the $900 million Austin Ventures raised at its peak. Silverton Partners and S3 Ventures have tried to fill the void left by Austin Ventures. However, none of these Austin venture capital funds have the capital or assets that Austin Ventures had.

Entrepreneurial Resources in Austin

Austin has a plethora of resources for entrepreneurs. The annual South by Southwest Festival provides networking opportunities. Companies are taking advantage of the 100,000 college students that graduate each year in the greater Austin area. The University of Texas at Austin boasts the Austin Technology Incubator under the IC² Institute, which has raised almost $700 million in investor capital to achieve this goal. Additionally, the Central Texas Angel Network provides capital and mentorship support for entrepreneurs in the Central Texas region.

What Starts in Austin, Changes the World

Austin’s entrepreneurial ecosystem is moving towards national recognition. Favor, a food delivery app, is an alumni of ATI and backed by Austin’s S3 Ventures and Silverton Partners. HomeAway, an Austin based online rental marketplace, was established in 2005 and acquired by Expedia for $3.9 billion in 2015. In the upcoming years, it is critical that capital investment continues to support new ventures such as Favor and HomeAway. Austin’s ecosystem has the policy, talent and mentorship to be successful, but private and public efforts must continue to ensure its success.