Monday, March 14, 2005

Venture capital in Houston

The Houston Business Journal has a cover story this week on the local venture capital environment, which has been one of the biggest barriers to a more robust startup scene here. The largest funds tend to be on the coasts, and they like their investments to be nearby for easy monitoring. The article mentions several promising tech firms that have relocated away from Houston as a condition of financing.

The solution to building more local VC depth is relatively simple: local institutional investment funds need to demand it. Houston endowments and pension funds already specify that some small, single-digit percentage of their assets go into VC/private equity (mostly on the coasts). Why not specify that some portion of that stay local? If even 1% of these institutional assets stayed in local VC funds, it would vastly increase the capital available and attract new partner and management talent to the area.

Yes, I understand that these institutions are very sensitive to the risk of compromising their main mission - return-on-investment - for somewhat vague community improvement goals. But with a little diligence and scaling it up slowly over time, there's no reason they can't get the same returns here they get from the coastal VC firms, while also substantially boosting the local economy and community - something I'll bet is in most of their mission statements if they take a look. Universities in particular (and I mean you, Rice) should be able to see the benefits of targeting some of their endowment investments locally to stimulate the startup scene, thus making it easier for them to lure top faculty and students to Houston. It's called a virtuous cycle, and we need more of them in this town.

If you sit on an institutional investment board, do your community a favor and bring it up for discussion at the next meeting. As employee, ask your employer for a locally-focused "special situations" fund option in your 401K plan. If you're a voter, ask your elected representative why our public employee pension funds aren't doing this. This is definitely a case where a few small voices can make a big difference.


At 9:50 PM, September 04, 2007, Blogger Josh Tabin said...

Tory, I could not agree more. We all collectively share the responsibility and burden for improving venture funding in Houston for startups. Kurt and I at bang this drum daily. We have some ideas under development that may help improve the local landscape for startups that we need to keep you and your readers apprised of.

At 5:37 PM, December 26, 2020, Blogger Tory Gattis said...

This is now definitely allowed in 401k funds!

At 8:02 PM, December 28, 2020, Blogger Tory Gattis said...

More clarity on how they can be included in 410k funds - hat tip to Eric.

At 8:13 PM, December 28, 2020, Blogger Tory Gattis said...

Evidently it would need to be part of a balanced fund. I could see a “Houston balanced fund” that mixes Houston stocks, Houston-company/govt issued bonds, and Houston-focused private equity. Basically a broad bet on Houston as a growing thriving city. I think a lot of locals would buy a piece of that!


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