Thursday, March 26, 2009

How to make Houston and Texas the next Silicon Valley

Paul Graham, the famous tech investor and writer, has a new essay out claiming any city has the potential to be the next Silicon Valley - or at least a close second - just by throwing money at the issue. Specifically, he thinks about $1 billion dollars would do it, distributed in $1 million dollar increments to lure 1,000 top tech startups to town. The assumption is that that critical mass would grow on its own from there, with cash-outs from winners become angel investors in the next wave. A billion dollars might sound like a lot, but he notes it's just one football stadium (or two in our case).
For the price of a football stadium, any town that was decent to live in could make itself one of the biggest startup hubs in the world.

What's more, it wouldn't take very long. You could probably do it in five years. During the term of one mayor. And it would get easier over time, because the more startups you had in town, the less it would take to get new ones to move there. By the time you had a thousand startups in town, the VCs wouldn't be trying so hard to get them to move to Silicon Valley; instead they'd be opening local offices. Then you'd really be in good shape. You'd have started a self-sustaining chain reaction like the one that drives the Valley.
Interestingly, the 30-startup experiment could be done by any sufficiently rich private citizen. And what pressure it would put on the city if it worked.
Then he shows a little of his Boston/SF bias:
It will be easier in proportion to how much your town resembles San Francisco. Do you have good weather? Do people live downtown, or have they abandoned the center for the suburbs? Would the city be described as "hip" and "tolerant," or as reflecting "traditional values?" Are there good universities nearby? Are there walkable neighborhoods? Would nerds feel at home? If you answered yes to all these questions, you might be able not only to pull off this scheme, but to do it for less than a million per startup.
I'd like to point out the original Silicon Valley had nothing to do with "walkable neighborhoods", and was - and pretty much still is - completely suburban. Houston's core still scores pretty well on these criteria. We certainly have more than our share of engineering nerds.
I realize the chance of any city having the political will to carry out this plan is microscopically small. I just wanted to explore what it would take if one did. How hard would it be to jumpstart a silicon valley? It's fascinating to think this prize might be within the reach of so many cities. So even though they'll all still spend the money on the stadium, at least now someone can ask them: why did you choose to do that instead of becoming a serious rival to Silicon Valley?
Here's my own proposal: bring Silicon Valley to us. Or at least the critical parts. Figure out the hundred+ most important angels and venture capitalists in SV, and get them to agree to a once-a-month day trip (or maybe one overnight + a day) on a chartered plane to Houston to stay at a top-tier hotel (cut a deal in bulk for cheap off-peak Sunday nights) and meet with local tech startups all day - all expenses paid. All they have to do is show up for the flight and we take care of them from there. Then provide high-fidelity telepresence facilities to allow them to mentor their chosen startups between those monthly visits. It's not just about their money, but their extensive expertise in choosing and mentoring tech startups. What do they get out of it? Access to startups, technologies, and talent they would not normally see, with the geography barrier essentially removed.

Now, one good argument for why this might not work is that there's not a critical mass of good-quality tech startups in Houston to lure them. But what about Texas as a whole, or at least the Texas Triangle? That's got to be a huge mass of startups, technology, and talent that they'd love to tap. How would that work? Hold your ears, Longhorns: I think relatively central College Station is the answer. Fly them there once a month, and charter buses from all the major Triangle cities on day trips to bring the tech talent/startups to them there. It's within 2-3 hours for most while also tapping talent and technology from Texas A&M, the other top-ranked tier-one public research university in Texas.

OK, maybe it could switch between College Station and Austin on alternating months. Austin's not as central, but clearly it's Texas' tech startup capital and may be more attractive to the SV crowd. UT and A&M would be major supporting sponsors, of course (especially their tech transfer offices), maybe donating campus facilities for the meetings and sessions.

Branding options: Techxas Day? Silicon Texas Meetup? I'm open to suggestions in the comments.

It would be a huge boost to Texas' tech startup scene to be able to tap that Silicon Valley power and money base. And I think we have a critical mass of tech here in the 18+ million-person Texas Triangle that would outweigh any other region of the country in attractiveness to that crowd.

In the shorter-term, and on a smaller-scale, Houston needs to get it's own Y Combinator-type incubator program up and running soon, just like Atlanta, Austin and many others recently have. Does anybody know if somebody is putting something like this together?

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At 7:42 AM, March 27, 2009, Anonymous Anonymous said...

This guy's solution is like people saying that all they need is more money to make the education system better.

It's much better to target the companies that VC types are throwing money at. Don't go after anyone with a letterhead and has a catchy tech name.

At 8:06 AM, March 27, 2009, Anonymous Anonymous said...

Does this theory only apply to tech startups? I ask because I see the Nano World Headquarters being planned as something similar: throwing money at it in hopes they'll come. I hope it works.

Also, I have a question. Do nerds of different fields have different expectations, lifestyle preferences, and personalities? The reason I ask is because I work with tons and tons of "nerds" here in the oil services industry. They're all "nerds" but most of them live in the 'burbs and master planned communities. They dress like normal people and even look like normal people. Are these tech nerds really so different from oil nerds?

I don't believe we need a happenin' urban core to draw these people. I believe we need to stick to our guns. Provide a friendly business environment, maybe give them a soft push, and they'll come. Of course, those other things don't hurt, but let's remember what got us here.

At 10:06 AM, March 27, 2009, Blogger Tory Gattis said...

I think the younger nerds do like places like Austin (and Houston's core, if they really know about it), but once they get married and have kids, they go to the 'burbs like everyone else.

At 10:32 AM, March 27, 2009, Blogger kennethjulikiera said...

The first problem I have with these absurd notions is they don't define terms. What is a tech start up? Never defined. There are many startups in the Houston area across many industries that are decidedly high tech: oil, bio-science, geology, aerospace, polymers, steel. What tech are we talking about that we don't already have?

The second problem I have is the empirically unproven notion that sustainable long term economic growth comes from tech or start ups, whatever that means.

The third problem is the fetish with "angel investors" and "venture capitalists". What is it an "angel investor" can see that your everyday investor cannot. It is empirically proven that venture capitalists as a group can't pick winners any better than the rest of us. Occasionaly, one scores a home run; but, occasionally, one of my lotto tickets comes in. That doesn't make me some kind of lotto wizard.

At 12:12 PM, March 27, 2009, Blogger Appetitus Rationi Pareat said...

Perhaps the reason we don’t see as many start-ups here is that many of the techies and engineers are hired by large companies (a lot of them energy companies) and they tend to gobble up the talent and lock them in. Also the nature of the energy business (at least the traditional energy business) is such that it makes it difficult for start-ups to survive given the massive barriers to entry. Compare that with many software companies or tech gadgets. Even alternative energy companies require massive infusions of capital just to get the ball rolling which is something that many VC and angels would be unwilling to risk.

At 3:29 PM, March 27, 2009, Anonymous Anonymous said...

Some observations re: "high tech start-up."

Kennethjulikiera is right, and wrong, that the term isn't defined. Thanks to the dot-com boom, it's generally understood that "high-tech start-up" refers to information technology companies designed from the ground up to become massive enterprises.

It's a credit to Silicon Valley's marketing savvy that they've managed to claim ownership of "high-tech," even though energy, life sciences, and nanotechnology are vastly more "high-tech."

As to Paul Graham's idea, the main idea seems to be that becoming an innovation center requires reaching critical mass, a la an atomic bomb, or population inversion, if you prefer lasers.

Entrepreneurs don't like to be stifled, they prefer to be wild and free. That's why Graham's observation about seed capital is so important:

"The seed funding business is not a regional business, because at that stage startups are mobile. They're just a couple founders with laptops. [1]"

Ideas are easy to move. So are the brains that created them. You have to get them to want to stay, which isn't easy.

Even Austin, which is an acknowledged center of "cool", has a hard time hanging on to start-ups when they get the call from Silicon Valley. Blame it on the masterful branding job done by Silicon Valley-ites.

Whether Houston CAN create such allure seems secondary to whether it SHOULD.

At 5:09 AM, March 29, 2009, Anonymous Anonymous said...

The silicon valley exists because its provides all of the services necessary to start up a Fortune 500 company. Its not just about attracting the engineers, its also about attracting, the securities lawyers, and accountants that prepare a company for public offering and investment banking talent and venture capitalists to help weed out which ideas will and will not work as well as to sell the deals.

That is a complicated ecology to reproduce.

If it was easy to move this industry, it would have fled to India, because costs are so much cheaper there and the gains to do it would be huge. Whatever cost advantages Houston has over the Silicon Valley, India has even bigger advantages over Houston.

There are people like Murthy that have the resources to do it.

At 6:01 PM, March 30, 2009, Anonymous Anonymous said...

how many of these 1000 startups need to be legit and or successful, for us to reach critical mass, and do you trust any of our local governments to be able to accurately predict which ones will be legit and successful.

At 7:50 AM, March 31, 2009, Blogger Peter Wang said...

One of things I do is that I do corporate recruitment for the largest oilfield services firm in the world. We have a huge, billions of dollars of year annual investment in technology R&D.

We don't even bother to recruit at MIT, Stanford... because those newly-minted Ph.D.s will not accept the lifestyle degradation that they would have to experience in Houston. Sorry, Palo Alto (suburban in form as it is) simply beats the heck out of suburban Harris County for lifestyle.

So, we fall back on recruitment at the "second tier" of Universities... TAMU, UT, Rice.

I work with a researcher at one of our units in Milan. He lives in a self-admittedly small but lovely apartment in central Milan. The chances of us getting him to move here are zero. He would quit before he moves. As would probably most of the people in that office (we bought the business recently).

At 9:41 AM, March 31, 2009, Blogger Tory Gattis said...

I would argue you have a problem of perceived lifestyle, not actual lifestyle. We offer just about every living arrangement option there is, and usually at a much lower cost (or, conversely, you can live much better for the same cost).

At 9:48 AM, March 31, 2009, Blogger Peter Wang said...

"I would argue you have a problem of perceived lifestyle"

Having lived in both places, I have to say that's it's not merely mis-perception, there are some really hard realities that cause some of (oh no, here's that dreaded phrase) "creative classes" to veer away from H-town.

I'm not going to delve into policy details at this time, but I can sum it up in a word... UGLY.

We've allowed a rancid, UGLY built environment to emerge around us for the past decades.

Those who haven't lived anywhere else don't see it because they don't recognize that ugliness, or they are too proud to admit it out loud.

Yes, it's inexpensive to live here. That's a blessing. The curse is that it's UGLY.

At 12:48 PM, March 31, 2009, Blogger dw said...

I'm not sure I completely understand or agree with Peter's assessment of recruitment preferences as an implication of the difficulties in making Houston the next SV. I went to undergrad in the mid-Atlantic region and am soon to graduate from Rice's MBA program. I've lived in SoCal and have traveled to 34 states in the US.

I would not say that Houston is at any disadvantage in building up its entrepreneurial activities. The culture of the city itself is entrepreneurial, business friendly, and has diversity in people and disciplines. It may not match that of SV in terms of deals done. It may not match the beauty of Milan so comparing a centuries old, historical and touristy city to Houston is not fair game. Houston is way young, and may very well be different in another 20 years.

I would say that the possibilities in building this critical mass depends on how committed the early influencers are to Houston. The rate of start up growth has to exceed the rate of leaving due to acquisition or next stage growth circumstances (ie, being bought by a pharma in the east coast or getting more funding in SV).

As far as perceived lifestyle-related issues in attracting talent to Houston, I think that a city that allows the intersecting of the right people of the right disciplines promotes the exchange of ideas, which can instigate this critical mass. Whether it has to be an urban core or adaptable to the decentralized suburbia of Houston is another topic.

At 3:04 PM, March 31, 2009, Blogger Michael said...

>>I would argue you have a problem of perceived lifestyle, not actual lifestyle. We offer just about every living arrangement option there is, and usually at a much lower cost (or, conversely, you can live much better for the same cost).

I think, as one of the other posters mentioned, if Houston is competing primarily on lower costs, then we also have to compete with India / China / etc. They already have another Silicon Valley that is much cheaper than the real Silicon Valley - it's called Bangalore. And, India produces a lot more engineers every year than the US. The problem I've heard is lack of VC culture and risk-taking in India, but from a lot of other perspectives I'd say they are miles ahead of Houston.

I think Houston does have a certain niche - we are lower cost than Silicon Valley and more entrepeneurial than India (and still in the US!). But I'm not sure how big I would expect that niche to grow. Austin is also much lower cost than Silicon Valley, and much more appealing to techies in certain regards.

All that said, I do like the idea of making some sort of concerted effort to attract more software tech companies to Houston. I'm not sure if flying VCs to College Station is the right idea - but some incentives to do business in Houston would be nice. I would think we'd have more software startups with ties to the Med Center, but nothing major that I've heard of...


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