February 6, 2017
Innovation in Austin: Risks and Rewards
By Henry Hoglund
Austin, the capital of Texas, was the third stop on the Strategic Foresight Initiative’s (SFI) research ‘road’ trip examining the future of American technological leadership, as part of a collaborative project with Qualcomm. Throughout 2016, SFI visited cities around the United States that are at the forefront of technology-based innovation that together fuel the engine of America’s growth in tech innovation. The other cities were Madison, Wisconsin; Boulder, Colorado; and the Bay Area in California. Austin was chosen because it has become one of the nation’s most prominent tech hubs. Austin enjoys its reputation thanks to its unique local culture, epitomized by the famous slogan ‘Keep Austin Weird’, the presence of one of the largest research universities in the country in the University of Texas at Austin (UT-Austin), and a history of technology startups going back to the founding of Dell in 1984.
From several in-depth conversations and roundtables in Austin with local tech leaders and thinkers, SFI discovered threads of opportunities and challenges for the tech sector in the Texas capital.
Austin’s major advantages for attracting and retaining technology companies are its vibrant local culture and the collaborative nature of the tech industry in town. While Austin’s culture has long been exemplified by its famous SXSW music festival, the growth of SXSWi – a tech festival that was originally a small addition to its SXSW cousin that came of age when Twitter launched there in 2007 – into the biggest event in the city shows how the tech scene has come to play a major cultural role locally. The city has always been receptive to new ideas – Whole Foods originated in Austin – and the tech scene has embraced Austin. This embrace has been helped by a lower cost of living than the coastal tech scenes like Silicon Valley and Boston, which attracts young talent to the city. Together with UT-Austin graduates, these entrepreneurs are nurtured and assisted by a dense network of tech startups and incubators like IC2 Institute and Austin Technology Incubator (ATI) – both of which have been in existence for several decades, and have a track record of successfully launching mid-market startups, whose founders have gone on to act as mentors and funders for other Austin-based startups.
However, the future of the tech scene in Austin is dependent on it successfully overcoming several major challenges. If it does so, it has the potential to become an inland rival to Silicon Valley and other coastal tech hubs. First among these is better integrating UT-Austin into the local tech scene. We heard repeatedly that there is a lack of engagement between the university and the wider tech community, with an under-performing commercialization pipeline for university research.
One sticking point, common to many universities in the US and around the world, is how intellectual property rights for new technological innovations are divided between individual professors and the university in general. Nevertheless, many we spoke to also acknowledged that parts of UT-Austin – especially the IC2 Institute and ATI – have played positive roles in fostering the tech industry locally, and that other parts of the university are aware of their shortcomings and taking active steps to improve the tech transfer process. If the university, and the young talent it hosts, can more fully translate faculty research and student startups into viable commercial products, there is a lot of untapped potential from UT-Austin waiting to be released into the local ecosystem.
A key vehicle for improving collaboration and innovation between UT-Austin and the local tech scene is the new Dell Medical School, which has explicitly modeled itself to inject innovation into the medical sector. If it can also attract the kind of federal research dollars that fund the long-term research that produces industry-changing innovations, especially in the field of medical technology, it has the potential to push the Austin tech scene to new and greater heights.
The second challenge – and one which could stymie Austin’s growth regardless of other factors – is the perennial tech hub problem of access to venture capital funding. Some interviewees argued that the recent demise of Austin Ventures, a large growth capital fund, has opened up the space for new and smaller VC firms to operate. They say this has had two positive outcomes: the smaller VC firms are more interested in funding early-stage startups, and the increased number of them means there is a wider variety of funding sources too. However, there is a still a wide discrepancy between the number of startups and level of investment capital locally, which makes it hard for firms to expand beyond first-stage funding, and then again beyond the $10 million valuation level.
Finally, there are a number of Austin-specific challenges that could impact its future as a tech startup hub. The city has rapidly expanded in recent years, without a concomitant investment in new transport infrastructure, leading to increased traffic in the metro areas, and problems with parking downtown. The population increase has also led to a rising cost of living, and several people were concerned the quality of life could decline, making Austin a less attractive place for entrepreneurs. While these concerns are important, by far the biggest one we heard about is the testy relationship between ‘old’ Austin and ‘new’ Austin (essentially, an old-economy / new-economy distinction).
Fallout from the “Prop 1” vote in May 2016 illustrates this point. The Prop 1 vote, which passed and regulated ride-sharing services such as Uber and Lyft, was seen as symbolic of local resentment and fears of swift tech sector-driven changes in Austin. The upside though is that the outcome of the vote has made those in the tech sector more aware of the need to engage with the wider local community, and ensure their contributions to Austin are recognized, their voices heard, and deeper links forged between the tech sector and the rest of Austin.
Austin’s opportunities and challenges point towards a city confident with its current position, but also with the ambition to become a major national hub of tech innovation. While the challenges it faces are neither unique nor insurmountable, it has several unique assets – from SXSWi to the excellent quality of life – and an opportunity to hitch a major public research university in UT-Austin to a strong mid-major tech scene. If all these pieces come together, and the venture capital funding arrives, Austin could very well propel itself into a big time player for American tech innovation and entrepreneurship in the 21st century.
Henry Hoglund is an intern with the Atlantic Council's Strategic Foresight Initiative. He previously worked on Capitol Hill for Rep. Elizabeth H. Esty (D-CT) and the House Science, Space, and Technology Committee Democrats, and worked at the High Lantern Group, a strategic communications firm. Mr. Hoglund graduated from the University of Chicago in 2014 with Honors in Political Science. His thesis focused on Executive Legacy and Mythos in the American Presidency, and his courses of studies included International Relations, Comparative Organizational Theory, and American Institutionalism.