
The Dark Ages of Austin Startup Capital - cdcro
http://techcrunch.com/2016/03/05/the-dark-ages-of-austin-startup-capital/
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brudgers
To me, the article shows that "startup" means something different outside the
Silicon Valley bubble.

Taking 40% for $400k is probably counter productive for an investor shooting
for a $1 billion plus exit. Consuming so much equity [the primary asset of an
early stage company] so early for so little capital means that equity is not
available for bigger rounds later.

On the other hand, for normal capital, if the business grows to $500k a year
in profit over the next five years, it provides a handsome internal rate of
return for a local group of investors at the Chamber of Commerce scale.

The difference I sense, is that the "Austin" investors are hardening against
future rounds of investment rather than encouraging it. With a 40% stake, such
investors are likely to be the biggest single shareholder and hence have a
high degree of control over future deal flow.

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sosuke
Hmm, I don't see this as a problem at all. Austin was a great place to be a
software developer before that 2013 investment record they list. The cost of
living is such that bootstrapping is the way things are done.

I don't see anyone hurting and it isn't raining money. So give it a little
time, let those funds find a few exits and we can do it all again.

Deep Eddy Vodka and Sweet Leaf Tea aren't tech startups. If anyone wants to
know why Deep Eddy Vodka was successful look just as far as the name. It
tapped into some deep Austin history that everyone was familiar with. Made it
instantly familiar. I'm still sad that tree got sick and they had to take it
down.

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jessegreathouse
I can't say that I'm surprised that Austin based VC's are more risk averse
than SF counterparts. Austin based startups are higher risk for several
reasons. This is the city with a start ups desperately searching for veteran
engineers when their CTO is 3 years out of school...

The "startup" of Austin is typically one that adds less value to their
vertical than their SF counterparts, has less talented technical staff, and
has very poor non-technical talent. ...But people are complaining that Austin
based VC's are giving Austin based startups less love. I think some of these
startups need to re-evaluate what they're doing and stop blaming VC's for not
instantly falling in love with their flavor-of-the-week startup.

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sunsu
Not sure what experience is influencing your comment, but it's simply not
true. I know many Bay Area based companies that are hiring more and more
technical talent in Austin because they can not find it where they are.

Is there more overall technical talent in the Bay Area? Absolutely, but that
doesn't mean the talent elsewhere is "very poor" and "3 years out of school".

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jessegreathouse
You simply didn't read what I wrote. I didn't say there isn't talent in
Austin, I'm saying these startups don't have it, and can't seem to attract and
keep talent.

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wyclif
_Look to the Deep Eddy Vodka acquisition as one. This was a quick exit for
Clayton Christopher after his win for Sweet Leaf Tea_

Neither of which are tech startups.

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philippnagel
I'd argue they're both not even startups. This is not meant degrade both
companies in any way - just to clearly differentiate between two approaches
suitable for different business models

The classic definition by Steve Blank is: "[A] [...] startup is an
organization formed to search for a repeatable and scalable business model."
[0].

Selling iced tea and vodka is a straightforward, traditional business model.
Nothing to search for.

[0]: [http://steveblank.com/2010/01/25/whats-a-startup-first-
princ...](http://steveblank.com/2010/01/25/whats-a-startup-first-principles/)

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saosebastiao
Selling advertising is also a straightforward traditional business model.

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ec109685
Seems like a small sample size. His startup got different valuations from
different set of VC's, which is a normal occurrence.

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jostmey
I've heard people say that Austin no longer has a better startup scene than
Dallas. It's probably not true, but it reaffirms that Austin's startup scene
is hurting.

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hueving
I'm not familiar with the scene in Dallas. Is that a high bar to beat?

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TheBiv
Short answer: no

Long answer: Dallas has a lot of investment money, however most of that
investment money goes towards cash flow businesses like commercial real
estate, oil speculation, and banking. However, there has been a pretty sizable
uptick in investment dollars willing to put towards tech companies within the
last 4-5 years. It's relatively straightforward to find capital in Dallas, but
it's insanely hard to find capital willing to stomach high burn early stage
tech companies.

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agentgt
While the amount of seed and early investors nearby I'm sure has a major role
in startup culture building I still think Austin is a great city for startups.

Not all startups need to raise money... but most startups need smart people
and a fun place to live. I think Austin provides both.

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vannevar
_Austin’s funds have less money available for early-stage investments because
later-stage deals have eaten up a lot of the fund._

No, Austin has less money available for early-stage investments because Austin
has an order of magnitude less VC money, period. Most of the effects that the
author observes (not many big exits, lots of smaller investors, etc) can be
readily explained by that one simple fact. Wealth concentration isn't just
about the 1% vs the 99%, it's also about the 0.001% vs the 0.01%. And Silicon
Valley will continue to widen the gap because they can place more and bigger
bets, and get bigger and more profitable exits as a result.

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caseyf7
Am I wrong to think part of the problem is that the best developers in Austin
don't work for Austin companies?

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krisdol
No you're not. The tech companies in Austin are divided in two groups: Bay
Area/Boston companies that pay Bay Area/Boston salaries, and Bay Area/Boston
companies that pay Texas salaries. One attracts talent that sticks around, the
other attracts fresh grads who leave once they realize how much more they're
worth.

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schakraberty
Is the trend of falling seed rounds confined to Austin or does it extend to
other US startup hubs? A report by Compass (earlier Startup Genome) last year
showed Boston and Bangalore were among the most funded hubs, but Boston saw a
fall in early stage deals while it was the reverse in Bangalore...
[https://www.techinasia.com/bangalore-worlds-startup-
ecosyste...](https://www.techinasia.com/bangalore-worlds-startup-ecosystems)

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pfista
Spot on. I know a founder who had to go through 15 meetings just to close one
VC in Austin.

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stephensurh
That's not weird, even on sand hill road. I met with about 75 firms before
getting a seed investment, and did probably 10-15 meetings with that one
before we closed. First time founder, and they made it clear how serious their
interest was at each stage (meetings after the fifth were with every intention
of investing, which they did).

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DevX101
Can you describe the progression of what happens in those 15 meetings? What do
they need at meeting #14 they couldn't get from meeting #5?

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lmeyerov
It should be clear if they're serious by the second meeting, and in many
cases, the first. The throwaway comment "Spend 88 percent of your time
building your business and 12 percent of your time raising money" sounded
right. If an investor doesn't understand that, they're broadcasting that
they'll damage your business and don't belong on a board. Thankfully,
interviews are two-sided :)

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hueving
What does something like this imply for an employee that likes to work for
startups? Is it much better to live in the bay where there is a much deeper
market of open positions to keep developer demand/salary higher?

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TheBiv
As someone who lives outside of the valley, what this article says to me is
that I should be tougher in vetting the potential sources of revenue that the
startup has and not just a startup that I think should exist in the market!

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jessegreathouse
^ this. Austin is still a great place for startups, as a talented professional
you just have to be careful about which startup you're jumping in to.

