For decades, Austin was known as the capital and academic heart of Texas. Nowadays, the tech culture and economy have transformed Texas' capital and surrounding suburbs into a technology center similar to San Francisco and Seattle. The arrival of big names such as Apple - with its new campus as part of its broad expansion - has given the city's rapidly expanding tech community a morale boost. Recently, EqualOcean generated its list of US Metropolitan Statistical Areas with the most potential for startups, ranked by the total value of funding received in 2019. Austin-Round Rock ranked 14th on the list.
Since Dell's founding in the mid-1980s, Austin has been a growing hub for tech startups and entrepreneurs. The area soon became known as 'Silicon Hills,' a name that is analogous to Silicon Valley but refers to the hilly terrain on the west side of Austin. The presence of UT System and the Texas A&M University System, and multi-genre events such as South by Southwest (SXSW), also offer an extra boost of support for the transformation of the city into a center of multi technological innovation.
Texas is one of the nine states that levy no state income tax. That characteristic alone is appealing enough to incentivize entrepreneurs to set up their business in the city, but the benefit goes far beyond this. Housing costs in Austin, while rising due to the new popularity of Silicon Hills, are still 37.8% lower than the prices in San Jose, CA, based on the statistics provided by Numbeo. The other living expenses, such as food and transportation, are also much lower in Austin comparing to cities such as San Jose and New York. The city has increasingly become a favorable relocation destination for San Francisco techies. According to the press release by Census Bureau, Austin has the third-highest percentage growth from 2010 to 2018 among all the metropolitan areas in the US, while it is the only one metro is on the top 10 list that with a population of one million or more for that period.
A huge leap forward
According to data provided by Crunchbase, more than 679 startups operate in the Austin-Round Rock metropolitan area, and more than USD 1.5 billion was invested in these companies in 2019. In the world of Austin-Round Rock venture capital, local trends match the national wave of fewer, larger investment deals. Remarkably, there has been a massive upsurge in late-stage investment since 2018, and the momentum was maintained in 2019. The amount of VC funding by startups reached its five-year-highest in 2018, adding up to USD 1.74 billion, to meet the demand for larger deal sizes. In 2019, the amount dropped by 9.5%, but still much higher the amount in 2017, indicating a satisfactory performance delivered by Austin-Round Rock in recent years. The recent performance of VC activities in Austin is consistent with the national trend. The total capital invested by VC surpassed $100 billion for the first time since 2000, according to Pitchbook’s report, and the total investment startups received from US venture capital firms fell by 8.5% in 2019 based on the quarterly report by CB Insights.
According to data provided by Crunchbase, covering 2014 through 2019, there were 922 deals in total in the Austin-Round Rock metropolitan area. Three main sectors dominating the market are business software, IT and healthcare, respectively. Most of the rounds concentrate in the early stage, but most of the money goes to the late stages, as the first graph shows. It is worth mentioning that RigUp, a marketplace for on-demand services and skilled labor in the energy industry, raised a USD 300 million Series D round in October 2019. It was marked by the largest funding round raised by a Texas Company in 2019 and represents more than half of the venture raised in Austin during the fourth quarter of that year. Other top tech deals recently included a USD 100 million Series C round by SparkCognition to boost its AI platform, and a USD 39 million Series C round by Lung Therapeutic for clinical trials of its drugs to treat fibrosis, lung injury and other diseases.
Startups on the rise
EqualOcean has analyzed startups in each metropolitan area according to their background information, past financial performance, innovativeness, and prospects, and laid out a list of the 20 most promising startups in the Austin-Round Rock metropolitan area in 2020.
This growing city of innovation, especially in the health sector, has created the ideal environment for health-tech startups to settle. Shattuck Labs is one of the pioneers that intends to develop treatments for patients battling cancer and inflammatory disease. In May 2019, the company announced that its product, known as the Agonist Redirected Checkpoint platform, was going through phase one clinical trials. By collaborating with world partners to pursue novel immune-oncology targets and a next-generation platform, the company is moving towards the goal of delivering transformation medicine to patients. EverlyWell is another company based in Austin that is aiming to change the way we think about medicine. The company offers a total of 35 in-home tests that adults may need to take throughout their lives. The demand for in-home tests has excellent growth potential as more and more consumers are considering it as a way to reduce costs and improve care by preemptively testing for specific conditions. The company already counts CVS and Humana as partners and began selling its test kits in Target stores nationally in April 2019.
Austin’s growing tech sector also includes an increasing number of companies focusing on artificial intelligence. Founded in 2013, SparkCognition has established itself as one of the leading industrial AI companies in the world. The company builds AI technology for industrial applications –revolutionizing the way industries like oil and gas, defense, utilities, aviation, and financial services manage such critical functions as efficiency and safety. The company recently partnered with Boeing to form SkyGrid, a joint venture focused on delivering unmanned aircraft system traffic management solutions through the use of blockchain technology, AI-enabled dynamic traffic routing, data analytics, and cybersecurity features.
More and more companies nowadays relocated to Austin for a supportive ecosystem. Among them is an athleisure e-apparel company, Outdoor Voices, which relocated from New York in 2017. The company is competing with Lululemon (LULU: NASDAQ) and Nike (NKE: NYSE) but aiming to fill the needs of the millennial market with its technical activewear. According to Global Industry Analysts, Inc., the U.S. activewear market is the largest in the world, accounting for more than a third of activewear sales worldwide. The market is expected to grow to USD 69.2 billion in 2020, which is up from USD 54.3 billion in 2015. It is possible to imagine the brand is capable of following the same trajectory as Lululemon (LULU: NASDAQ) and Under Armour (UAA: NYSE), and go public in the next decade.
A bright future
Fresh off its most active funding years to date, Austin continues to shape itself into one of the best cities for business. The latest tide of tech firms locating or expanding their footprint in Austin continues to give rapid rise to a profoundly diverse economy, positively influencing all facets of the industry in Austin.