MARCH 2017
INNOVATION
IN HOUSTON:
A STUDY OF THE BAYOU CITY’S STARTUP ECOSYSTEM
ACCENTURE & THE GREATER
HOUSTON PARTNERSHIP
Copyright © 2017 Accenture All rights reserved.
HOUSTON HAS A THRIVING INNOVATION ECONOMY,
BUT POTENTIAL IS LIMITED BY ABSENCE OF A
FLOURISHING STARTUP ECOSYSTEM
Thriving corporate innovation
scene
Up-and-coming environment
for R&D-driven physical and
life sciences innovation
Excellent creative and cultural
institutionsUnder-indexed in high-growth,
high-impact startup innovation,
particularly in tech
Level of maturity & trend in different areas of Houston’s innovation economy:
HighLow
STUDY FOCUS
• Abundant corporate innovation
through internal R&D
• Excellent corporate collaboration,
e.g. between Oil & Gas and Oilfield
services companies, etc.
• Strong concentration in a few
industries, however; under-indexed
in hi-tech corporate presence
• Under-indexed in startup activity
by most measures; not seen as
top destination for entrepreneurs
on the national stage
• No natural center of gravity for
tech startups
• Represents sizable impact in local
wealth creation and significant
potential for economic growth
• Abundant R&D investment at
Universities and research
institutions, ranking 3rd nationally
• Cutting-edge aerospace R&D at
NASA Johnson Space Center
• Increasing commercialization of
intellectual property at the TMC
and UH
• Culinary capital of the south; top
ranked food city by lifestyle media
outlets
• Thriving arts scene; prestigious
performing and visual arts
institutions, including Houston
Museum of Fine Arts, Houston
Symphony Orchestra, Houston
Grand Opera, The Alley Theatre,
and Houston Ballet
CORPORATE STARTUP ACADEMIC / BASE R&D ARTS
3
Copyright © 2017 Accenture All rights reserved. 3
WHY HIGH-GROWTH, HIGH-IMPACT STARTUP
INNOVATION MATTERS
ACCESS TO LATEST
TECHNOLOGIES4
“A large part of why we invest is
FOMO. We want early access
to the latest developments in
tech.” – Houston Corporate VC
ECONOMIC
RESILIENCY5,6
More than 100,000 energy workers
in Texas have lost their jobs since 2014
1/3 Houston’s GDP, 20% salary
income, & 10% employment
directly in energy sector
HOUSTON’S IMAGE4
“Most people have really low
expectations of Houston and
are pleasantly surprised after
coming here.”
INDIRECT
EMPLOYMENT8
The Multiplier Effect: for each
new high-tech job in a city,
five additional jobs are
ultimately created
LOCAL WEALTH
CREATION3
Twitter’s IPO created 1,600
millionaires & a CA state
tax windfall of $479mm
LOCAL JOB
CREATION2
Startup ecosystem now 17th
largest employer in San
Antonio & former startup Rackspace employs 3,300
locals (5th largest)
CORPORATE
RELOCATION7
“GE relocates to Boston for
software talent and innovation”
“Schlumberger establishes Tech
Innovation Center in Menlo Park”
ATTRACT & RETAIN
YOUNG TALENT1
Educated Millennials make up
over 7% local population in only 4 cities: SF, Boston,
Austin, & DC (Houston @
4%)
Source: 1) US Census Bureau, 2) Geekdom San Antonio, 3)
PrivCo, 4) Accenture interviews & analysis, 5) Greater Houston
Partnership, 6) Houston Chronicle, 7) Company Press
Releases, 8) The New Geography of Jobs, Enrico Moretti
Corporations Community Universities Policy makersREASON MATTERS TO:
Copyright © 2017 Accenture All rights reserved. 4
WE DEVELOPED A STRONG UNDERSTANDING OF
HOUSTON’S ECOSYSTEM TO BEST IDENTIFY OUR
CHALLENGES AND OPPORTUNITIES…
INTERVIEWED 50+ STAKEHOLDERS
• First-hand study of local startup
innovation assets:
STUDIED OTHER INNOVATION HUBS COLLECTED & RESEARCHED DATA
• Data collection: Target talent population survey,
founders survey, potential initiative poll
• Extensive review of existing data and research
on Houston and other cities: NSF,
NVCA, AngelList, Mattermark, Houston Business
Journal, CB Insights, company data, and more
• Founders: 20 interviews with local founders
• Policy makers: GHP Innovation Roundtable, City of
Houston Innovation Taskforce
• Venture Capital: Angel, Corporate, and private firms
• Research Institutions: Rice, UH, TMC
• Corporate Leaders: C-suite of local F500
• Interviews with venture capital, accelerator,
and policy leaders in several ecosystems:
Chicago, Cincinnati, Detroit
• Field trips to startup assets in other ecosystems
• Secondary study of best practices
VISITED HOUSTON
INNOVATION ASSETS
Copyright © 2017 Accenture All rights reserved. 5
HOUSTON’S STARTUP ECOSYSTEM:
BY THE NUMBERS
Houston is the 4th largest US city but ~20th largest startup ecosystem by many measures
Total VC deals, 20157
Annual avg. VC investment7
Tier 1 Venture Investment Firms3,†
University Entrepreneurship Program Rankings1
41Exits,
2014 - 20164
103 current
startup job
openings
$75,000 avg. salary5
140Total est. active
high-growth startups4
40
Startup social
events/mo.2
Overall US Ecosystem Ranking6Growth in # companies
receiving VC funding7
Total funding of
current startups4
Houston Startup Group Members
Top industries for innovation
companies received
VC funding in 20157
Seed, early and
late stage startups7
14,989
EnergyLife
Sciences
$1.3b
20th
(of 25)0%2010 -
2015
23
National rank where applicable
$238mm
2015
$323
$135 $161
$415
2011
$155
29
Seed, early and late
stage startups
($128mm annual avg.)
Other investment
18
21 in seed,
early & late
stage
startups
#4#1
n
20 24
19
1 Princeton Review, 2 Startup Digest; 3 Houston Business Journal, >$100mm AUM HQ in Houston; 4 CB Insights; 5 AngelList; 6 1776; 7 PWC/NVCA MoneyTree
† other VC firms with >$100mm AUM with a presence in Houston include: Essex Woodlands Health Ventures, Texas Atlantic Capital, S3 Ventures, Santé Ventures
Copyright © 2017 Accenture All rights reserved.
TALENT: STRONG TALENT POOL,
CONDITIONED TO CORPORATE WORK
Source: US Census Bureau, Bureau of Labor Statistics,
US News & World Report, Accenture interviews & analysis
LARGE SUPPLY OF YOUNG, TECH TALENT
& STRONG UNIVERSITY SYSTEMS
HIGHLY SKILLED HOUSTONIANS PRECLUDED
FROM PARTICIPATING IN STARTUPS
RISK-AVERSION TOWARDS TECH
STARTUPS PERMEATES LOCAL CULTURE
300,000
educated
Millennials
240,000
STEM workers
~100k
skilled
immigrants on
work visas who
can’t work at
startups
1983 1988 2001
IPO IPO Bankruptcy filing
2017
• H-1B visas are costly in
time and effort, require
employer sponsorship,
and issuance is tightly
controlled
• Foreign workers are thus
obligated to stay with (a
typically large, corporate)
sponsoring employers or
face deportation
11%
16%
71%
2%
Native
Foreign:
Naturalized
Foreign:
Not Citizen
Foreign:
Not Citizen, H-1B
Houston 18+ Population by
Immigration Status, 2015
High opportunity cost & lack of historical
inspiration deters tech risk taking
Tech startups offer stark contrast to
status quo for many skilled Houstonians
Ways of working: F500 vs. Startups
F500 STARTUP
FTE span of control Single app Full stack
Work hours 9 – 5 A lot
Dev. methodology Waterfall Lean / Agile
Crown jewels BU / Sales Developers
Risk appetite Minimal to none High
Hierarchy Rigid Minimal
5 ranked national universities
& graduate schools
#194 #74 #15
22,000 annual graduates 12,000 FT grad students
Top local rank
(#9 in US) (#3 in US)
STRENGTHS OPPORTUNITIES
T C R I
13
Copyright © 2017 Accenture All rights reserved.
COLLISIONS: MOMENTUM IN POCKETS
THAT NEED TO BE STITCHED TOGETHER
Source: US Census Bureau, Startup Digest, Accenture interviews & analysis
THE LAUNCH OF STATION HOUSTON AND
TMCX CREATING MOMENTUM & BUILDING
DENSITY
LOW DENSITY AND HAPHAZARD
NETWORK CURATION LIMITS POTENTIAL
INDUSTRY NOT HELPING CREATE
OPPORTUNITIES FOR COLLISIONS
Occupancy doubled
in 2 months
50% increase in number
of companies hosted in 2Y
Plenty of recent seminars and social events
creating opportunity to spark innovation
Startup event count, last 3 months
133
Austin
147
117
HOU NYC SV
120 15
68
4
HOU Austin SVNYC
Non-full Day EventsFull & Multi-Day
Events
Opportunity
CITY WEBSITE NEWS JOBS CALENDAR
HOU
NYC
CHI
LA
CINCY
84
71LA 72
62Seattle
SF
101Cincinnati 86
Boston
Detroit
Austin
208
159
84
219
Baltimore 161
Raleigh
Pittsburgh
NYC 5659
NashvilleChicago
56
1935Dallas
Houston
Phoenix
3841
AtlantaSLC
Denver 51Portland
43
25 – 34 year olds with college degree per sq. mi
“We don’t share problem sets. It’s just
not something people do in this industry.”
- Houston O&G exec
“There is no existential crisis gripping
boardrooms, forcing us to embrace
change and look elsewhere for
innovation.”- Houston O&G exec
“Our companies are so spread out and
tight-hole information…There are a ton of
independent and mid-tier firms in town
that aren’t active in the community at
all.” - I&A Director
• total 25-34yo’s
• total 25-34yo’s with a
degree
• density of 25-34yo’s
with a degree
#5#9
#24
T C R I
STRENGTHS OPPORTUNITIES
14
Copyright © 2017 Accenture All rights reserved.
RESOURCES: LOCAL INDUSTRY DOMINATES
LOCAL CAPITAL, CHALLENGES STARTUPS
Source: Crunchbase, Company websites, Houston Business Journal, Accenture
interviews & analysis. 1 NSF 2 TRL: Technology Readiness Lifecycle; 3 HBJ
List of Firms with >$100mm assets under management (AUM) * Using pre-B
round funding as proxy for SaaS MVP development cost
INVESTED CAPITAL GOES 40 - 50%
FURTHER IN HOUSTON VS. SAN FRANCISCO
FUNDAMENTAL INDUSTRY
CHARACTERISTICS PRESENT BARRIERS
TO LOCAL B2B STARTUPS
LOCAL CAPITAL NOT VENTURE-
EXPERIENCED AND GRAVITATES
TO PE OPPORTUNITIES
TRL2
commercialization
period:
Est. spend on
internal R&D vs.
startup innovation
Energy
tech:
10-20Y
Life Science
tech:
5-10Y
O&G Firm:
10:1
Houston industries are capital intensive,
setting high barriers for startup offspring:
Representative development costs ($mm)
$2 $8
$100
$300
Airbnb MVP* Alert Logic
MVP*
1Y Onshore
Rig Capital
Program
$1,000
New drug SpaceX
Falcon 9
Rocket
Energy, Healthcare,
& Aerospace
SaaS
$0
$100
$200
$300
$400
$500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Fu
nd
s R
em
ain
ing
($
k
US
D)
A $500k investment will cover a 5
FTE team in Houston for ~13
months vs. ~9 in SF driven by
labor & office space cost
disparity
Houston
Chicago
San Francisco
230
(1%)
VC
PE
29,302
(99%)
“All the risk takers in Houston
work for PE backed firms. Do a
midstream play, get your carry,
and cash out.”- Houston investor
AUM of Largest Houston-Area
investment Firms3
Money follows local
industry:
~75%
specializing in
energy
investments
Los Angeles, CA
$1.9
New York, NY
Baltimore, MD $2.8
Houston, TX
$2.7
Cambridge, MA
$1.7
$2.1
85% of the academic research funding goes to TMC
Houston is rich in academic
R&D IP, especially in Healthcare
Top US cities by academic research funding ($B) 20151
Month
T C R I
STRENGTHS OPPORTUNITIES
15
Copyright © 2017 Accenture All rights reserved.
IMPACT: GROWTH AND RETENTION
OF STARTUPS & F500 AT RISK
Source: Surge / Kirk Coburn, Fortune, Crunchbase, LinkedIn, Company
websites, Accenture interviews & analysis
YOU’LL FIND EXISTING, REMARKABLE
HOUSTON SUCCESS STORIES IF YOU
LOOK IN THE RIGHT PLACES
MANY STARTUPS WITH MOMENTUM
LEAVING FOR TALENT AND TO BE
CLOSER TO INVESTORS
STAGNANT STARTUP ACTIVITY STARTING
TO IMPACT HOUSTON’S ECONOMIC CORE
“I’ve had 3 conversations with
Houston companies in the past
month thinking about moving to
Austin.” - Houston entrepreneur / mentor
• TBD’17: “MedDevice startup relocating to Silicon
Valley for C-level talent”
• Oct’16: “CarForce to move operations to San
Francisco to join Launch Incubator program”
• 2014: “Autonomous Marine Systems moves to
Boston for talent and labs space not available in
Houston”
• Sept’13: “RunTitle moves HQ from Houston to
Austin for talent and institutional investor”
• Etc.
“Schlumberger opens Software
Technology Innovation Center in
Silicon Valley”
“GE moves its corporate headquarters
to Boston, citing ambition to gain
innovation and technology edge”
0222
15
SV Boston HoustonLA Chicago
Houston is home to second-most F500 companies
in the US, but hosts no hi-tech F500 firms
Hi-tech F500 firm HQ count by city
$317M
Equity
funding
raised
670 Employees
>$100M
Annual revenue
$140MEquity
funding
Developing vaccines and
immunotherapeutic
approaches to treat cancer
IPO
November, 2014
T C R I
STRENGTHS OPPORTUNITIES
17
Copyright © 2017 Accenture All rights reserved.
PATHWAYS TO SUCCESS:
A REVIEW OF GLOBAL INNOVATION HUBS
PROACTIVE EFFORTS
• Anchored with major academic,
research institutions, or major
tech companies
• Early advantages
• Predominantly attract talent
through art, music, natural
beauty and lifestyle
• Risk-tolerant culture
• Eccentric and inclusive
• International hubs
• Capital rich
• Diverse economic base
• Strong base in a few key
industries
• Existential threat and need to
diversify
ANCHORS COOL PLACES METROPOLITAN PIVOTING INDUSTRIAL CITIES
Advantageo
us starting
point due to
high levels of
R&D
Natural
growth
Acceleration
thanks to
first mover
advantage
Less
inherent
academic &
industrial
strength than
anchors
Slowly
attracting
people
Booms
thanks to
lower cost of
starting
company,
particularly
in tech
City’s
inherent
strength
leads to high
starting
point,
although not
yet a focus
Policies
kick off
rapid
growth
Accelerates
as
ecosystem
grows
Decent
starting point,
slow decline
and looming
crisis
Corporate
and civic
involvement
reverse
trend
Momentum
thanks to
coordinated
effort; more
corporate
buy-in after
seeing
returns
Bay Area, Boston, Bangalore Berlin, Portland, Denver NYC, Chicago, London Detroit, Cincinnati
EX
AM
PL
ES
CH
AR
AC
TE
RIS
TIC
S
STRUCTURAL STRENGTH
SU
CC
ES
S
FA
CT
OR
S
Time
MA
TU
RIT
YP
AT
HS
• Fund-of-funds
• Setup Strategy Office
• Anchor coworking space
• Startup tax incentives
• Setup Strategy Office
• Gov’t direct investment
BEST LEARNING OPPORTUNITIES FOR HOUSTON
18
Copyright © 2017 Accenture All rights reserved.
HIG
HM
ED
IU
MLO
W
SHORT MEDIUM LONG
3723
26
39
27
35
28
25
22
20
18
33
31
38
32
36
30
24
29
40
19
17
16
10
11
3
6
13
7
5
8
12
4
15
1
2
14
921
40 POTENTIAL ACTIONS ADDRESSING OUR
STRENGTHS AND WEAKNESSES WERE EVALUATED
FOR IMPACT AND EFFORT/FEASIBILITY
Impact
Collision
Resources
Talent
Imp
act
Timeframe
POTENTIAL ACTION
EVALUATION
# PROPOSED ACTION
1 BHAG/Thematic Focus
2 Recruit star professors
3 Innovation output in tenure review
4 Be open testing ground for new tech
5 Startup externships
6 Founder visa program
7 Corporate EIR program
8 Int'l startup exchange program
9 Corporate talent matchmaking
10 Nights and weekends co-working program
11 Startup space @ NASA / Starburst chapter
12 Tech education for the underprivileged
13 Recruit Hi-tech anchor firm (e.g. Amazon)
14 Recruit Life science anchor company
15 Recruit /expand Fed research institutions
16 NASA ecosystem participation
17 Innovation district(s)
18 Make innovation district green
19 Metro to innovation district
20 Lifestyle conferences (culinary, gaming)
# PROPOSED ACTION
21 Startup investor & F500 speed dating
22 Open strategy office
23 Ecosystem website
24 Ecosystem news
25 Ecosystem job board
26 Host Innovation conference
27 Channel partners pitch program
28 UHNW Champion
29 Angel education
30 Minimize non-market capital
31 “Freemium” co-working space model
32 Fund-of-funds
33 Local evaluation clause to state VC invest.
34 Marketing blitz
35 SEO campaign
36 Houston startups on TV shows
37 Diversity Campaign
38 Easy-access city procurement
39 Matching gov’t investments
40 City-wide civic hackathon
20
Copyright © 2017 Accenture All rights reserved.
PRIORITIZED ACTIONS ROLLED INTO 10 KEY
INITIATIVES ADDRESSING TOP PAIN POINTS AND
DELIVERING SHORT, MEDIUM AND LONG-TERM VALUE
TOP PAIN POINTS RECOMMENDED INITIATIVETIME TO
EXECUTEIMPACT
LEAD
ACTORS
Houston needs focus – critical mass in specific areas
– and a rallying cry for entrepreneursDevelop Thematic Focus areas for local ventures S Academia
Low density of operationalized tech talent Recruit Anchor Hi-tech firm and/or federal research institutions M City Gov’t
Large number of highly skilled Houstonians on
work visas precluded for startup communityCreate Founder Visa program M Academia
Houston not perceived as embracing startup culture
and values
Send values signal thru policy embracing new tech and becoming the
Testing Ground for cutting edge innovationM City Gov’t
Haphazard community network inhibits collision
opportunitiesOpen Strategy Office with personnel dedicated to community building S GHP
Talent & startup density is low Create Innovation Districts around Tech & Life Sciences L I&A
Local capital isn’t venture-experienced Create Fund-of-funds (absorbing non-market capital) M GHP
Local capital isn’t venture-interestedActivate UHNW Champion to educate, social proof startup investing,
and help with fundraisingM Investors
Houston’s image to the global startup community
is antiquated
Multi-channel Marketing Campaign featuring “the most diverse city in
the US” (inc. conferences)S GHP
City gov’t could do more to embrace startupsCity gov’t should embrace startups through opening procurement,
hosting civic hackathons, and moreM City Gov’t
1
2
3
4
5
6
7
8
9
10
UHNW = Ultra-high net worth; I&A = Incubators & Accelerators (inc. co-working infrastructure)
Time to execute: S = short-term, M = medium-tern, L = long-termTCRI 21
Copyright © 2017 Accenture All rights reserved. 13
WHAT WILL HOUSTON BE FAMOUS FOR?
ECOSYSTEM DEVELOPMENT EFFORTS
SHOULD FOCUS ON BUILDING CRITICAL
MASS IN A FEW KEY AREAS
1 DEEP DIVE
APPLICATIONS
ACROSS
LOCAL
INDUSTRIES:
Digital oilfield & Smart grids Deepwater & remote operations Plant asset security systems
Telemedicine & wearables Assisted surgery Patient health information security
ENERGY
LIFE SCIENCE
Asset tracking & intelligent cabins Robotic manufacturing Blockchain maintenanceAEROSPACE
Connected car Autonomous vehicles & drones Fleet control assuranceTRANSPORTATION
SOURCE:
1) CB Insights;
2) Markets and Markets;
3) Radiant Insights;
4) International Federation
of Robotics
EXISTING
TALENT BASE APPLICATION ACROSS
LOCAL INDUSTRY ADVANTAGE IN
PHYSICAL PROXIMITYHIGH
GROWTH
Cybersecurity market2
$170
@10%
INDUSTRIAL IOT ROBOTICS CYBERSECURITY
Total industrial IOT
market in
20202
8%Annual market
growth2
$150B
Global industrial
robotics market3,4
Robotics Startup
Funding ($B)1
annual
growth
B in
2020
IIOT Startup
Funding ($B)1
+32%
$0.3
2012 2016
$1.2+45%
Cybersecurity
Startup Funding
($B)1
$1.5
20162012
$3.6+24%$2.1
20162012
$0.7$40B in 2020
Units installed
increase per year 13%