Is Texas the New California?

Texas has become the new hub for startups, tech firms and investors this year, backed by solid investment figures. According to data gathered by analytics firm PitchBook Data, the state recorded $1.3 billion in venture capital in the first three months of this year, which is much higher than the amount raised in each of the past three full quarters.

As reported by the research firm Draper Hero Institute, founded by venture capitalist Tim Draper, Texas now ranks third overall among the best U.S. states in which to launch a startup, behind Washington and Florida. Competing with California’s Silicon Valley, the state’s technology sector is booming as investors and entrepreneurs shifted base during and prior to the pandemic. 

Meanwhile, in December 2020, Silicon Valley companies Hewlett Packard Enterprise and Oracle Corp. both revealed plans to relocate their corporate headquarters to Texas, following which West coast tech company CrowdStreet announced it would begin shifting its headquarters from Portland, Ore., to Austin. Earlier this month, Google also announced it would invest $50 million to add more office and data center space in Texas.

Due to their booming professional development and growth opportunities, Dallas, Austin, Houston and San Antonio are ascending as tech hot spots, attracting more fortune along with young entrepreneurs, business tycoons and venture capitalists. 

Austin dominates Texas’ startup scene

Austin offers a vast pool of talent that fosters a culture of innovation. With other tech giants like Tesla, Apple and Facebook reportedly expanding or shifting some operations to the city, its entrepreneurial ecosystem will continue to grow and new avenues will keep opening. In coming years, the state capital will be able to leverage the talent and expertise that these high-profile companies bring in. Many newcomers will likely become entrepreneurs with their own ventures in Austin. 

Austin-based venture firm and startup adviser Capital Factory just raised its seventh round of funding, which like its previous ones will invest in startups. Investment platform AngelList operates the rolling fund in which investors can offer capital on a quarterly basis. In February, another Austin-based firm, Ironspring, raised its first fund for the heavy industrial ecosystem. The $61 million network-driven venture capital firm has already invested in four startups.

Why the migration will continue

At the same time, more legacy firms are beginning to set roots down in Texas. Palo Alto, Calif.-based, Sapphire Ventures opened an Austin office in January. To spearhead the firm’s efforts, CEO and co-founder Nino Marakovic and partner Beezer Clarkson relocated to the region.

In February, Houston-based Mercury Fund invested in a $7.5 million series A round in recruiting firm WizeHire, also based in Houston. Mercury Fund Managing Director Heath Butler said the firm’s innovation ecosystems, once based only in California, New York and Massachusetts, were spreading across the country, adding that Texas had been performing well by leveraging its assets to keep capital flowing.

Texas might be growing as a tech hub, but these three states still dominate

Compared to the previous year, 2020 saw a massive rise in investment coming into Texas, growing nearly 28% year-over-year to reach $5 billion. Yet despite the burst of money coming in, Texas hasn’t reached anywhere near the same level of appeal for venture capitalists as do states like California, Massachusetts and New York. It simply pales in comparison. 

For example, 2020 saw 74% of VC funding go to companies based out of the latter three states, while Texas and a handful of others combined got about 15% of VC funding, states a report by PWC and CB Insights. And growth was stagnant last year in Austin. Startups there raised somewhere around $2.3 billion in 2020, virtually the same as in 2019, according to Pitchbook.