The Great Migration - Silicon Valley to Silicon Hills
November 5, 2020
Silicon Valley's entrepreneurial roots date back to the 19th century when railroad magnate Leland Stanford settled in Santa Clara Valley. A sad family tragedy inspired Leland to create his namesake University in 1891, which was innovative for its time as it admitted both men AND women. The first internet, the telegraph, sent messages over long distances via a simple wire. The leading telegraph company of the day, Federal Telegraph Company, opened a research facility on Emerson Street in Palo Alto. San Francisco hosted the World's Fair in 1915, and Lee DeForest demonstrated the vacuum tube amplifier by making the very first intercontinental phone call. While onlookers were amazed at how clearly they could hear the voice, they did not realize that this ground-breaking invention would change the world. The vacuum tube worked by controlling the flow of electrons, and so launched the field of study that became known as "electron-ics." Soon after the World's Fair, both Stanford and Santa Clara University began offering courses in this new electronics field within their engineering schools.
The entrepreneurship and technical innovation continued in the Santa Clara Valley, earning itself the moniker Silicon Valley in the 1970s because of its burgeoning tech growth. Who doesn't know today's Valley leaders:
- Hewlett Packard
While a century of remarkable developments have arisen from the Valley, growth is not without its challenges. Just some of the issues include:
Mental Health It is normal and considered "cool" in Silicon Valley tech to work 60+ hour weeks. This can take a significant toll on the mental health of a founder and their team.
Elitism One of the primary areas where this is evident is in higher education. The Bay Area colleges' extremely competitive environment lends itself to the creation of a social class, and you are often judged on where you went to school.
Sexism/Racism While uncomfortable to discuss, the SV tech environment is predominantly made up of white males. Women and people of color are significantly underrepresented and frequently stigmatized.
Monoculture Of Thought Over the years, Silicon Valley has also created an environment of "group think." An example of this is how "hot "technologies soon become the rage for bloggers, VCs, and developers, i.e., web 2.0, e-commerce, or cryptocurrency.
Economics The ridiculously high cost of living in the Bay Area has created a community of "haves" and "have-nots" in the region.
As many new tech startups became disenfranchised with the Valley, they started joining the reverse California gold rush and headed to Austin, Texas. The college town that was once just known for being the artsy home to the South by Southwest (SXSW) Festival became the top location for tech startups in 2019. Everything in Texas does seem to be bigger, including tech. The Austin Chamber of Commerce recorded 48 tech company relocations in 2019 alone.
The global pandemic hit the 34-year old SXSW, as well as the rest of the music and hospitality industry, hard. It is estimated that over $2 billion have been lost in direct tourism alone. In an interesting turnabout, while restrictions kept tourists away, the tech companies came in their place. As California struggled with stay-at-home rules, travel restrictions, and determining what was essential work, many tech companies made major decisions to move out of the state. Last May, Tesla CEO Elon Musk threatened to move its headquarters after a California county health official said that the plant could not reopen.
TechStartup shared that companies are not only relocating from California to Austin; they are also expanding. For example, publicly-traded San Francisco-based Cloudflare hired its first chief information officer in March. The new executive, Juan Rodriquez, is based in Austin, not the Bay Area. Cloudflare is not the first to expand in Austin. Canadian app developer Bold Commerce announced it was expanding its operations in Austin back in March. The company is also ramping up hiring in the city.
Dubbed Silicon Hills, Austin is currently the home of many high-tech industries in the area, including enterprise software, semiconductors, corporate R&D, biotechnology, the video game industry, and various startup companies. Technology companies with offices in the area include Advanced Micro Devices, Amazon.com, Apple Inc., ARM Holdings, Cisco, eBay, ESO, Facebook, Google, IBM, Indeed, Intel, PayPal, Procore, Silicon Labs, Texas Instruments, Oracle Corporation, VMWare, and many others.
What is making Austin so attractive to such a range of tech companies?
Money seems to be one of the primary reasons that many startups are making Silicon Hills home. California has some of the highest state taxes in the nation, while Texas has no state taxes at all. The state also has low energy costs and offers numerous other business incentives. This alone might be enough to incentivize new companies to set up shop in the south, but there is more. While rising sharply over the past few years due to the growth, Austin's housing costs are still a mere fraction of that in Northern California. With the current cost of living in the Austin area at 3% below the US average, a tech salary can go much farther in Austin than in Silicon Valley, Seattle, or NYC.
Also, according to Crunchbase, Austin experienced record venture funding in 2019, with local startups raising $1.84 billion for the year, up 19.5 percent compared to the $1.54 billion raised in 2018, and an impressive 87 percent compared to $983 million in 2017, according to Crunchbase data. For the first quarter of 2020, 38 Austin startups raised $434.4 million compared to 71 companies hauling in $577.5 million in Q1 2019, according to Crunchbase. The larger average round sizes for known investments points to an increasingly maturing venture scene, with the caveat that seed-stage funding rounds commonly get added to our database weeks or months after they close, so we'll likely see the Q1 2020 round counts rise.
Tech companies moving or expanding to Silicon Hills certainly have no shortage of young talent from which to pick as the state capital boasts 13 colleges. Just a few include:
- The University of Texas at Austin
- St. Edward's University
- Huston-Tillotson University
- Concordia University Texas
- South University, Austin
- The Art Institute of Austin
- Texas State University
- Southwestern University
- Texas Health and Science University -- Austin
- National American University
The University of Texas (UT) campus supports some 51,000 diverse students with top national programs across 18 colleges and schools. Its Computer Science department is one of the top 10 in the United States and is consistently highly ranked worldwide. The Electrical Engineering department is also very highly rated. The Computer Science department alone has over 2,000 undergrads and over 250 graduate students. Additionally, UT's McComb's School of Business Venture Labs Investment Competition is the oldest operating inter-business school new-venture competition globally. It has been dubbed the Super Bowl of world business plan competitions.
Other cities in Texas offer the same cost advantages. Dallas and Houston are also home to top-notch colleges. So, what is so darn special about Austin?
The simple answer is the culture, the cool factor, that comes so easy to Austin. Austin's liberal cultural roots are rooted in its unique arts and music scene, which creates a supportive ecosystem. Austin's "hippies'' of the 70s bore the hipsters of the 90s and in 2000, Keep Austin Weird became the slogan adopted by the Austin Independent Business Alliance to promote small businesses in Austin.
What does weirdness have to do with tech and entrepreneurship? Weird people are tolerant and creative. Tolerance has long been heralded as a key ingredient in fostering innovation. Austin's educated and diverse workforce form just the kind of community needed to grow creative ideas.
Austin also boasts a startup community that is supportive of its own. Many have moved to the area for college, a job, or to start their own enterprise and are ready to help out new recruits. According to Austin Startups, the mix of optimism, tech know-how, and southern hospitality is a particularly potent concoction for fledgling companies. Getting intros is as easy as pie, and so far, there are few social ceilings between founders and the local tech elite. Capital Factory is a mentorship-driven co-working space and incubator regroup and home to much of the city's entrepreneurs and tech mentors. This is where first-time founders can rub shoulders with seasoned entrepreneurs, experts from IBM labs, and every single angel investor in the area.
While tech is king in Silicon Valley, in Silicon Hills, startups are varied. Austin is home to the original "crunchy'' grocers Whole Foods and Wheatsville Co-op, the restored historic Hotel San José, the organic drink with a mission Clean Cause, and the booming biotech industry with more than 8,000 employees. Just as a diversified portfolio minimizes an investor's risk, a diversified economy ensures a healthier community.
Austin, the once-sleepy college town, now seems to be in an endless boom. The city is projected to be home to four million people by 2040. There are numerous conversations about "Old Austin" vs. "New Austin" and how they are at odds. However, one startup leader believes that this discussion is flawed. Archit Batlaw, the founder of Reach Media, moved to Austin in 2017 with Facebook. He shared that "in some tech circles, there is a "winner take all" mentality. But Austin is different. The feeling is that we can do this together."
When asked what else he felt made Austin unique, he added that there was just a better work-life balance here. "It is a combination of the weather, the opportunities for so many outdoor activities, the music, and of course, the food. The creative talent that was here before the tech startups only helps breed a culture of innovation. I don't believe it is us against them. I see us as all part of the same journey." Batlaw explained this concept by sharing his quintessential "Austin moment." While at Facebook, he started a hyper-local, organic flower delivery company that partnered with a farmer he met at a local co-op to address the floral industry's negative environmental impacts. Within two weeks from the initial discussion with the grower, an e-commerce business that delivered fresh flowers within two days after being cut to Austin and San Antonio markets was a reality. The synergy between tech, a commitment to local business, agility, and the Austin aesthetic, is what makes this city special.
Is Austin changing? Yes. Does it have social issues, growing pains, and infrastructure challenges? Yes. But this city that is continually remaking itself is up to the challenge.