The Houston Startup Community needs more Seeders

In latest reboot, startup hub Station Houston becomes nonprofit — Link

- Houston Chronicle’s Andrea Leinfelder

I want to qualify my quote in the Houston Chronicle article. “An active startup ecosystem is not looking for grant dollars,” said Marc Nathan, who publishes the Texas-Squared Startup Newsletter and previously worked with Houston entrepreneurs. “They’re not begging. They’re earning their money through making successful companies.”

What I was trying to convey is that strong startup ecosystems are built on successful exits from private companies that create business value organically. Station Houston has switched from a for-profit entity to a non-profit in a bid to better align with its partners Rice University and HX in the planned Sears Building Houston Innovation District. This makes perfect sense from the perspective of the organization, and they did what was best to keep the organization on a growth trajectory. I don’t like the fact that shareholder value was wiped out in the process, nor the message was about the organization itself, not the member startups.

The issue I have is that it’s very difficult to engineer communities by committees made up of non-entrepreneurs. We’ve already seen what happens when stodgy committees made up of business people like bankers and lawyers when they take over the board and direction of a startup hub (to be crystal clear, I’m referencing the now-shuttered Houston Technology Center). I can’t help but think that the Houston startup scene is a little bit too similar to the Houston Texans — we have all the hype, we have world-class individual contributors like JJ Watt and DeAndre Hopkins, and we have the relentless zeal of a fanbase that supports them, but we just can’t seem to make our way through the playoffs. We need private individuals with a profit interest, not a strictly philanthropic one.

Houston is dealing with the concept of ‘Feeders and Seeders’ that Brad Feld described in his book Startup Communities — where Seeders are respected, motivated entrepreneurs and Feeders are supporters and cheerleaders (I fall squarely into in this category). Both parties are necessary, but Seeders are in fact more important for a sustainable startup community because they are the engine that drives the ecosystem — nothing really starts without the first dollar of earned revenue. To put it in the provocative words of a long-time Rice Business Plan Competition donor, “Cashflow is more important than your mother”.

I want to see Houston putting more effort into supporting startups and entrepreneurs individually and directly. This support starts with more press about startups in traditional publications like the Houston Business Journal and the Houston Chronicle and local niche sites like Xconomy, Houstonia, and now CultureMap spinoff InnovationMap Houston. The next step is getting local established companies to buy from startups — something that Station Houston has made a great effort to stimulate through their corporate partnerships. The final step is to encourage first-time founders to become serial founders by celebrating their wins, supporting their next startups, and telling their stories.

Speaking of telling a compelling Houston startup story, it’s something we’re seeing this week with Eric Elfman’s thunderously big news of raising a massive $200m round for www.onit.com. Eric founded DataCert in 1998, became an Entrepreneur in Residence with me at HTC only to incorporate Onit on the very day that his non-compete ran out with an original seed investment from Red House Associates, followed immediately by one of Austin Ventures last Series A investments. Now how many of you knew Onit existed before you read the headline today? We have many other tales like this in Houston such as Eric Pulaski building BindView, taking it public and selling it to Symantec which allowed him to create another successful exit with SmartVault. Or Michael Holthouse building ParaNet and selling it to Sprint after six years which gave him the chance to start Lemonade Day. Or Phil Fraher who started in Houston as the CEO of Visual Numerics and went on to become the CEO of FuelQuest, guiding them to a profitable sale. Or Tyler Gill who guided StrongRoom Solutions to a sale to AvidXChange (and pending IPO) after working on a medical billing software company.

We’re seeing a few second-time founders now with Chris Chruch and Misha Govshteyn starting AlertLogic and now managing MacroFab’s startup journey. This idea is also true of Mark Schmulen who started and sold NutShell Mail in eleven months and is now building a new startup in the Real Estate tech space. Daniel Cotlar is now working with Apartment Butler after a stellar run with Blinds.com that sold to Home Depot.

We must keep reminding ourselves that Houston does have a startup community outside of the Oil & Gas and Health Care, including several large FinTech companies based in Houston such as P97, PROS, and High Radius that paves the way for others like NextSeed, Harvest Exchange, PledgeCents and GroupRaise but I think that story is lost on many people and in the press because they don’t often participate in startup events held by startup support organizations.

I have high hopes for startups coming out of Houston, and I will continue to support any company from Houston that focuses on discovering a gap in the market, exploiting it profitably, and ultimately providing financial returns for their founders, employees, and shareholders. Ultimately, I believe in the Houston hashtag, #SLGT — Support Local, Grow Together.

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Helping support the Texas tech/startup community through connecting and mentoring. Subscribe to the Texas-Squared Startup Newsletter: www.texassquared.com

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Marc Nathan

Marc Nathan

Helping support the Texas tech/startup community through connecting and mentoring. Subscribe to the Texas-Squared Startup Newsletter: www.texassquared.com

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