Texas was historically known for its oil spills. Today the state is perhaps best known as a magnet for tech companies and tech talent, especially in its capital, Austin. But with some startups raising stakes and key industry players scaling back their Austin presence, Texas’ dream of taking on tech’s traditional home of California could hit some speed bumps.
After a decade in the Texas capital, startup accelerator Techstars is putting the brakes on its capital in Austin, TechCrunch has learned exclusively.
CEO Amos Schwartzfarb, who has been with Techstars in Austin for eight years, announced that he is leaving the company. His last day will be February 15. That forced Techstars — which has run 15 programs in Austin — to make a decision about the company’s future in the city.
“Unfortunately, we are pausing the Techstars Austin accelerator,” Techstars spokeswoman Amalia Lytle confirmed, adding that the organization did not know how long the capital would be on hold. Once Schwartzfarb made the decision to leave, Techstars decided that maybe “the accelerator program is not the best way forward” in the city, according to Lytle. Instead, Techstars may decide to invest more in other programs like Startup Weekend or Founder Catalyst, he said.
During the COVID-19 pandemic, startup investors and founders flock to the Texas capitalthey are attracted by the lower cost of living, the ‘powerful’ lifestyle and the business-friendly environment (i.e. no state income taxes).
But as the years have passed, it seems some have lost their fascination with Austin, to the point where companies and founders are also leaving or looking to leave the city. Summers are brutal — 2023 was the hottest on record 78 days of triple digit temperatures. The startup scene, some argue, is unbearable. And funding—especially for mid-sized companies—can be hard to come by. The perceived lack of diversity is also an issue.
People who moved here for affordability quickly realized that the city wasn’t as cheap as they expected – especially when it came to housing.
Austin’s housing market raged in 2020 and 2021. As recently reported by Newsweek, “by mid-2022, prices were more than 75 percent higher in the city compared to pre-pandemic.” What went up now goes down again, with the same publication stating that “Prices in Austin are falling 10 times faster than the national average”.
Funding is also down. Venture capital funding in the city totaled $6.75 billion in 2021 and $5.5 billion in 2022, according to data from PitchBook. In the first three quarters of 2023, venture funding fell 46% to $2.9 billion compared to $5.3 billion raised in the first three quarters of 2021 and down 36% compared to 4.5 billion dollars in the first nine months of 2022.
Others are also leaving Austin
Techstars isn’t the only entity scaling back to Austin, either. In November, the unicorn Cart announced that it was moving its headquarters back to Houston after relocating to Austin in late 2021. The company, which bills itself as an e-commerce-as-a-service business, reached a $1.2 billion valuation in June after raising a $60 million Series C funding round.
Mitch Goulding, director of communications at Cart, told TechCrunch via email that the company originally moved its headquarters to Austin “with the express goal of attracting more software talent.” But as the company continues to scale (it claims to have seen revenue grow 9x since the end of 2021), it decided it needed to “grow other areas of the company,” including HR, finance, accounting and legal.
“We believe the move to Houston will unlock a deeper pool of talent in these areas based on its position as a hub for major businesses,” said Goulding.
It’s also a matter of cost and convenience.
“The cost in Austin is high relative to the affordability of Houston, [and] Houston is also more affordable,” Goulding said. “It’s usually easier and cheaper for employees who fly in. It also tends to be easier for employees who drive in from across the state.”
In January, Laundris CEO Don Ward announced he had made up his mind to relocate the headquarters of his B2B software startup from Austin to Tulsa.
“Many [Tulsa] reminded me of where Austin was 10 years ago in terms of the tech ecosystem being built,” Ward Tulsa World said.
Joah Spearman is a founder who recently moved to Sacramento from Austin after becoming disillusioned with many things about the city.
Spearman founded Localeur, a travel recommendation service aimed at millennials, in January 2013, and is working on a new startup venture now in stealth.
While he’s not completely sour on Austin, he believes weaknesses are limiting its growth.
“The University of Texas has an unstable funding partner in the State of Texas given state politics, which makes it difficult to predict their continued investment in the local ecosystem. The cost of living, especially housing, has made it harder for middle-class professionals — especially people of color — to buy into the market, which hurts startups that have to compete with the Googles and Teslas for talent,” Spearman said. , who is black. “Monoculture speaks more to the income inequality that prices out musicians, artists and hospitality workers who are so important to the creative culture that makes Austin a great market for startup founders in the first place.”
Spearman went so far as to run for City Council in hopes of helping affect change in the city. “I finally got to a point where I had to stop trying to solve problems on behalf of a city I loved and focus on taking care of myself and pursuing other opportunities,” he said.
said Mike Chang, a 30-year-old founder and angel investor Business Insider earlier this year that she regretted moving from Los Angeles to Austin during the pandemic. “Austin is where ambition goes to die,” he told the publication.
An entrepreneurial investor who wished to remain anonymous recently made the move from Austin to California. He declined to comment further.
The migration continues
However, some believe that while people aren’t moving to the city like they were two to three years ago, Austin is still attracting people from other locations.
“Anecdotally, I probably still run into someone every few weeks who moved here in the last year,” said Eric Engineer, a partner at Austin-based S3 Ventures. “They tend to be between 20 and 30 years old.”
And not everyone who is disillusioned with the city leaves.
Paul O’Brien, CEO of MediaTech Ventures, posted on LinkedIn that the advantage of a healthy startup ecosystem is if big businesses like banks and VCs fund the ecosystem. But the problem is, Austin didn’t have that support.
In his view, the reason founders (or anyone) might struggle in Austin has to do with the city’s messaging and promotion being “inconsistent with the value provided to the market.”
“Of course, many of us, myself for one, absolutely love Austin for all that it’s good and bad, but many people move here hearing that it’s the ‘next Silicon Valley,’ ‘the best place for startups,’ or ideals like ‘ Live Music Capital of the World,’ and it’s not that these ideals are invalid, but rather that expectations are outstripping reality,” he wrote.
Techstars’ departure isn’t the only disappointing accelerator-related news in town this year. In May, TechCrunch reported that it was no longer working Newchipan online accelerator committed to helping startups, had declared bankruptcy amid employee and customer dissatisfaction.
