The Texan startup hub is the Silicon Hills located in the heart of Austin but Houston’s ecosystem has grown considerably over the past few years because of its vibrant energy and healthcare sectors.
Kinder Institute ranked Houston the most culturally diverse US urban region and it is the fourth-most populous city in the US, soon to become the third between 2025 and 2030. The state capital, on the other hand, is home to the University of Texas at Austin and was named the most educated city in Texas according to WalletHub.
Startup Genome’s 2019 Global Startup Ecosystem Report also placed Houston among the top 25 global ecosystems for talent, with the University of Houston and Rice University contributing to the talent pool. Houston also came fifth among the global ecosystems with the largest share of female founders.
In the same report, Austin was included in the top 10 global ecosystems for cybersecurity and top 20 for cleantech. Its metropolitan area ranked first in population growth in the US, third in startup density and sixth in job creation rate according to Surge Cities Index.
Houston is among the 30 largest ecosystems globally and has the fourth-largest concentration of US corporates, which led to the creation of HX Venture Fund, a corporate fund of funds with more than $50m of commitment from local corporations.
Economic development organisation Greater Houston Partnership told Global Corporate Venturing: “In order to create a strong innovation ecosystem that connects with the broader investment community, the Partnership helped launch Houston Exponential (HX) in 2017 and the shape its scope of work through strong board representation and organisational collaboration.
“This organisation sits at an intersection of the region’s industry, startup and academic communities to accelerate the development of Houston’s innovation ecosystem. HX has a venture capital arm called HX Venture Fund, a VC fund of funds that invests in other VC funds in order to attract outside VCs to the Houston region, as well as drive additional funding for Houston-based corporations, startups and accelerators. HX Venture Fund closed its first investment of $5m earlier this year in the Austin-based LiveOak Venture Partners.
“Since Houston Exponential was created two years ago, Houston has seen a number of significant wins in its innovation landscape, including July’s ground-breaking of The Ion, a 270,000 square foot innovation hub as part of the broader 16-acre South Main Innovation District in Midtown. The Ion will bring together entrepreneurs, venture capital, corporations and academia to collaborate under one roof. The Ion sits at the midpoint of Houston’s Innovation Corridor, a key piece of the city’s growing innovation ecosystem that runs four miles through the heart of Houston.
“There is also the development of TMC3, a massive collaborative life sciences commercialisation campus bringing together a number of life sciences leaders in one space. Houston has also added dozens of Startup Development Organisations to its innovation ecosystem, providing another avenue for venture capital into Houston, such as Plug and Play Technology Center, MassChallenge and Gener8tor. These major projects are part of a greater momentum and collaboration that is energising our innovation ecosystem and attracting more venture capital to the region.”
Setting records
Susan Davenport, senior vice-president at Greater Houston Partnership, said compared with other US regions, Houston has been one of the largest private equity investment markets for decades as conventional energy ventures attract billions in private investment each year.
She added: “Energy projects continue to dominate Houston’s equity market today, but venture capital has gained a strong foothold in recent years, especially in life sciences and digital technology.
“Houston is on pace for a record-setting year for venture capital investment. Houston companies have received $486m in venture capital funding so far this year, up from $407m during all of 2018, according to PitchBook. Overall, Houston ranks in the top 20 US metros for venture capital funding – ahead of emerging tech cities like Detroit, Cincinnati and Pittsburgh, but behind top tier tech hubs like San Francisco, New York and Boston.”
PitchBook data show Texas VC dealflow with corporate involvement has increased significantly from 2011’s $621.2m deal value, almost doubling in size as of October this year, having recorded $1,046.7m. The corporate VC deal count has also grown from 26 deals in 2011 to 60 in October 2019.
Davenport continued: “Corporate venture capital (CVC) is an especially strong growth area for Houston. Many of the region’s oil and gas companies and medical institutions have active venture capital arms making investments locally and across the country.
“Since 2017, Houston startups have raised $259m in corporate VC, a threefold increase from the $82m that was raised in the previous three-year span. Corporations making venture capital investments out of Houston have invested $5.1bn since 2017, twice the amount invested from Austin and four times the amount from Dallas.”
Barbara Burger, president of Chevron Technology Ventures (CTV), the California-headquartered oil and gas company’s CVC subsidiary, said: “CTV has a 20-year track record of investing in energy innovation to enhance the way Chevron produces and delivers reliable, affordable and ever-cleaner energy.
“To identify breakthrough technologies and trends, we scout the innovation ecosystem in the US and globally. One of the main ways we identify innovative startups is through our relationships and partnerships with other CVC groups, venture capital, universities, incubators and accelerators.
“As part of our investment strategy, we have focused on building up and supporting the Texas ecosystem through sponsorships and partnerships with startup development organisations. In Houston, we play an active and leading role in growing the innovation ecosystem through our support of local organisations which include Station Houston, Houston Exponential, The Cannon, Rice University, Capital Factory and Plug and Play.
“The stronger and more robust the ecosystem is, the stronger our pipeline of innovation is into Chevron to solve the complex energy challenges of today and tomorrow. We recognise that by helping entrepreneurs realise their vision. CTV is advancing breakthroughs that have the potential to enhance the way Chevron does business while shaping the future of energy.”
Apart from Chevron, other energy companies have also been engaging closely with the region’s startups – Norway-headquartered Equinor, Saudi Aramco, Anglo-Dutch Shell, Houston-headquartered ConocoPhillips, UK-based BP, France-based Total and US-based Schlumberger – through their CVC vehicles: Equinor Technology Ventures, Saudi Aramco Energy Ventures, Shell Ventures, ConocoPhillips Technology Ventures, BP Ventures, Total Ventures and Schlumberger Technology Investments.
Enterprise software producer Salesforce and semiconductor producer Intel have been the most active corporates in the state through their VC subsidiaries, Salesforce Ventures and Intel Capital. Intel peers Qualcomm and Applied Materials’ Qualcomm Ventures and Applied Ventures units have also injected substantial capital in the region.
Financial services firms Citi and Orix have participated in Texan deals through their Citi Ventures and Orix Growth Capital subsidiaries, as have insurers American Family and Northwestern Mutual’s strategic investment arms, American Family Ventures and Northwestern Mutual Future Ventures.
Other corporate players in the ecosystem include Saudi Arabia-based chemicals producer Sabic, US-listed industrial product manufacturer General Electric, Australia-based telecommunications firm Telstra, US-headquartered pharmaceutical firm Merck, South Korea-headquartered electronics producer Samsung and US-listed software provider Microsoft and their VC vehicles – Sabic Ventures, GE Ventures, Telstra Ventures, Global Health Innovation Fund (GHIF), Samsung Venture Investment and M12.
Sports entertainment organisation World Wrestling Entertainment (WWE), caterpillar machinery producer Holt CAT’s Holt Ventures subsidiary and family office McCombs Enterprises’ McCombs Partners division, the last two based in San Antonio, also featured on the list.
Greater Houston Partnership said tech verticals that have been prime targets for corporate VCs include: oil and gas technology, advanced manufacturing, business-to-business payments, oncology, human resources tech, robotics and drones, cryptocurrency and blockchain, big data, artificial intelligence, machine learning, digital health and healthtech.
Austin-tatious
The trend is also true for the rest of the state, especially in Austin, where many of the bigger deals backed by corporates have emerged in the past decade.
E-commerce software provider BigCommerce completed a $64m round led by investment banking firm Goldman Sachs’ Private Capital Investing unit in April 2018, having added $30m from Telstra Ventures, telecoms firm SoftBank’s VC fund, SoftBank Capital, payment services provider subsidiary American Express Ventures and others in 2016, after a $50m series D round in 2014 led by SoftBank Capital, featuring Telstra Ventures, Amex and other backers.
Mobile monetisation technology provider Phunware increased its series F round featuring corporates Philippine Long Distance Telephone Company (PLDT) and WWE to $46m in February 2018, after it had reached a $40m second close of the round in 2016 when it secured $22m from backers including PDLT Capital, the CVC unit of telecommunications firm PLDT, Fraser McCombs Capital and WWE.
Artificial intelligence chipmaker Mythic collected $30m in June 2019 in a series B1 round involving semiconductor supplier Lam Research and SoftBank Ventures Asia, featuring aerospace manufacturer Lockheed Martin and data storage technology provider Micron’s VC vehicles. It came in the wake of a $40m series B round in March 2018 led by SoftBank Ventures and with participation from Lockheed Martin Ventures after a $9m series A round the year before.
Semiconductor developer Ambiq Micro which counts semiconductor technology producer Arm and IT equipment provider Fujitsu as its backers, reportedly raised $29.1m in a November 2018 round. Arm participated in its $15m series C round in 2014, having also taken part in a $10m series B the year before.
Healthcare management software producer ClearData closed a $26m round in November 2018 featuring Merck’s GHIF and health insurers Humana, Heritage Group and Health Care Service Corporation (HCSC), after the same investors had provided a $25m series C round three years earlier, following a $14m series B in late 2013 that included Merck GHIF.
Consumer data provider Smarter Sorting secured $17m in a series A round led by waste treatment services firm US Ecology in September 2019 after receiving $5m in seed funding in March 2018 and a $4.3m round four months later.
Machine intelligence technology developer CognitiveScale secured $15m from investors including financial services firm USAA, M12 (then known as Microsoft Ventures) and Intel Capital in June 2017, after it had raised a $25m series B round from M12, Intel Capital and computing firm IBM the year before.
Salesforce Ventures contributed to computer telephony integration technology provider Tenfold’s $14m series B round in 2018 before joining its $7.5m series C round in October 2019.
Software engineering technology developer Pinpoint raised a $13.5m series A round in February 2019 that included media group Bloomberg and messaging software provider Slack’s corporate venturing subsidiaries Bloomberg Beta and Slack Fund.
Intelligent construction finance software platform developer Rabbet closed an $8m series A round in February 2019 that included Camber Creek, the VC arm of real estate developer Berman Enterprises, and Goldman Sachs’ Principal Strategic Investments group.
Security research and testing company NSS Labs raised $7m in series B funding in April 2015 from investors including Chevron Technology Ventures, while communications network technology developer GenXComm raised a $7m series A round led by Intel Capital in December 2017.
Autonomous perception technology developer Pensa Systems raised $5m in January 2019 in a round that included ZX Ventures, the investment arm of drinks company Anheuser-Busch
InBev, following a $2.2m seed round in May 2018.
Filament Labs (Patient IO) secured $1m in a May 2014 round which included healthcare providers Corinthian Health Services and Arcadia Home Care.
Student employment platform Viridis Learning raised an undisclosed sum in June 2017 from Salesforce Ventures after CNF Investments and Comcast Ventures, the corporate venturing arms of construction firm Clark Enterprises and mass media group Comcast, backed its 2013 round, which was also undisclosed.
Imaging technology developer Almalence received an undisclosed amount in September 2015 from Intel Capital.
Healthcare providers Christiana Care Health System and The Texas Medical Center co-led a round of undisclosed size in February 2019 for healthcare data analysis software developer NarrativeDx with Summation Health Ventures, the VC representative for hospitals Cedars-Sinai Medical Center and MemorialCare Health System.
Houston is hot
Moving back to Houston, industrial technology developer Arundo Analytics received a $25m series A round in February 2018 from investors including construction firm Sundt and diversified holding company Canica, having also received backing from advisory firm TRK Group in the past.
On-site power and energy storage supplier FlexGen Power Systems closed $25.5m series A round in July 2015 featured GE Ventures and Caterpillar Venture Capital, the strategic investment arm of construction equipment maker Caterpillar.
Oil and gas services provider Ziebel raised $10m from backers including ConocoPhillips Technology Ventures, Chevron Technology Ventures and Energy Technology Ventures, the investment fund formed by industrial conglomerate General Electric and energy companies NRG Energy and ConocoPhillips, in 2014
Cognitive health-tracking software developer BrainCheck, which graduated from care provider Texas Medical Center’s TMCx accelerator, received an $8m series A round in October 2019 after closing a $4.5m seed round in June 2017 before adding $1.5m in December 2018.
Gas compressor valve producer Zahroof Valves raised a $6.3m series C round led by SAEV in July 2016.
Oilfield completion tool developer Gryphon Oilfield Solutions raised an undisclosed amount from investors including SAEV in January 2018.
San Antonio spurs on
San Antonio-based 3D computer vision software developer Plus One Robotics raised an $8.3m series A round in November 2018 featuring Zebra Ventures and TCL Ventures, subsidiaries of printing technology provider Zebra Technologies and electronics producer TCL Corporation.
Oilfield monitoring technology provider WellAware, which is also based in the city, secured $16m in series B1 funding in September 2015 co-led by data analytics company Genscape and Mitsui & Co USA, a subsidiary of conglomerate Mitsui.
Nanofiber material manufacturer FibeRio, which is headquartered in McAllen in southern Texas, raised $13m from Sabic Ventures and Aster Capital Partners, a multi-corporate venturing fund sponsored by industrial group Solvay, energy management equipment maker Schneider Electric and power and automation product maker Alstom in February 2013.
PitchBook data reveal that the exit deal value originating from Texas has decreased from $2,777.9m in 2011 to $155.2m in 2018, while it has recovered notably in 2019, recording $2,442.2m by late October this year.
Austin-based game studio Owlchemy Labs raised a $5m series A round from investors including Qualcomm Ventures, electronics producer HTC and game publisher Colopl’s VC vehicle, Colopl VR Fund, in February 2016, and was acquired by internet technology provider Google 15 months later for an undisclosed amount.
Mobile banking software developer Kony, also in the state capital, was acquired by banking software producer Temenos for $559m upfront and a $21m earn-out in August 2019, enabling SoftBank and Telstra to exit. SoftBank Capital, the now-defunct CVC unit run by SoftBank, co-led a $50m series E round for the company in 2014 which included Telstra Ventures. The company had previously raised $18.3m series D funding from Telstra Ventures, alongside other VC investors, the year before.
