Startup Houston

A few weeks ago I had the chance to have coffee with Blair Garrou of DFJ Mercury. For those of you who do not know Blair, you should. Blair was one of the individuals instrumental in the formation and development of both the Houston Angel Network and the Houston Technology Center where he served as Director of Operations from 1999-2000. Blair has been a part of several venture capital groups in Houston, first with Genesis Park and now with DFJ Mercury. In between those VC jaunts, Blair was the CEO of Intermat, Inc., a software development company located in Houston up until its sale to IHS in 2004. He is also an adjunct professor of management at the Jones Graduate School of Business at Rice University.

Today, Blair spends most of his time on a number of boards of directors for both DFJ Mercury portfolio companies and local organizations, while trying to manage, with his partners, DFJ Mercury’s portfolio of assets. DFJ Mercury is a $20 million, Texas-based, seed and early stage venture capital fund that invests in companies that are addressing large market opportunities in information technology, applied materials and life sciences. DFJ Mercury is part of the global intelligence network of Draper Fisher Jurvetson funds.

Here are some excerpts form our chat:

Josh: What more do you think can be done to help foster the Houston I.T. and Web 2.0 startup community so that it attracts more investment from funds such as DFJ Mercury and others?

Blair: I believe that we need more “showcases” of young, exciting IT and web-based companies in Houston. Rice and HTC have provided solid forums to date for these companies, but we can always do more. I think more organizations and information resources like your own, BarCamp, StartupWeekend, and other events allow community to be built and the word to be spread that there are some really exciting ideas and companies launching in our city.

Net, net, though, I believe we need a few Houston-based software and web-based companies to be acquired by well-known, west coast technology companies in order to build legitimacy with both the entrepreneurial and the investment community. We need to prove that you can, indeed, build successful Houston-based IT businesses and make money for your investors. This has happened in various pockets of the software industry – most specifically security & systems management (BMC, Bindview, Mission Critical, Pentasafe). It also happened (on a personal level, without outside investor participation) with Victor Koosh selling his company Meedio to Yahoo! a few years back. Success begets success, and those entrepreneurs who learn valuable lessons from early deals continue to innovate and pass on their key learnings to new generations of managers.

Josh: What is the biggest challenge that you feel small and startup technology companies in Houston face in attracting funding?

Blair: I believe that it’s a numbers game. What I mean by that comment is that there aren’t many funding sources in Houston for start-ups, and it is almost impossible for a Web-enabled business to find venture or angel funding. A few deals will get funding, but from the deals I am seeing, there should be dozens more. This is primarily due to the perception by outside funding sources that you can’t build a sustainable, high-growth technology business in Houston. We battled this notion back in the early days of the Houston Technology Center, and Walter Ulrich, Marc Nathan and others are still fighting those same battles today.

I think the problem lies in the fact that it is very difficult to recruit tech talent in Houston and/or to Houston, and therefore there isn’t the amount of venture capital in Houston that one would expect for a city of our size and resource capabilities. This has more to do with the “critical mass” problem that plagues every part of the country except California and Massachusetts, but it is heightened in Houston since our town is not perceived as a “destination city.” It’s a terrific place to live (I’ve been proud to call Houston my home now for 10 years), but it is not a place visited by the outside world unless you are in the Energy industry.

Josh: What more do you think the City of Houston should do to promote small and startup technology companies in Houston?

Blair: I think this is an area that could show the greatest amount of improvement – and I include both the Mayor’s office and the Greater Houston Partnership in the “City of Houston” equation. One of the reasons that you don’t see more activity is that start-up technology companies are still not a material part of the Houston economy. In an environment where $70-$80 oil is the norm, the attention will continue to be focused on energy companies and energy-focused service providers. Now, I don’t necessarily disagree with this strategy, but the day will come when our dependence on fossil fuels has waned, and new types of renewable energy and clean technologies will be the norm. I hope that Houston won’t lose its relevancy in the global energy economy, because if that happens, and we haven’t done more to promote a vibrant life sciences and IT community, we’ll be in trouble.

Josh: What more do you think Rice University and University of Houston should do to promote small and startup technology companies in Houston?

Blair: I think Rice does a very good job at promoting start-up technology companies through its Rice Alliance activities and events. Brad Burke and his team always produce high quality events. UH, which has a superb undergraduate entrepreneurship program (Center for Entrepreneurship and Innovation), led by Dan Steppe, has more ad-hoc type events and is working towards more formalized venues to give UH-based start-ups and entrepreneurs more of a voice to the outside community.

Josh: Who have you found to be the best information resource regarding startups in Houston for your organization?

Blair: To date, there really hasn’t been a “one-stop-shop” for start-up information. My partners and I still find that we here most about startups through our network, which includes the Houston-based start-up accelerators, angel organizations, and service providers. I do find that the Houston Angel Network, and our friends in the legal industry are particularly good at “unearthing” start-ups that we haven’t heard about.

Josh: Who have you found to be the best networking/partnering resource in Houston for your organization?

Blair: This is a question I get asked quite often, mostly by out-of-towners looking to get active in the region. My stock answer is that the HTC, Rice Alliance, Houston Angel Network and BioHouston are the most helpful and relevant organizations for VCs, angel investors and high tech entrepreneurs who are actively looking for interesting start-up dealflow and to network within the start-up community. Both the MIT Enterprise Forum and TeXchange offer good networking and event-based learning opportunities, but the others constitute the big four IMHO.

Josh: What can Startup Houston do to help you and your organization?

Blair: Two things: (i) continue doing what you are doing (spreading the word about new Houston-based technology start-ups, start-up ideas, and entrepreneurs); and (ii) begin to catalog these companies and entrepreneurs and provide that data freely back to the other start-up ecosystem organizations in town, as well as the Mayor’s office, the GHP and other groups that should know about the tech start-up activity levels of our city. Only with the appropriate information (companies, people, capital raised, exits, job data, etc.) can we take our city to the next level, hopefully attracting more tech-focused managers and executives, and venture capital.

Thanks for a great meeting and some wonderful advice for our Houston startup community.