Startup Houston

Don’t call it a comeback
I been here for years
Rockin my peers and puttin suckas in fear
Makin the tears rain down like a MON-soon
Listen to the bass go BOOM
Explosion, overpowerin
Over the competition, I’m towerin
Wreckin shop, when I drop these lyrics that’ll make you call the cops
Don’t you dare stare, you betta move
Don’t ever compare
Me to the rest that’ll all get sliced and diced
Competition’s payin the price

LL Cool J, Mama Said Knock You Out

Kiplinger’s Personal Finance is out with their Best Cities 2008 report and Houston has topped the list this year. With a cost of living well below the national average and the highest job growth in the country, Houston has made its comeback. #2 in the home for Fortune 500 companies behind New York City, Houston has also become a destination city for a diverse and robust technology sector as well.

This is no surprise to me or our readers who have known about Houston’s greatness for sometime. It is nice to see the rest of the country take notice.

Come on people, let me hear you scream!!!

P.S. Hey Stacey, Austin made the list too….

This past Thursday night I attended the Jewish Federation of Greater Houston’s annual Men’s Night Out event. This year’s speaker was Nando Parrado, a member of a Uruguayan rugby team that in 1972 crashed with his team in the Andes and survived against all odds over 14,000 feet in the mountains for 72 days before being rescued due to his own courage and conviction. Nando’s speech was both inspirational and heart wrenching to almost everyone in attendance. One of the things that stuck with me the most was that he believed that the greatest factor that contributed to his survival was luck: not survival instinct or teamwork, luck. Here were some examples:

• Nando sat in row 9 of the plane; everyone in rows 10 and up died instantly upon the plane’s first crash against the mountain’s peak.
• An avalanche claimed more lives on day 16; the avalanche also created a warm habitat for the survivors in the plane’s fuselage and provided additional nourishment (if you have seen Alive, then you know what this means) for the survivors.
• One of the survivors’ mother had taught him to sew at an early age. With this skill, he was able to create a sleeping bag for the group that kept them warm in the cold night.

Most at this point might be saying to themselves, “Luck? What kind of luck is it to see your mother, sister and friends die in a horrible crash and then get stranded without food or water for over 2 months?”

Life is not black and white. History is full of stories where a seemingly horrific event brings about an even greater good. Nando himself talk about how the events of those two months in the Andes helped shape who he is today and brought his daughters into the world. Who is to say what eventual good comes out of anything.

I have often said that entrepreneurial success is 5% having a good idea, 10% having the brass to take a chance on making it happen and 85% pure unfiltered luck. Where would Apple and Microsoft be today if they hadn’t “discovered” and “borrowed” the GUI from Xerox PARC back in the late 1970’s? Most of Thomas Edison’s inventions were the byproduct of luck by his own admission, although his definition of luck differs somewhat. Hard work is important but the best product with the best management team will fail if the market timing is off. Remember the Apple Newton?

Bottom line: after you have your great idea and work yourself to the bones in trying to make it happen, recognize that, as the famous Roman politician Seneca once was quoted as saying, “Luck is what happens when preparation meets opportunity.”

Have a great and long weekend, unless you are in a startup: if so, then get back to work and try and generate some good luck!

Thursday morning I had the pleasure of being a part of a morning long panel discussion regarding technology and economic development with the West Houston Leadership Institute, a ten month program sponsored by the West Houston Chamber of Commerce whose purpose is to train and develop leadership in the West Houston community. Cliff Simpson of Phillips & Reiter, a local law firm and an advocate for the technology startup community in Houston, led the event which was held at Phonoscope’s offices on the west-side of town. You may have seen Cliff at our last Houston Startup Happy Hour as he represented our sponsor for the event.

The event was kicked off by the always dazzling Walter Ulrich of the Houston Technology Center who led off the discussion talking about the strides that Houston has made over the past years in improving its perception as a technology hub. Right after Walter’s talk, the first panel, which I was a part of, started around. The panelists were (myself included):

• Richard Lewis, Chief Information Officer for the City of Houston
• Bart Sheinberg, HCC/West Houston Center for Science & Engineering
• Leo Womack, Chairman of the Houston Angel Network

I particularly found Mr. Lewis’ presentation quite interesting. Key takeaways from his talk were:

• The continued focus by the city to make WiFi a reality after Earthlink’s bailout…it seems that there is excess capacity available from the wireless network used by the downtown parking meters that will be carved off and used as a WiFi net in and around the downtown area;
• Apparently, the Houston Police Department’s record management system is still in use from its original implementation in the early 1980’s; this is one of the city’s top initiatives to replace with some COTS system;
• The biggest project seems to be the radio replacement project which will attempt to upgrade the entire radio network for all citywide communications and better interoperability with other government operations and departments;

The second panelist group included some great speakers:

• Dr. Wade Adams, Director of the Smalley Institute for Nanoscale Science and Technology at Rice University
• Jacqueline Northcut, CEO of BioHouston
• Irene Kosturakis, Chief Intellectual Property Counsel at BMC Software
• Dale Steffes, Planning & Forecasting Consultants

Overall, this was a great event as it further demonstrated the passion that Houstonians feel about the future of this city. I hope to see more events like this in the future.

Houston kicked off 2008 with a strong quarter of venture capital investment according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. In the first quarter of 2008, 10 Houston based companies raised $124.5 million in venture capital compared to 27 companies that raised $242.6 million over all of 2007. Q1-2008 represented the largest amount of investment since Q3-2006. Here are some stats:

• The bulk of the investment last quarter (54.3%) went to industrial/energy companies with software (25.9%) and medical devices (11.6%) right behind;
• 27.8% of total investment went to companies with an Internet related technology (3 out of the 10);
• 40.0% of the deals went to early stage companies, which represented $13.1 million or 10.5% of the total invested;
• Out of the 19 investors participating in these deals, only 1 Houston VC firm was involved, DFJ Mercury. DFJ Mercury was also the most active Texas based venture capital firm in all of Texas last quarter doing 16.2% of the deals by Texas firms, but only put $1.7 million to work. Of the 4 seed stage deals done in Texas, DFJ Mercury was in 3 and only one of those deals was DFJ Mercury the first money in.

What would make this report more useful would be some persepctive. That perspective might come from knowing how many deals were actively looking for capital last quarter. I cannot say how many deals will get done for the remainder of the year but since it seems that we only have one active firm in town, I find it hard to foresee this pace holding up.

Nationally, the numbers tell a different story. Across the US, venture capital investing was down 8.5% from Q4-2007:

“Venture capitalists still have large amounts of money in their coffers, therefore it’s no surprise to see a solid level of investing continue,” said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. “VCs have weathered numerous economic cycles and will continue to fund companies with innovative ideas and solid business models while they also stand behind their portfolio companies for the long-term.”

“Despite the current economic downturn in the United States, venture capitalists are still putting money to work across multiple industries and stages of development,” said Mark Heesen, president of the NVCA. “The continued interest in the life sciences and clean technology industries, as well as the traditional IT sectors, reflects the long term investment horizon that the venture industry has always embraced. We do not expect to see significant declines in investment levels in the coming year. However, the dollars going to later stage investments could increase if the IPO window remains closed for an extended period of time and venture capitalists have to sustain companies longer than expected.”

Bottom line for you startup hopefuls out there is that money will find good deals. The definition of a good deal may change and adjust as the economic future takes shape, but money seeks a return above the average; it is what capitalism is about.

Houston and Guy Kawasaki favorite, sk*rt has rebranded itself as kirtsy as of this morning. Over the past few weeks, kirtsy’s team has been running a contest to rename the popular content aggregation site for user-selected stories that have relevancy among women. The new name is play on the original, without that pesky hypen in the URL.

Although I am not sure what was the bigger driver behind the change, confilcts with Skirt magazine over trademarks and domain rights or confusion about the site’s relationship to the publication, either way, the new site retains the same look and feel as the original.

So change your bookmarks and let the world know about the change.