Houston isn’t a tech hub yet, but it might be one day
Local boosters are excited about the growth in Houston’s tech scene and so badly want to utter the word “hub,” which may happen eventually. But the city still has a way to go as it works to diversify its economy.
In 2018, many Houstonians pondered why it was the only of one of the nation’s four biggest cities not to make the Final 20 list as a potential location for Amazon’s second headquarters. The tech giant’s decision to overlook Houston hurt, but the city’s tech dream didn’t die.
Venture capital investment has nearly tripled in Houston over the last five years, from $284 million in 2016 to $753 million in 2020, a new high for the region, according to the report released this week by the Greater Houston Partnership and Houston Exponential, a nonprofit working to accelerate the growth of the region’s tech industry.
Although the growth is substantial, Houston still lags established tech centers. Austin attracted $2.3 billion in venture capital investment in 2020 while the San Francisco Bay Area was home to $61.5 billion in venture capital deals, according to a report from the National Venture Capital Association. So, the sector in Houston may be strengthening, but it quite hasn’t reached “hub” status yet.
While the tech scene is less established in Houston, the city still offers benefits to set up shop here. Entrepreneurs will find lower operating costs in Houston than in Silicon Valley, and less competition for customers and workers.
Houston now has over 30 Startup Development Organizations (SDOs) that have either opened or announced plans to open since January 2017. SDO’s includes incubators and accelerators,
co-working spaces and maker spaces for startups developing hardware.
Today, Houston is home to more than 50 SDOs, including The Cannon, Downtown Launchpad, East End Maker Hub and the soon-to-open Ion, the Rice University project that will anchor a 16-acre innovation district in Midtown. This is likely only the beginning, Harvin Moore, President of Houston Exponential said.
“That’s a reflection of both the rate of growth and early stage of our ecosystem,” Moore said. “We will see an increasing number of startups as these companies continue to grow and others follow.”
The trend is most pronounced in the region’s top three sectors for venture capital funding: health care, information technology and energy.
This uptick in startup activity could be good for diversifying
Houston’s economy, which has been a point of tension lately. The oil and gas industry generates significant business activity and state revenues. But President Joe Biden’s policies on climate change, which bans new drilling in federal lands and waters as well as other measures to wean the nation from fossil fuels, could present challenges to the oil and gas industry.
His first actions as president were issuing executive orders to rejoin the Paris climate agreement and cancel the permit for the Keystone XL pipeline.
The lion’s share of venture capitals deals does go to oil and gas companies — about 17.6 percent. Not far behind are life sciences companies, which account for 17 percent of VC deals in Houston. That’s better than the 10 percent national average for life science deals. About 11 percent of deals go to clean energy companies.
Bob Harvey, CEO of the Greater Houston Partnership, said he thinks one day Houston will be a leading tech city.
“Houston is a city that has been leading the way for decades, with breakthrough innovations that have truly changed the world,” Harvey said. “Over the past few years, we have been working to transform an already incredible economy into one that competes as a leading digital tech city.”