An important new research study, led by my friend and Austin colleague, David Altounian, was released today.
While worthy in its own right, the study was inspired by a running debate David has had with other influential leaders in the Austin startup community.
The debate is a classic chicken-egg argument. In this case, which comes first: quality deals, or quality funding?
Others have been asserting for a few years that there is sufficient capital to fund ventures in Austin, but that the city lacked quality deals.
David’s instinct, on the other hand (backed up by significant experience as a multi-time startup founder), was that the deal volume and quality was strong in Austin, but that the city was handicapped by a weak funding environment.
After receiving his Ph.D. in Entrepreneurship earlier this year and transitioning to a full-time academic at St. Edward’s University and part-time practitioner, he decided “Why wait for someone else to settle the debate? I’ll do it myself!”
The result – “The Capital Source Research Study” – is an important piece of rigorous research that puts forth a strong argument validating David’s instinct: that, indeed, insufficient capital is the city’s most problem.
More importantly, though, the surprise in the research isn’t necessarily the amount of early stage capital for getting new ventures up & running. We’ve written extensively about the availability of seed funding, including the sources that are “dark” and hidden in plain view in Austin and elsewhere.
No, the surprise in the research is the weakness in category representation of funding. Specifically, the study shows that the lack of funding in later stage and more mature sources – commercial bank options, mezzanine funds, private equity – is the Achilles heel in Austin.
In fact, the data, across 10 “startup” cities – using no less than a variant of Metcalfe’s law – persuasively shows that this issue of strength or weakness of category representation holds true.
For Austin, what this means is an intentional recruiting and cultivating of later-stage funding sources to become part of the city and region, for us to capitalize on the talent and deal pipeline that we’ve worked so hard to establish.