Baker Institute report: Venture capital in Texas declining

David Ruth
713-348-6327
david@rice.edu

Jeff Falk
713-348-6775
jfalk@rice.edu  

Baker Institute report: Venture capital in Texas declining

HOUSTON – (March 7, 2016) – Despite Texas having the third-largest venture capital investment in the nation just a decade ago, the state’s current venture capital investment of $1.2 billion is falling — and falling fast. It has slipped to fourth and is set to slide to sixth, likely even before 2016 is over, according to an issue brief from Rice University’s Baker Institute for Public Policy.

Credit: shutterstock.com/Rice University

“The State of Venture Capital in Texas” says the reason for Texas’ relative decline is simple: While other high-ranking states are growing their venture capital investment at extremely fast rates, Texas’ venture capital investment has decreased 19 percent over the past 10 years in real terms.

The brief was co-authored by Ed Egan, fellow of the Baker Institute and director of the institute’s McNair Center for Entrepreneurship and Innovation, and research assistant Rachel Garber.

“In Texas, entrepreneurship should be strengthening the economic power and stability of the state,” the authors wrote. “An examination of Texas’ venture capital industry strongly suggests that this isn’t the case.”

Texas is a multicentered state, but three of its four centers — Houston, Dallas and San Antonio — are drastically underperforming in entrepreneurship in comparison with other major U.S. cities, according to the authors. Austin is the lone exception, having seen an impressive 170 percent growth in its entrepreneurship ecosystem over the past decade.

Of the top 10 states by venture capital investment, only Texas and New Jersey have shrunk, the authors found. New Jersey has seen its money, talent and returns flow across the border to its powerhouse neighbor, New York, which has grown its venture capital investment by 577 percent since 2005 and is now the second-largest jurisdiction for venture capital.

This trend is especially troubling for Houston, the authors said. With just $4.1 billion invested in startup companies that have received a round of funding since 2006, Houston has seen less venture capital in 10 years than New York City now sees in one.

“Despite having the Texas Medical Center — the largest medical center in the world with over 100,000 employees and 7,000 patient beds — Houston has seen a meager 26 life science companies funded in the past decade,” the authors wrote.

If current trends hold over the next decade, Austin’s entrepreneurship ecosystem will prosper, San Antonio’s may find traction and both Dallas’ and Houston’s will fail, the authors said. “There is, however, a reason for hope: Both Houston and Dallas have the human and financial capital needed to build a great ecosystem,” the authors wrote. “Texas urgently needs to find a catalyst for change if it is to remain at least a top 10 venture capital state.”

The McNair Center was founded in 2015 as the research-oriented cornerstone of a larger, nationwide consortium of Robert and Janice McNair Foundation-funded centers devoted to entrepreneurship education. The center develops and distributes data and conducts policy research to better understand and promote entrepreneurship and innovation. It also provides a forum for stakeholders throughout the entrepreneurial ecosystem to debate ideas, share understanding and effect change.

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For more information or to schedule an interview with Egan, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

Related materials:

Issue brief: http://bakerinstitute.org/research/state-venture-capital-texas.

Egan bio: http://bakerinstitute.org/experts/edward-j-egan.

Follow the Baker Institute via Twitter @BakerInstitute.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, Rice University’s Baker Institute ranks among the top five university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.