Startup Ecosystem in Texas

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Startup Ecosystem in Texas

Key Takeaways

Introduction

This report provides a comparison of the size and attractiveness of the startup ecosystem in Texas vs. the United States. The comparison is based on metrics such as the number of startups, number of entrepreneurs, startup funding deals, startup job creation, startup survival rate, and fastest-growing private companies, among others.

The second part of the report details a comparison of the size and attractiveness of the startup ecosystem in Austin vs. Dallas. This comparison is based on metrics such as startup formations, funding deals, rate of entrepreneurship, high-growth company density, net business creation, wage growth, job creation, and early-stage funding deals, among others.

Lastly, the report identifies five startup-focused accounting firms in Texas as well as one of the Big Four accounting firms, Deloitte.

I — Startup Ecosystem: Texas vs. the US

A comparison of the size and attractiveness of the startup ecosystem in Texas and the United States can be found below. We've included findings from the initial report to provide a full comparison in one place.

Overall, Texas performs better on the startup and entrepreneurship landscape compared to the national average.

Number of Startups

Funding Deals

Rate of New Entrepreneurs

  • According to the most recent data by Ewing Marion Kauffman Foundation, the rate of new entrepreneurs (percentage of population that starts a new business every month) in 2020 was 0.38% in both the US and Texas in 2020.
  • This means that "an average of 380 out of every 100,000 adults became new entrepreneurs in a given month" in 2020.
  • The national rate of new entrepreneurs witnessed an increase from 0.31% in 2019.
  • However, the rate of new entrepreneurs in Texas witnessed a decrease from 0.41% in 2019 to 0.38% in 2020.

Opportunity Share of New Entrepreneurs

  • Entrepreneurs in Texas are more likely to start a business out of opportunity instead of necessity.
  • Opportunity share of new entrepreneurs represents the "percentage of new entrepreneurs who created their businesses out of opportunity instead of necessity". This indicator provides insight into "the influence of economic conditions on overall business creation."
  • In 2020, the opportunity share of new entrepreneurs was 79.63% in Texas and 69.75% in the US.
  • In 2020, the opportunity share of new entrepreneurs was 83.55% in Texas and 86.86% in the US.
  • Compared to 2019, the opportunity share of new entrepreneurs decreased in both Texas and the US, though the drop was more significant on the national level.

Startup Early Survival Rate

  • The startup early survival rate is higher and on an upward trend in Texas, compared to the national rate.
  • Startup early survival rate is defined as the percentage of startups that are still active after one year of being launched.
  • In 2020, the startup early survival rate was 79.63% in Texas, up from 79.57% in 2019.
  • Nationally, the startup early survival rate was 78.09% in 2020, down from 79.43% in 2019.

Startup Job Creation

  • Since 2019, startups in Texas have been creating more jobs in their first year, compared to startups nationally.
  • In 2020, startups in Texas created 5.60 jobs in their first year, up from 5.58 jobs in 2019.
  • On the other hand, startups in the United States created 5.03 jobs in their first year in 2020, down from an average of 5.13 jobs in 2019.

New Employer Business Actualization

  • New employer business actualization rate is higher in Texas compared to the US.
  • New employer businesses are businesses that make their first payroll within eight quarters of their EIN application.
  • In 2020, this rate was 10.08% in Texas, down from 11.20% in 2019.
  • On the other hand, the new employer business actualization rate was 9.41% in the US in 2020, down from 10.69% in 2019.
  • The rate of new employer businesses as a share of all employer firms in Texas was 8.29% in 2020, compared to the national rate of 7.01%.

Ranking in the Best States For Business

Fastest-Growing Private Companies

  • A review of the Inc. 5000 2021, Inc.'s annual list of the 5,000 fastest-growing private companies in the US indicates that 529 American companies that made it to the Inc. 5000 2021 list were newly founded.
  • State-wise (filtered) data shows that 48 newly founded private companies in Texas made it to the Inc. 5000 2021 list.

Economic Landscape


II — Startup Ecosystem: Austin vs. Dallas

A comparison of the size and attractiveness of the startup ecosystem in Austin and Dallas can be found below. Overall, Austin performs better on the startup and entrepreneurship landscape compared to Dallas.

Startup Formation

  • Data from Roofstock indicates that the Austin metro area (Austin-Round Rock-Georgetown) ranks third on the list of large metro areas with the highest startup formation rate in the US.
  • The Dallas-Fort Worth-Arlington metro ranks fifth based on the startup formation rate.
  • However, the number of startups created in the Dallas-Fort Worth-Arlington metro is much higher than that in the Austin metro area.
  • A comparison of startup formation statistics in the Austin-Round Rock-Georgetown metro area and the Dallas-Fort Worth-Arlington metro area is given below:
  • Austin-Round Rock-Georgetown, TX

    • Startup formation rate: 10.61%
    • Annual startup formations: 3,858
    • New jobs created by startups (annually): 21,357

    Dallas-Fort Worth-Arlington, TX

    • Startup formation rate: 9.82%
    • Annual startup formations: 10,731
    • New jobs created by startups (annually): 69,696

CompTIA Ranking

  • This metro area features 5,500 startups and technology companies, making it the "Silicon Hills."
  • Austin was closely followed by the Dallas-Fort Worth (DFW) metro area, which ranked second on the index after jumping from 7th place in 2019. The number of startups in the DFW metro area wasn't available.

Early Stage Deals

  • According to Sparkyard, "COVID-19 doesn’t seem to have had a major impact on early stage deals in major Texas cities, with Austin reporting a more than $400 million increase from its five-year average while Dallas reported an even more eye-opening $600 million increase from its five-year average."
  • Early-stage investment in Austin crossed $1.0 billion in 2020, compared to $828 million in Dallas.
  • Startups in Austin raised 191 early-stage funding rounds, compared to the 85 rounds raised in Dallas.
  • A comparison of early-stage funding deals in major Texas cities from 2015-2020 can be found here.

Venture Funding

  • In 2019, venture funding in Austin metro area reached $1.84 billion, a 19.5% increase from the $1.54 billion funds raised in 2018.
  • Compared to Austin, VC funding in Dallas-Fort Worth (DFW) totaled $0.42 billion in 2019.
  • Of the total VC funding in Texas in 2019, startups in Austin brought in 61%, compared to 14% brought in by startups in DFW.

  • Among all cities in the US, Austin was 10th in terms of VC funding ($1.84 billion) and 7th in terms of the number of VC deals (162). Dallas didn't make it into the top ten.

Private Equity Funding

  • Sparkyard's data on the total private equity (PE) funding in major Texas cities from 2015 to 2020 indicates that startups in Dallas raised $30.7 billion PE funding while Austin startups raised a total of $25.6 billion.
  • In terms of PE funding, Dallas was ranked second and Austin was ranked third within Texas.

Inc.'s Ranking

Fastest-Growing Private Companies


III — Startup-Focused Accounting Firms (TX)

Six startup-focused accounting firms in Texas include Smith & Smith CPA's, Kruze Consulting, Monily, Deloitte, MJ White-CPA, and Behar CPA.

The presence of these firms in the startup ecosystem was confirmed by reviewing their testimonials from startup clients or their customized service offerings for startups. We've only included Deloitte from the Big4 accounting firms as we prioritized smaller, more specialized firms like Standard Ledger.

1. Smith & Smith CPA's

2. Kruze Consulting

3. Monily

4. Deloitte

5. MJ White-CPA

6. Behar CPA

Research Strategy

For this research on the startup ecosystem in Texas, the US, and the cities of Austin and Dallas, we leveraged the most reputable sources of information that were available in the public domain, including Ewing Marion Kauffman Foundation, Inc., PwC, Crunchbase, GEM, and Forbes, among several others. Information on the overall demand for accounting services in Texas, Austin, or Dallas was not found during the course of our research.

Research proposal:

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