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Startup Ecosystem in Texas
Key Takeaways
- PwC and CB Insights' MoneyTree report shows that Venture Capital funding in Texas "hit a near two-decade high at $2.98 billion from 267 deals."
- Data from Roofstock indicates that Texas ranks fourth in the US with a startup formation rate of 9.28%. Every year, 35,982 new startups are formed in the state, creating 220,330 new jobs.
- Overall, Austin performs better on the startup and entrepreneurship landscape compared to Dallas.
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
- According to Knoema, there were 55,495 new startups in Texas in 2018 (more recent data is paywalled).
- The number of new entrepreneurs in the state was 91,606 in 2018.
- Data from Roofstock indicates that Texas ranks fourth in the US with a startup formation rate of 9.28%.
- Every year, 35,982 new startups are formed in the state, creating 220,330 new jobs.
- According to the Global Entrepreneurship Monitor, the start-up rate (nascent entrepreneurship rate) in the US was 10.7% in 2020.
Funding Deals
- PwC and CB Insights' MoneyTree report shows that Venture Capital funding in Texas "hit a near two-decade high at $2.98 billion from 267 deals."
- Overall in the US, startups raised $108 billion in VC funding in a total of 5,906 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
- Texas ranks second in Forbes' list of Best States For Business, only after North Carolina.
- The state's ranking for various indicators that make up Forbes' list is as follows:
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
- According to Inc., "if Texas were a country, it would have the 10th-largest economy in the world."
- In terms of economic might, Texas is second only to California. The state adds nearly $1.9 trillion to the US GDP.
- According to the CEO of Firefly Aerospace, Tom Markusic, Texas offers several benefits to businesses including low taxes, low cost of living, and "relatively permissive environmental regulations and land rights."
- Markusic opines that "If you're going to do things new and different, Texas offers a very good economic and regulatory environment." He further adds, "It allows you to move quickly. Texas allows new businesses to flourish."
- According to Capital Factory's CEO and founder Joshua Baer, "You've got all the pieces in place here: R&D spending, a global market, lots of talent."
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:
- Startup formation rate: 10.61%
Austin-Round Rock-Georgetown, TX
Dallas-Fort Worth-Arlington, TX
CompTIA Ranking
- The Austin-Round Rock metro area topped the CompTIA Tech Town Index 2020 for the second time in 2020.
- 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
- Austin has "topped Inc.'s Surge Cities list of the best places in America for startups in both 2019 and 2020."
- On the other hand, Dallas was ranked 17th on Inc.'s Surge Cities list of the best places in America for startups in 2020.
- While the rate of entrepreneurship is higher in Dallas, "Austin is leading the country when it comes to job creation and high-growth company density."
- A breakdown of the ranking metrics is given below:
Rate of Entrepreneurship
High-growth Company Density (Per 100,000 People)
Net Business Creation
Wage Growth
Job Creation
Early-stage Funding Deals (Per 100,000 Adults)
Fastest-Growing Private Companies
- 12 of the 48 newly-founded private companies in Texas that made it to the Inc. 5000 2021 list were from Austin.
- On the other hand, 16 of the 48 newly-founded private companies in Texas that made it to the Inc. 5000 2021 list were from Dallas.
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
- Founded in 1987, Smith & Smith CPA's is an accounting and tax firm based in the Dallas-Fort Worth area.
- The firm has three offices in Arlington (TX), Seagoville (TX), and Plano (TX).
- Smith & Smith CPA’s offers accounting and tax services to startups, C-Corp/S-Corp/Partnership companies, and individuals.
- Smith & Smith CPA's offers a range of accounting services for startups including payroll services, entity formation, tax planning for startups, asset purchase, bookkeeping, compilation services, federal income tax preparation, CFO services, and loan acquisition.
- The firm "provides the essential scope to help start-ups – from a wider knowledge of Texas market and business climate, to assistance with entity selection and structuring, traditional tax and audit services outsourced accounting, mergers, valuation, acquisitions and business expansion."
2. Kruze Consulting
- Kruze Consulting offers accounting, finance, tax, and merger and acquisitions support services to startups.
- The firm claims that every year their clients save more than $10 million in cash expenses. Their startup tax experts help "unprofitable startups use tax credits to reduce their burn."
- The company has provided accounting and financial services to more than 200 fast-growing "Seed, Series A, and Series B companies in Austin, California, New York, and beyond."
- The firm's clients include startups such as Superhuman, Calm.com, and Avochato.
- Kruze Consulting has offices in Austin, New York, San Francisco, San Jose, and Santa Monica.
3. Monily
- Based in Pearland, TX, Monily offers bookkeeping, tax preparation, payroll, CFO services, controller services, accountant on demand, and CFO support services to startups, freelancers, and healthcare facilities.
- Some of the firm's clients include Trainual, ZT Wealth, Botco.ai, LucidAct, and Xeniapp.
4. Deloitte
- Deloitte offers audit & assurance, tax, M&A, consulting risk and financial advisory, and Deloitte Private Company Services.
- Deloitte has 10 offices in Texas, including three in Austin and two in Dallas.
- The firm serves startups as well as around 90% of Fortune 1000 companies based in North Texas.
5. MJ White-CPA
- MJ White-CPA is a CPA tax and accounting services provider based in Austin, TX.
- The firm serves startups and self-employed individuals by offering entity formation, tax, accounting, and bookkeeping consultations.
- In addition, it offers personal, business, and real estate tax services.
6. Behar CPA
- Behar CPA offers tax preparation, bookkeeping, accounting, payroll, and IRS representation/state audits.
- It serves startups, entrepreneurs, healthcare professionals, and individuals.
- The firm's startup services include entity formation, business incorporation in Texas, outsourced CPA, controller and CFO, tax planning, estate planning, sales and use tax preparation, profit enhancement, bookkeeping/quickbooks services, business payroll, cash flow management, and legal and consulting.
- The firm is based is Houston, TX.
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.