In the past years, Houston has seen a massive burst in its startup ecosystem. In this article, we show why Houston is one of the best places in the United States for entrepreneurs to launch and grow a business.
Finding the perfect location for your startup is tough. You have many factors to consider: costs of living, taxes, presence of accelerators and VC’s, the startup ecosystem in the region, and workforce diversity and availability.
That’s why choosing the right city to grow your business is fundamental if you want to start with the right foot.
In recent years, many reports from different respectable firms have pointed Houston, Texas, as one of the best cities in the U.S. to start a new business. These studies underline the regional economy, tax policies, and the exponential growth the city has experienced in the last decades to highlight Houston as one of the best locations for entrepreneurs.
In this article, we’re going to analyze every critical aspect you need to consider while choosing the right location for your startup and show you why Houston may be the perfect place to launch your business.
Here you’ll learn:
- – Why Houston it’s one of the best places in the US to start a business, according to different, respectable studies.
- – What’s the current state of Houston’s startup ecosystem
- – How Houston policies aim to support and empower new businesses and the entrepreneurial ecosystem
- – How the city has become the home of a vast base of young and highly skilled professionals
- – What you should consider when outsourcing a software development team in Houston.
Texas: the place in the world for startups & entrepreneurs
When picking the best location to start and grow a business, many entrepreneurs tend to go for the most secure options: New York, California, Massachusetts, or Washington. However, choosing these locations might have some drawbacks, like high costs of living, high taxes, and fierce competition.
That’s why in the last decades, Texas has become an attractive region for startups and corporations, especially those in the tech, healthcare, and logistics industries.
In fact, the main cities of eastern Texas comprise the largest single regional economy in the world, spanning from Houston to Dallas and Austin to San Antonio.
This urban megaregion, commonly known as the Texas Triangle, is home to 13.8 million people and in the next 40 years, is projected to grow by more than 65% with an additional 10 million inhabitants.
Today many big corporations and startups choose to lay down their roots in Texas, and there’s a wide variety of reasons for that:
- – Access to a highly educated workforce
- – A lower cost of living, compared to the East and West Coasts
- – Low to zero personal income taxes and other generally low-tax and business-friendly local laws and regulations.
But what about Houston?
On the east side of the Texas Triangle, we have Houston, the 4th largest city in the United States and the most populated metropolitan area in the region, with over 2 million inhabitants.
But why are entrepreneurs choosing Houston to launch their business?
The city seems to have it all: relatively low costs of living, the fourth-largest concentration of Fortune 500 companies (19 to be precise), a relevant number of Seed Accelerators and V.C. firms, and a growing base of new startups, to name a few strong points.
Now, let’s take a more in-depth look into the numbers.
The Houston Startup Ecosystem
According to HexGn, an organization that helps to connect enterprises with students looking for job opportunities, Houston is home to nearly 3000 startups. A recent study from HexGn reported that in 2018, the entire ecosystem received total investments of close to a billion dollars.
According to Houston City Hall, the top five industries with the most impact on Houston’s economy are:
- – Oil and gas exploration
- – Basic petroleum refining
- – Petrochemical production
- – Medical research and health care delivery
- – High-technology (computer, aerospace, and environmental)
Additionally, small businesses in Houston are having massive success in A.I., Big Data, and Analytics. Two notable mentions in these areas are Arundo Analytics, an industrially-focused startup that raised $25 million in 2018, and Zdaly, a Big Data platform that raised $1.5 million in the same year.
The continually growing number of startups based in Bayou City should come as no surprise since Houston has been climbing up on business ranks for the past years.
In May 2019, Houston ranked as the 13th best city in the U.S. to start a business according to a report published by WalletHub. The report analyzed vital metrics such as a five-year business-survival rate and office-space affordability.
More recently, Houston also grabbed the fifth spot on the top 10 North American Cities of the Future, according to The Financial Times.
VC’s and Seed Accelerators in Houston
Every new-born startup needs the help of V.C.’s and accelerators to scale up and be able to take their products and services to the mass market.
That’s why it’s excellent news for entrepreneurs that Houston has become the home for more than ten seed accelerators and over twenty Ventures Capital firms.
“Houston is now home to approximately 20 venture funds, compared to only one fund a little over two years ago. The funding environment is thriving, and runway capital goes further here.”, said Jon Nordby, Director of Strategy at Houston Exponential in a recent interview.
In 2018, Crunchbase News reported that Houston nearly caught up with Austin in terms of startup funding activity, and accounted for 39.2% of all venture capital investments in Texas. It comes as no surprise that one of the reasons to launch a startup in Houston is the vast number of local funding sources in the city.
To facilitate the task of entrepreneurs looking for investment, here we have compiled a list of some of the most notable Accelerators and Venture Capital firms in Houston, divided by stage and capital-type.
Seed Accelerators in Houston
- NextHIT Accelerator Program
- Capital Factory Accelerator
- RED Labs
- RedHouse Associates
- Station Houston
- TMCx Accelerator
- Vesalius Accelerator
Venture Capital Firms in Houston
- Mercury Fund
- Houston Health Ventures
- Houston Ventures
- Chevron Technology Ventures
- Cottonwood Venture Partners
- First Reserve
- Murphree Venture Partners
- Rock Hill Capital
- TMC Venture Fund
- Vesalius Ventures
- Main Street Capital
- Donovan Ventures
- BroadVail Capital Partners
- Texas HALO Fund
- Yellowstone Capital Partners
- Denham Capital
- EnCap Investments
- Energy Innovation Capital
- Small Ventures USA
- TA Capital
A young, talented, and diverse workforce
Houston has one of the youngest, fastest-growing, and most diverse populations in the world. Houston is currently the fifth-largest metro in the U.S., with a total of 7 million people. Between 2010 and 2017, the Space City population grew 16.4%, the fastest rate of growth among similar cities in the country.
Houston also has a significant potential advantage in its relatively youthful population, where approximately 45% of residents are between the ages of 18 and 44.
The influx of young talent has also created an entrepreneurial environment in the Greater Houston area. A new and thriving startup scene has emerged with co-working spaces like WeWork and Impact Hub, ready to provide flexible office space for these entrepreneurs.
Texas, the best region for female entrepreneurs
Texas also seems to be ruling the gender entrepreneurial scene. According to a study by FitSmallBusiness, the Lone Star State is the No. 1 region in the nation for female entrepreneurship.
The report ranked all 50 US states based on the business opportunities for women, considering climate and opportunities, number of female-owned businesses, economic and financial health, and safety and well-being for women.
In this same line, the University of New Hampshire has recently stated that the number of female entrepreneurs is currently on the rise nationwide. Since 1972, female-owned businesses in the U.S. have skyrocketed 3000%, and in 2018, 23% of entrepreneurs seeking angel investing were female, up from 19% in 2014.
Finding the perfect team: outsourcing software development in Houston
It’s reasonably common that new startups that have recently raised funding choose to outsource their software development. Many companies choose this option because outsourcing offers lower production costs, flexibility, and more resources.
According to Manta, a digital service that connects customers with near businesses, over six thousand companies offer software development services in Houston.
However, choosing the right outsourcing partner is a tough decision. We recently wrote an article about this topic that you might want to check it out.
In general, when outsourcing software development, you should always consider these key factors:
- – Quality over price
- – Experience in different technologies
- – Solid communication between the teams
- – A detailed and precise software development process
- – A robust, organized and skilled team
- – References from previous projects
- – Support during and after the project
At Bixlabs we specialize in nearshore outsourcing. We are known for developing an excellent relationship with our clients and having a strong commitment to quality. Most of our clients are in the United States, although we have done jobs for companies in Europe.
Houston is making it easy for startups: taxes, costs of living, and mobility
Another key factor when choosing the right city for your business is affordability.
One of the main reasons companies choose Texas to start their business is its favorable tax policy. According to Investopedia, when comparing it to most states, business taxes are extremely low in Texas, and personal income tax is nonexistent.
In a few words, this means companies can keep more of the money they make and recruit top talent more easily.
The news gets even better for startups and small businesses. The business tax rate, in some cases, drops to zero for companies whose revenues do not exceed certain thresholds. For a small business, this helps ease the already tenuous early years when it is trying to establish itself and grow.
Is living in Houston actually affordable?
In terms of costs of living, Houston also stands out as an excellent option for startups. According to PayScale, a Big Data platform that helps companies and professionals to estimate salaries, Houston’s costs of living are currently 2% lower than the national average.
But that’s not all. When comparing the costs of living in Houston with other cities like New York, Los Angeles, and San Francisco, the numbers are considerably lower. Take a Look:
Houston vs. San Francisco
- Costs of living: 45,6% lower
- Housing: 68,3% lower
Houston vs. New York
- Costs of living: 57,1% lower
- Housing: 77,7% lower
Houston vs. Los Angeles
- Costs of living: 31,5% lower
- Housing: 53,9% lower
The state of mobility in Houston
The city of Houston also takes mobility and transportation very seriously, which is great considering its huge number of inhabitants.
When Sylvester Turner assumed in 2016 as Major of Houston, he presented a comprehensive mobility plan for the entire city. In his State of Mobility speech, Turner claimed:
“While continued growth is vital to Houston, we need to think about how to leverage this growth to create a healthy, durable region. Smart strategic decisions about mobility will be key to leveraging the growth to our advantage”.
Turner presented a strategy to address the transportation and mobility issues, and the City is currently implementing a plan that includes:
- Well connected urban centers and transit-oriented development
- A multi-modal approach to reduced daily commutes in cars and increase the usage of other means of transportation.
- An efficient freight movement system.
Houston is, undoubtedly, a place to be for entrepreneurs.
As many recent reports indicate, Houston is experiencing massive growth, and hundreds of companies are choosing to relocate there because of the advantages the city has to offer.
An increasing number of new startups and Venture Capital firms, a favorable tax policy, reasonably low costs of living and a young and talented workforce, makes Houston an excellent choice for entrepreneurs looking to start and grow a successful business.
If you are looking for more business-related content like this, be sure to subscribe to our newsletter or follow us on Social Media. We publish new articles and in-depth guides every month.