CHARTING THE INNOVATION LANDSCAPE The Houston Tech REport OF AMERICA’S FOURTH LARGEST CITY. HOUSTON: A CITY OF INNOVATION The nation’s fourth largest city is one of the youngest, fastest Houston’s economy, the region has become a thriving hub of ACCELERATING CHANGE growing, and most diverse populations anywhere in the world. digital technology talent and companies thanks to our access This global diversity creates a genuine cultural identity and way to customers and expertise. Long known and admired as the energy capital of the world and and the Mayor’s Task Force on Innovation, HX is a non-profit of life that is uniquely Houston and world class. the most diverse city in the United States, with a broad STEM- organization created to accelerate the growth of Houston’s innovation A strong educational system with nationally ranked trained workforce and a robust corporate presence, Houston’s tech ecosystem. While our shared roots are proudly planted in Texas, Houston’s universities, graduate schools, and community colleges innovation potential lagged— until recently. reach and influence is truly global. Not only because of the produces a large supply of young talent. Our exceptional Over the past four years, HX has helped unlock the collaborative substantial foreign investment in our region or the logistics quality of life offers the cultural, recreational and entertainment Four years ago, recognizing the opportunity to capitalize on its potential of founders and investors in the startup scene, local capabilities that provide unparalleled access to foreign markets, amenities of a modern, cosmopolitan city, but at a cost of living cultural and economic strengths, and the need to develop its startup government, academic institutions, and the corporate sector to but also the groundbreaking innovation that is helping solve the well below the national average. ecosystem and infrastructure to drive a 21st century economy, civic connect, promote and to attract talent and capital. Houston’s size, world’s greatest challenges. leaders acted, with the founding of Houston Exponential (HX). Born economic strength, and diverse and collaborative culture make it one It is no surprise that some of the most important corporations from the Innovation Task Force of the Greater Houston Partnership of the most promising such efforts in the world. Houston has been a center for world-changing innovations in in the world are run out of Houston. But we are also disruptive energy, life sciences and aerospace for over a century. With entrepreneurs, tireless innovators, and bold creatives. science and engineering breakthroughs ingrained in the fabric of HOUSTON’S INNOVATION ECOSYSTEM In the last four years, startup development organizations (SDOs), the HTXTechList.com database to further facilitate these connections. including workspaces, incubators and accelerators have emerged As a result of these and other efforts, venture capital investment has throughout the city. These key institutions create density and increased 250% over the past four years to $753 million in 2020, one drive collisions among founders, investors and talent, significantly of many signs that Houston has reached an inflection point in the increasing the rate of startup formation and growth. development of its tech economy. As the ecosystem has grown, it has benefitted from increased venture Large tech firms have taken notice of this growth, with Microsoft, capital investment from both inside and outside the region, thanks Google and Amazon increasing their presence in the region, while to the creation of the $50 million HX Venture Fund, and to the work others including Bill.com, Nuro and Hewlett Packard Enterprises of Houston Exponential and Houston’s SDOs to curate connections relocating or expanding here. between startups and sources of capital. In late 2020, HX launched TRACKING HOUSTON’S TECH ECONOMY BY THE NUMBERS $28 B 235,800 700+ $753 M Impact to Metro GDP (5.8%) Net Tech Employment VC-backed Tech Startups Total Venture Capital in ’20 THE HOUSTON TECH REPORT | 4 HOUSTON’S BUSINESS CLIMATE AT A GLANCE Houston is well-positioned to become a national leader in tech Technological cluster strengths across the energy, life sciences STRONG, DIVERSE ECONOMY BUSINESS CLIMATE innovation. It possesses the corporate, workforce, and infrastructural and healthcare, manufacturing, logistics, and aerospace industries requirements, including innovation-minded companies, a vast present immediate opportunities for investing in scalable companies support system of business professionals and corporate decision- that enable digital transformation, while the heavy corporate and NO personal & corporate makers, and business and quality of life amenities necessary to industry presence in the city make Houston a natural place for support a robust tech ecosystem. industrial IOT, logistics, robotics, and cyber security concentrations. income tax Largest #4 U.S. City 3 M Jobs Low cost of living Global City of the Future (fDi $478.8 B GDP #3 Intelligence) Home to: POPULATION World’s largest medical center NASA’s Johnson Space Center (Texas Medical Center) and Houston Spaceport #1 U.S. port (Port Houston) 22 Fortune 500 headquarters 7.1 M Residents Industry Convergence: Energy 2.0 Advanced Manufacturing 1 IN 4 Houstonians is Foreign-born GLOBAL CITY Fastest growing major metro Foreign Metro Exporter International Most Diverse City in America 90+ Consulates #1 in the U.S. 2 Airports Life Sciences Aerospace THE HOUSTON TECH REPORT | 6 GROWTH FUNDING AND EXITS VENTURE CAPITAL FUNDING Despite all of Houston’s economic strengths, in ’17, the City ranked 19th Houston companies have received VC DEAL VOLUME IN HOUSTON ($, MILLION) VC DEAL COUNT IN HOUSTON nationally in total Venture Capital Investment. A citywide effort in recent Growth in later stage deals has Though overall deal count peaked in ’16 during a wave of years has transformed the tech innovation $2.6 billion in venture capital spurred a nearly three-fold increase early stage fundings, the share of deals has shifted toward scene and helped to channel investment in overall VC funding since ’16 later stage companies in the last five years. capital into tech startups like never before. funding over the last five years, 752.6 184 VC Investment has grown from $284 702.2 including $753 million in ’20, a 398.0 million in ’16 to $753 million in ’20, a nearly 23 394.4 170 three-fold increase and an unprecedented 175 66% growth rate per year. record high for the region. 12 154 28 21 22 148 26 24 132 46 HX VENTURE FUND 476.4 137 139 450.7 24 163.6 38 One catalyst for this activity was the creating of the HX Venture Fund in 2017, a $50 million fund of funds model designed to attract 20 224.6 419.7 117 investment activity in Houston. The Fund attracted marquee corporate Limited Partners and has made several investment in leading 106 funds across the country. This activity has spurred new interest in Houston’s recent success as a startup ecosystem and has been a 253.7 27 21 catalyst for exponential growth. 351 19 104 190.6 101 81 90 286.4 283.8 18 87 197.8 275.5 270 214.7 21 25 254.7 69 69.5 168.1 171.5 223.6 133.3 16 69 182.2 156.8 116.6 51 22 65 12 11 92.9 126.8 42 17 38 65.8 63.2 115.0 73.4 100.3 93.0 22 69.3 73.1 10.9 55.5 52.5 79.1 33.7 25.1 30.5 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20* ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20* Later Stage (Series B+, After 5 yrs) Later Stage (Series B+, After 5 yrs) Early Stage (Series A & B) Early Stage (Series A & B) Entry Stage (Angel & Seed) Entry Stage (Angel & Seed) Venture Capital investment surpassed On average, Houston startups have $753 million in ’20, a record for Houston. closed 156 VC deals per year since ’16. Source: Partnership Analysis of PitchBook Data Source: Partnership Analysis of PitchBook Data Updated: 3/1/2021 Updated: 3/1/2021 THE HOUSTON TECH REPORT | 8 INDUSTRIES AND VERTICALS INDUSTRIES AND VERTICALS TOP INDUSTRIES RECEIVING VENTURE CAPITAL Maturing tech startups in the Houston ecosystem HOUSTON VENTURE CAPITAL FUNDING ($ MILLION) are receiving more lucrative deals than ever before. Houston-based companies generated $2.63 billion in total venture capital funding from ’16 to ’20. The PRIMARY SECTOR '16 '17 '18 '19 '20 TOTAL region’s annual VC haul nearly tripled in that time with the average deal size increasing from $1.6 million to $6.4 million. HEALTH CARE 124.1 206.7 192.7 262.3 256.0 1,041.8 Growth reached across all industries of Houston’s INFORMATION 79.4 156.0 121.6 168.2 201.7 727.0 innovation economy, but the trend is most TECHNOLOGY pronounced in the region’s top three sectors for BUSINESS VC funding. PRODUCTS AND 32.1 35.6 62.1 54.7 150.1 334.5 1 HEALTH CARE jumped from the third highest SERVICES (B2B) funded industry in ’15 to the top funded 271.4 industry for the last four years. Heath tech, ENERGY 27.7 12.1 63.3 128.5 39.9 life science, and biotechnology companies CONSUMER have thrived in recent years, anchored by the PRODUCTS AND 18.1 7.6 7.9 54.0 45.1 132.6 Texas Medical Center and the TMC Innovation SERVICES (B2C) Institute. Health Care companies accounted MATERIALS AND for 37 percent of all VC funding in ’19. 0.1 1.7 27.3 32.4 34.3 95.8 RESOURCES 2 INFORMATION TECHNOLOGY more FINANCIAL than doubled from $73 million in ’15 to 2.4 — 1.5 2.2 25.5 31.6 $177 million in ’19.