Houston founders optimistic about COVID-19 recovery, survey finds
Given the current economic environment, you might think founders of Houston startups would view the future with a healthy dose of pessimism. But you'd be wrong.
A survey conducted between April 23 and May 7 by Houston Exponential, a nonprofit that promotes the local innovation ecosystem, revealed that Houston startup founders largely see the future through a lens of optimism. For example:
- More than half of the startups that said they were harmed by the coronavirus pandemic believe they'll begin bouncing back before the end of this year.
- 70 percent of the startups that said they were hurt by the pandemic believe they'll begin recovering before they run out of cash. "They're saying, 'We're making it through this to the other side, and we're going to be better on the other side," says Bryant Chan, director of product at HX.
- 80 percent of startups said they planned to add employees within the following 12 months.
- Two-thirds of startups said they had a funding runway of at least six months.
"Houston is a resilient city, and its agile founders are the most adept at making the best of any situation," HX states in a summary of the survey results.
HX sent the survey to more than 1,000 startup founders in Houston. The survey results include responses from founders of companies with 30 or fewer employees.
Harvin Moore, president of HX, says he wasn't surprised by the generally optimistic outlook of Houston startup founders. In part, that's because local startups as a whole aren't swimming in deep pools of venture capital, according to Moore. Lower valuations lead to lower overhead and shorter cash runways, translating into abundant resilience, he says.
Moore suspects that if a startup founders survey were to be conducted in a VC hotbed like Silicon Valley, "we would probably find less resilience just because there were higher burn rates and, therefore, more dependence on runway."
Chan says startups in Houston hold an advantage over startups in hotspots like Silicon Valley because they're used to practicing "capital efficiency."
"Hopefully, we will maintain that as an advantage," Moore says.
Despite the optimistic elements of the survey results, Houston startups are encountering obstacles. Those include:
- One-third of startups with at least six employees said they carried out layoffs or furloughs as a result of the pandemic-scarred economy.
- Thirty percent of startups said they saw contracts fade and revenue shrink because of the pandemic.
- Nearly one-fifth of startups that said they were raising capital before and during the pandemic saw their valuations decline by 10 percent to 20 percent.
One of the most noteworthy findings in the negative column was that the No. 1 hiring challenge for startups (cited by 21 percent of them) was offering competitive pay.
"Founders are finding talented candidates in Houston, but are unable to meet their salary demands," HX states. "It's common for startups to compensate early employees through company equity in lieu of salary, but with such economic uncertainty, employees may prefer that guaranteed cash and liquidity."
Before the pandemic, the top hiring challenge for Houston startups likely would have been finding the right talent, Chan says.
Despite such challenges, the path ahead for Houston's startup community seems to be pretty smooth, particularly as organizations like HX keep pursuing more access to angel, early stage, and seed funding.
"We have a strong economy, low cost of living — all these things that are solid about Houston and are not going away," Moore says. "We're confident that 2021 will be a great year. 2020 is probably going to be — for most people in Houston, just like around the rest of the country — the year of reimagining and repositioning and recovering. For some companies, it's going to be a huge inflection-point year."