Follow the money

Leading venture capitalists forecast the future of funding in Houston

Venture capital panelists discussed Houston's venture funding future — both the good and the bad. Houston Exponential/Twitter

Despite Houston being known for its money, venture capital has struggled to hit its stride until recently. Now, as Houston has attracted more money for its startups — even coming close to Austin, according to recent data — the Bayou City faces a challenge ahead.

"We will go through a massive tech correction — period. End of story," says Blair Garrou, managing partner of Houston-based Mercury Fund, at the inaugural HX Capital Summit.

The correction, Garrou says, would have happened a few years ago, but Middle Eastern and Chinese investments have been holding down the fort, so to speak.

"Whenever this correction happens, whether it's a year, two years, or three years, [my hope is] that the capital here invests through the cycle," Garrou says. "Anyone who invests through the cycle will win."

Garrou was joined by a few other venture capitalists on the panel hosted by Houston Exponential at the TMC Innovation Institute on December 4: Tim Kopra, partner at Houston-based Blue Bear Capital; Mark Friday, associate at Houston-based Cathexis; Joe Milam, CEO of Austin-based Angelspan; Jay Zeidman, managing partner of Houston-based Altitude Ventures Texas; and moderator Rashad Kurbanov, CEO of Houston-based iownit capital and markets.

While the tech correction looms, Houston's current venture ecosystem blooms, thanks to a rise in high net worth personal and family investments.

"There's a real hunger from a lot of ultra-high net worth families to get into this sector, and it'd be really interesting if we can cultivate that here in Houston," says Kopra.

People have gotten more comfortable investing in tech, says Garrou, so the investment opportunities have grown.

"There's a greed component to it that people don't like to talk about," Garrou says. "When people see people making money in a certain sector, they say, 'why not me.'"

However, there are a few things holding back some investors. One being that companies from earlier venture funds have yet to reach their full potential, says Garrou, and he and other venture capitals need to move the needle on that to demonstrate success. He says, once that happens, more capital will flow.

Another hesitation Zeidman says he's seen is within investing in funds, rather than directly into startups.

"There's a difference in investing in companies and investing in funds," Zeidman. "I think a lot of folks are skeptical about investing in funds. I want to be in a deal — I don't just want to give you money and you go decide what to do with it."

Houston Exponential, the city-backed innovation arm for Houston, launched a fund of funds in October. The HX Venture Fund has the potential to create a "flywheel effect" in Houston, says Garrou.

"We're going to see dozens and dozens of funds from across the country come to Houston — they're already coming," Garrou says. "But what's important is they are going to want to co-invest with local investors, and that's the key to venture capital."

While encouraging out-of-city investors is a key part of the equation, Houston does stand well on its own, Milam says. Houston has historically been compared, perhaps wrongly, to Austin., because it got a head start when it came to startup growth. But it's a different story now.

"Austin isn't as advanced as people give it credit for," says Milam. "I don't think Houston at all has [to] look at Austin as a role model or for guidance. Houston has a far better and brighter future when it comes to mobilizing capital and Houston-born startups."

Ultimately, the panelists agreed that despite Houston's slow start and rough waters ahead, Houston's future is bright when it comes to venture capital and startup growth.

"When you look at Houston, we've got a huge economy here — a huge number of customers here," Friday says. "I think we can close the gap of the ratio the amount of venture and startup activity to the overall size of our economy."

Technology is changing America's pastime, and the Houston Astros have the lead off. Photo by Dylan Buell/Getty Images

Over the past decade or so, sports franchises have seen a boom in technology integration. The fact of the matter is that both the teams and the players need to tap into tech to have a competitive advantage on the field — and especially when it comes to the business side of things.

"Technologically advanced companies want to do business with technologically advanced companies," says Matt Brand, senior vice president of corporate partnerships and special events at the Houston Astros. "Old cats like me need to realize you have to stay current or else you're just going to get passed up."

Brand was the subject of a live recording of HXTV — the video arm of Houston Exponential — at The Cannon. He addressed several trends in sports technology, and shared how the Astros are approaching each new hot technology.

The Astros are pretty ahead of the curve when it comes to technology, Brand says, and the trick is keeping a pulse on potential game-changing technology far in advance of implementation.

"The things that we're developing now in 2019 and 2020 are the thing that are going to help us in 2024 and 2025," Brand says.

The approach to technology in sports is changing as younger players enter the scene.

"This generation of players want all the technology they can get," Brand says. "They want what's going on up to the day."

From esports to sports betting sites, here's what the hometeam has on its radar, according to brand.

The evolution of pitching technology

One aspect of the game that's been greatly affected by technology is pitching. Brand says that pitching coach, Brent Strom, is better able to do his job nowadays that there's better quality video and monitoring technologies. Brand cited the transformations of former pitcher Charlie Morton and current pitcher Ryan Pressly. Both saw impressive transformations in their pitching ability thanks to Strom and his technology.

"Brent has the ability to take technology and blend it with the craft," Brand says.

The players as industrial machines

One way the franchise thinks about its players is as machines — in the least objectifying way, surely. But Brand compares baseball players to major, expensive oil and gas machines, and in heavy industry, it's very common for a company to drop $30 million or more on a machine. Of course the company would schedule preventative maintenance and service appointments to protect their investments.

"We've got players now who are high performance machines," Brand says, citing players like Justin Verlander. "We want to make sure we have the best technology and the best care around them."

From doctors and nutritionists to the latest and greatest technologies, implementing the best practices is a good way to protect your assets.

Wearables and sleep technology

Another trend within sports is tracking sleep using technology. Wearable devices to track sleep and health are widely used, says Brand, but the Astros weren't comfortable with the constant monitoring.

"They feel like it's an invasion of privacy," Brand says. They feel like the data would be used against them when it came time to negotiate their contracts.

But prioritizing sleep is crucial in a sport where players travel across the country playing 162 games a season. Brand says investing in the players' sleep equipment is something they make sure to do.

Esports

Brand says, somewhat controversial, that esports is pretty low on the franchise's priority list, and there's one reason for that: Money.

"A lot of these sports teams aren't profitable right now," Brand says, noting that he knows that will probably change over the years.

While the teams themselves might not be making money, the number of users of video games makes for a different avenue to revenue.

"The platforms are what we see as profitable," Brand says, explaining how he's seen brands like Nike advertise in gaming apps.

"There's definitely a pathway to profitability, but esports means different things to different people," he says.

Sports marketing and betting

Looking toward the future, Brand says he sees movement coming in marketing and betting within sports.

With mobile devices in the hands of most sports event goers, brands have access to authentic, engaging content.

"Everyone with a phone is a producer of content, and a lot of brands want that content," he says.

Sports betting technologies have seen profitable success in other United States markets that allow it.

"Betting is the next biggest thing in sports," Brand says. "All the major leagues are saddled up with big money there. In Texas, it's illegal still, but it's coming."