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Overheard: Local innovation leaders share what they see has changed in Houston for venture investing

"There's something magical happening in Houston, and [VCs] want a piece of it." Photo via Getty Images

Houston's seen a growth in startup and venture investment — even amid the pandemic — and a group of Houston innovators sat down for a virtual event to discuss what's lead to this evolution.

The Greater Houston Partnership hosted an installment of its Houston Industry Series focused on Digital Tech on Thursday, September 24. The panel of experts, moderated by Krisha Tracy of Google Cloud, discussed how they've observed the paradigm shift that's occurred in Houston over the past few years — and why.

Missed the discussion? Here are some significant overheard moments from the virtual event.

“I think there really is an interest for venture capital here, both locally and also welcoming it from outside of Houston. … There’s something magical happening in Houston, and [VCs] want a piece of it. I think that magical piece is a renewed interest in collaborating.”

Stephanie Campbell, managing director of Houston Angel Network and co-founder of The Artemis Fund. "I think a lot [of this progress] is due to the GHP, Houston Exponential, and the founding of the HX Venture Fund to bring those venture funds to Houston to say, 'what's happening here?'" Campbell adds, saying that this connectivity and collaboration that's happening in Houston VC is unique.

“I think there’s a misconception around all we do is oil and gas and life science in Houston, but when you think about what VC-backable companies look like, they’re tech, they’re B2B SaaS, they’re highly scalable, and they don’t tend to be capital-intensive types of things we see corporate venture backing.”

Campbell says, adding "the connectivity and the interest in VC is really taking off. It's an exciting time to be in Houston and Texas in general."

“Plug and Play’s ventures team is based in Silicon Valley and one thing they enjoy about meeting Houston-based founders is valuations tend to be more reasonable than in the Bay Area."

Payal Patel, director of Plug and Play Tech Center in Houston. "There are gems to be found," she adds.

“I don’t know what it is — if it’s something in the water or just Texans being very friendly, but the investors here share deal flow. It takes a village, and I think we all understand a rising tide lifts all boats."

Patel says on the collaborative nature of Houston. "It's really magical."

“What you’re witnessing is a city that has been waiting for industrial innovation to reach the point where it can be adopted at a really high scale, and that happened around 2017.”

Jon Nordby, managing director at MassChallenge Texas in Houston. Nordby adds that MassChallenge in Houston hasn't been keen on consumer tech, or the "grilled cheese delivery apps," as he describes. "We like companies that are in love with problems, not so much in love with solutions. … We build really meaningful tech."

“Over the last year or two, we’ve seen that sleeping giant get awoken. Open and external innovation is newly adopted by more legacy industries where it wasn’t before — and that’s just created a mountain of opportunities for startups and investors alike.”

Nordby says on the shift toward this meaningful, problem-solving technology, which Houston is full of, as he observes.

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Building Houston

 
 

Constantine Zotos (left) and Mitchell Webber pivoted their coffee business toward hand sanitizer manufacturing amid the pandemic. Today, the company has around 60 employees and produces 15,000 gallons of hand sanitizer per day. Photo courtesy of Modern Chemical

Houstonians' workday routines look much different today than they did seven months ago. With a large percentage of people working from home, office rituals have come to a halt and few habits have been immune to change — including our coffee consumption.

In early March, Constantine Zotos and Mitchell Webber already knew this didn't mean good things for their local nitro coffee company, Recharge Brewing Co. Though the brand had grown steadily over the better course of two years, the duo had focused their business on installing and supplying their nitro coffee taps to two of the most taboo markets at the time: office spaces and restaurants.The duo aptly predicted that the demand for their product would soon dry up and quickly shifted their operations to focus on a product that was considered a necessity: hand sanitizer.

To get started, the young entrepreneurs and their small team of six began cold calling down a list of Purell distributors they found online. They soon found that many businesses could hardly keep the product in stock.

"They asked us if they could fly a jet down to pick up the hand sanitizer themselves," Zottos says of one distributor. "I told them not to get ahead of themselves, but it just speaks to the sense of urgency everyone had."

The team studied up on the basic ingredients of hand sanitizer to make the liquid, alcohol-based form that infiltrated the market in the first few weeks of the pandemic. At the time there was such a rush for the product, and such a low supply of the material needed to make it, that the team resorted to selling the product without traditional pump tops or plastic caps. Instead they used the slow release plastic pourers that are often used on liquor bottles.

Still, they were focused on doing it right. In addition to the long hours spend to get the product out the door, Zotos and Webber took special care to ensure that their sanitizer met all FDA and EPA requirements by working with consultants and lawyers, as well as reading up on all the pertinent documents and literature between sleeping shifts and time on the shop floor.

"We took the stance that we would rather rush toward compliance rather than run from it," Zotos says.

It didn't seem to slow down the demand. One week in they formed Modern Chemical, and by the middle of the month the company was fulfilling substantial orders with a team of 40 employees. By the summer, Modern Chemical released a gel-based, FDA-registered sanitizer that got them in with giant B2B clients, such as the Massachusetts Bay Transit Authority, Jefferson Parish School District, and recently the City of Austin.

The pair agrees that their background with Recharge gave them a leg up in the beginning.

"Knowing the pumps and hoses and all the stuff you really need to run a bottle facility and a hand sanitizer facility, we already had," Webber says. "On top of that when all this started, there were some long days and long nights, but being in the nitro coffee business, we were used to long hours. It prepared us for this huge push for the drastic demand that needed to be filled."

Location and timing also played a huge role in their success, Zotos adds. "When the pandemic struck we were able to bring on a lot of people who are extraordinarily talented throughout the company. If we weren't hiring in the pandemic environment like this I think we would be hard pressed to find people as talented as we did as quickly as we did," he says. "And Houston really played a big part in that."

Today, the company of about 60 employees is producing about 15,000 gallons of hand sanitizer per day and is in the process of launching disinfectant wipes and spray. They recently moved all of the Modern Chemical operations into a new and improved facility off Air Tec and Interstate 45 that will allow for more efficient packaging and loading of products and — in another pivot — are even offering custom labeling, scenting and color dyes, plus specialty dispensing stands for their product.

"Neither of us have a chemical background and we are not ignorant to that. But we know how the equipment works from an operational side of things and if we can make the packaging look the best. If we can package the most for the best price then people are going to want to buy it," Zotos says. "Instead of taking the let's do everything route, we found our niche in the chemical supply chain, which is packaging."

And as Modern Chemical continues to settle into its new space and eventually a post-pandemic market, Zotos and Webber plan to revisit and revamp Recharge Brewing with the lessons they've learned. The duo plans to use their original facilities to help other small business owners launch and produce beverage brands of their own by early 2021.

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