Top innovation leaders talk Houston's strengths, weaknesses

finalists weigh in

Clockwise from top left: Jesse Martinez, Adrianne Stone, Phillip Yates, Carlos Estrada, Atul Varadhachary, and Juliana Garaizar. Photos courtesy

The six finalists in this year's Ecosystem Builder category for the Houston Innovation Awards shared many reasons why Houston has been a great place for them to launch their startups.

Still, they've seen first-hand how Houston can grow and change to better support founders like themselves. We asked each to share their thoughts on the strengths and weaknesses of the local innovation ecosystem and about the roles they're playing in the scene's evolution. Scroll down to see what each finalist had to say.

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What are the strengths of the Houston innovation ecosystem?

Adrianne Stone, founder of Bayou City Startups: "Outside of our obvious advantages in health care, energy and space technology I would say that our biggest strength is in the diversity of our community. Everyone brings such unique perspectives, experiences, and ideas to the table that it allows Houston to truly think outside of the box when we leverage that superpower."

Atul Varadhachary, managing partner at Fannin Innovation Studio: "The city benefits from its strategic location as a hub for various industries, including energy, aerospace and health care/biotechnology. This diversity of sectors fosters cross-pollination of ideas and expertise, promoting innovation in multiple fields. In the biotechnology field, the Texas Medical Center in Houston, is a major driver of intellectual capital and contributes to a highly skilled workforce. This potential has not been fully leveraged as yet, but I have seen and contributed to much progress over the last three decades."

Carlos Estrada, growth partner at First Bight Ventures and head of venture acceleration at BioWell: "Houston’s strengths lie in its diverse industries, from energy to health care to bioindustrial manufacturing and its academic institutions which nurture talent and innovation. A new wave of startup organizations also provides startups and SMBs with mentorship, funding opportunities, and critical networking connections. This combination of industry diversity, academic excellence and supportive organizations creates an ideal environment for startups to grow."

Jesse Martinez, founder and CEO of invincible: "The Houston innovation ecosystem continues evolving as it naturally pivots and iterates like a startup. We have a number of existing and new stakeholders who deeply care about Houston, as we all work together to make it a global tech hub destination. Through our SDOs, TMC, Houston Methodist, Helix Park, The Ion, NASA, our universities, and startup community leaders, it's all about us helping to connect the dots for our entrepreneurs so they may grow and thrive in Houston."

Juliana Garaizar, founding partner of Energy Tech Nexus: "Houston has the talent, the corporations and the great intersection of industries were innovations happen: energy, medical and space. Houston knows how to do hard things. We are doers, and we know how to build on our key strengths and are resilient when things don't go according to plan. Our geographic situation and our port make us a global hub and the most diverse city in the U.S."

Phillip Yates, CEO of Equiliberty Inc.: "I believe Houston's innovative ecosystem's greatest strengths reside in its diverse group of citizens and our healthy local economy, which includes the energy sector, medical, and aerospace industries."

What are the weaknesses of the Houston innovation ecosystem? Are you helping to make improvements to these weaker aspects of the community and, if so, how?

Stone: "The first thing that comes to mind is a lack of early stage funding for startups, especially for those with founders from underserved backgrounds. And the second thing is the sheer size of our geographic distribution makes it hard for folks to connect and those kismet collisions to occur. I'm working to improve this by inviting investors to our events, networking more broadly outside of the region and inviting folks to come back to visit, and by hosting a predictable recurring meetup every month so folks can get plugged into the broader ecosystem."

Varadhachary: "In the life sciences space, where I primarily play, our biggest challenge is that the early-stage drug development process is complex and requires direct product development experience. At Fannin, I have helped address this challenge by creating one of the largest talent development programs in the U.S., boasting over 350 alumni. I am especially proud of our alumni diversity — about half are women and most are BIPOC. Fannin draws from local institutions and major institutions across the country. Half of our alumni remain in Houston, many of whom, alongside students I’ve taught, have gone on to join or found startups. Other Fannin alumni have joined major companies around the U.S. and have often come back to help support our local ecosystem."

Estrada: "Houston’s biggest challenge is limited early-stage venture capital. To address this, I organized pitch events at WeWork Labs to attract outside investors and guided startups on how to raise funds while keeping their headquarters in Houston. Furthermore at Rice University’s Liu Idea Lab and Rice Alliance, supporting commercialization was key to launching more local scientist-entrepreneur-led startups. Through First Bight Ventures, I also support local startups like Via Fuels and attract outside startups to scale their manufacturing operations in Houston, further growing the ecosystem."

Martinez: "The current weaknesses of our current Houston innovation ecosystem is two-fold: We need true early stage capital (pre-seed and seed) to support our founders. We also need more incubators and accelerators across the Houston area to support our geographically disbursed founders and founders-to-be in The Woodlands, Katy, and Sugar Land, along with more in central Houston. At invincible, we are committed to helping support and champion our Houston-area innovation community by launching a Mom Tech Incubator (HERA), an early-stage fund, and an industry-specific venture studio. Long term, we will need a growth-stage fund to better support our local startups and those expanding here for strategic reasons."

Garaizar: "Although Houston has a lot of later stage capital, access to early stage capital is a weakness that we are trying to overcome with capital activation, formation and innovation finance. Although Houston is the most diverse city in the U.S. it is not the most inclusive and equitable, that is why I studied the gender gap in investing and launched initiatives like Portfolia or the Houston Equitable Energy Transition Initiative and I am part of the City of Houston's Women Commission."

Yates: "Houston has a problem with economic disparities, including income inequality, poverty, and lack of access to resources. These economic indicators create real barriers for some individuals to have meaningful access to the Houston innovative ecosystem.Through my work with Equiliberty and other non-profits, I have provided my time and resources to help build a more equitable ecosystem. Through the work I am doing with Equiliberty, Houston Area Urban League, Impact Hub and others, I believe we're making improvements to ensure that any person with a dream of changing the world can do it right here in Houston, Texas. We are all working towards the day when their ZIP code, education background or financial status will not be a determining factor."

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Should your startup opt for SAFEs or convertible notes on your next funding round? This Houston expert weighs in. Photo via Getty Images

Houston startup adviser on navigating SAFE, convertible notes in funding rounds

guest column

As both a founder and occasional early-stage investor in the Houston ecosystem, I've seen firsthand the opportunities and challenges surrounding seed funding for local startups. This critical first fundraising round sets the trajectory, but navigating the landscape can be tricky, especially for first time founders who may not be familiar with the lingo.

One key dynamic is choosing the right deal structure — SAFEs (Simple Agreement for Future Equity) vs. convertible notes are the most common vehicles early stage startups use to raise capital and are far more founder-friendly than a priced round.

Let's start first with what the have in common:

  • Both allow you to defer setting a valuation for your company until a later (likely priced) round, which is useful in early stages or pre-revenue companies
  • Both are cheaper and faster to execute than a priced round, which cash-strapped early stage founders like
  • Both can have terms like valuation cap, discount, conversion event, and pro rata rights.
  • Both are less attractive to investors seeking immediate equity (especially important if starting the QSBS clock is part of your investors strategy or if the investor is newer to startup investing)
  • Both can create messy cap tables and the potential for a lot of dilution for the founders (and investors) if they are used for multiple raises (especially with different terms)

While as you can see they have similarities, they have some important differences. Let's dig in on these next:

SAFEs:

  • Created by Y Combinator in 2013, the intent was to create a simplified, founder friendly agreement as an alternative to the convertible note
  • Is an agreement for future equity for the investor at a conversion event (priced round or liquidation event) which converts automatically.
  • It's not a debt instrument and does not accrue interest or have a maturity date.
  • Generally have much lower upfront legal costs and faster to execute

Convertible Notes:

  • A debt agreement that converts to equity at a later date (or conversion event like a priced round)
  • Accrues interest (usually 2 to 8 percent) and has a maturity date by which the note must either be repaid or convert to equity. If you reach your maturity date before raising a qualifying round, you can often renegotiate to extend the maturity date or convert the note, though be prepared to agree to higher interest rates, additional warrants, or more favorable conversion terms.
  • More complex and take longer to finalize due to non-standard terms resulting in higher legal and administrative costs

It's worth reiterating that in both cases, raising multiple rounds can lead to headaches in the form of complex cap tables, lots of dilution, and higher legal expenses to determine conversion terms. If your rounds have different terms on discounts and valuation caps (likely) it can cause confusion around equity and cap table structure, and leave you (the founder) not sure how much equity you will have until the conversion occurs.

In my last startup, our legal counsel — one of the big dogs in this space for what it's worth — strongly advised us to only do one SAFE round to prevent this.

Why do some investors tend to prefer convertible notes?

There are a few reasons why some investors, particularly angel investors from developing startup ecosystems (like Houston), prefer convertible notes to SAFEs.

  • Because they are structured as debt, note holders have a higher priority than equity investors in recovering their investment if the company fails or is liquidated. This means they would get paid after other creditors (like loans or credit cards) but before equity investors, increasing the likelihood of getting some of their money back.
  • The interest terms protect investors if the founder takes a long time to raise a priced funding round. As time passes, interest accumulates, increasing the investor's potential return. This usually results in the investor receiving a larger equity stake when the note converts. However, if the investor chooses to call in the note instead, the accrued interest would increase the amount of money owed, similar to a traditional loan
  • More defined conversion triggers (including a maturity date) gives investors more control and transparency on when and how their investment will convert.
  • Can negotiate more favorable terms than the standard SAFE agreement, including having both a valuation cap and a discount (uncommon on a SAFE, which usually only has one or the other), interest rates, and amendment clauses to protect them from term revisions on earlier investors by future investors (called a cram-down), etc.
We'll go over what the various terms in these agreements are and what to look out for in a future article

How to choose:

  • Consider your startup's stage and valuation certainty — really uncertain or super early? Either of these instruments are preferable to a priced round as you can defer the valuation discussion
  • Assess investor preferences in your network — often the deciding factor if you don't have a lot of leverage; most local angels prefer c-notes because they see them as less risky though SAFEs are becoming more common with investors in tech hubs like Silicon Valley
  • Evaluate your timeline and budget for legal costs — as I mentioned, SAFEs are way less expensive to execute (though still be prepared to spend some cash).
  • Align the vehicle with your specific goals and growth trajectory

There's no one-size-fits-all solution, so it's crucial to weigh these factors carefully.

The meanings of these round terms like "seed" are flexible, and the average seed funding amount has increased significantly over the past decade, reaching $3.5 million as of January 2024. This trend underscores the importance of choosing the right funding vehicle and approach.

Looking ahead, I'm bullish on Houston's growing startup ecosystem flourishing further. Expect more capital formation from recycled wins, especially once recently minted unicorns like High Radius, Cart.com, Solugen, and Axiom Space exit and infuse the ecosystem with fresh and hungry angels, new platforms beyond traditional venture models, and evolving founder demographics bringing fresh perspectives.

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Adrianne Stone is the principal product manager at Big Cartel and the founder of Bayou City Startups, a monthly happy hour organizer. This article original ran on LinkedIn.

This week's roundup of Houston innovators includes Adrianne Stone of Bayou City Startups, Sarma Velamuri of Luminare, and Curtis Jackson of G-Unity Foundation. Photos courtesy

3 Houston innovators to know this week

who's who

Editor's note: In this week's roundup of Houston innovators to know, I'm introducing you to three local innovators across industries — from health tech to nonprofit — recently making headlines in Houston innovation.

Adrianne Stone, founder of Bayou City Startups

Every month, Adrianne Stone of Bayou City Startups hosts a happy hour for startup founders to create a safe space to network, collaborate, commensurate, and more. Photo courtesy of Adrianne Stone

Adrianne Stone knows firsthand how lonely the startup founder journey is, so she set out to help create a community for founders when she started Bayou City Startups last year. Now, Stone shares on the Houston Innovators Podcast that her monthly happy hours attract over 50 attendees on average.

"Being the venture associate with Capital Factory in Houston, I'd seen what the Houston ecosystem had to offer. There were events — happy hours, coffee meet-ups, all these things," Stone says on the show. "But it was not just a casual networking event usually. I wanted a consistent community where I could show up and say, 'guys, I had the worst week,' to people who got where I was coming from and who could commensurate or lean in and help."

The next opportunity to network with Bayou City Startups is Tuesday, July 18, from 5 to 7 pm at Kirby Ice House. Read more.

Sarma Velamuri, co-founder and CEO of Luminare

Sepsis has been the No. 1 killer hospitals, but this Houston startup has a tech to help mitigate the risk. Photo via Getty Images

When he was an internal medicine physician, Sarma Velamuri watched helplessly as a friend’s 22-year-old daughter lost her life to sepsis. He had to tell his friend that she would not be coming home.

“There are 300,000-plus people a year who die of sepsis,” says Velamuri. “It’s important that people understand it’s not just those who are most susceptible to infections.”

This fact is not only unfortunate, but preventable. And that’s why Velamuri, who describes himself as “a recovering hospitalist,” co-founded Luminare in 2014. A full-time CEO since 2017, Velamuri, who runs the company with co-founder and CTO Marcus Rydberg, is based in the TMC Innovation Factory. Read more.

Curtis Jackson, founder of the G-Unity Foundation

For the second year, Curtis Jackson's program supported Houston student entrepreneurs. Photo courtesy of G-Unity

Chances are, you've heard of 50 Cent — his 2003 album "Get Rich or Die Tryin'" was a soundtrack to many. But Curtis James Jackson III, 50 Cent's real name, has done a lot since gracing your radios. He moved to Houston in 2021 and founded the G-Unity Foundation. In May, he wrapped on the second year of the G-Unity Business Labs, a business development incubator for Houston Independent School District high schoolers.

"I’ve spent years donating my time and energy to communities in need. I started G-Unity to do the same—to give back to kids so they have it a little easier than I did," Jackson writes on the website. "Team building and entrepreneurship are skills I learned along the way, but they are so important to develop early. I look forward to G-Unity supporting programs that are doing the crucial work of teaching kids to excel at life."

Around 150 students participated, and the winners are splitting a $500,000 investment. Read more.

Every month, Adrianne Stone of Bayou City Startups hosts a happy hour for startup founders to create a safe space to network, collaborate, commensurate, and more. Photo courtesy of Adrianne Stone

Houston innovator dedicated to fostering community within local founders

HOUSTON INNOVATORS PODCAST EPISODE 194

Starting a company can be daunting and lonely, but entrepreneurs — at least those who call Houston home — have a monthly opportunity to connect with fellow founders thanks to Adrianne Stone.

Stone, who's had a varied career from getting her PhD in Translational Biology & Molecular Medicine at Baylor College of Medicine and joining the 23andMe team as a scientist to supporting founders at Capital Factory, launched Bayou City Startups last year to help connect Houston founders over beers. Now, Stone shares on the Houston Innovators Podcast that her monthly Bayou City Startups meetups attract over 50 attendees on average.

"Being the venture associate with Capital Factory in Houston, I'd seen what the Houston ecosystem had to offer. There were events — happy hours, coffee meet-ups, all these things," Stone says. "But it was not just a casual networking event usually. I wanted a consistent community where I could show up and say, 'guys, I had the worst week,' to people who got where I was coming from and who could commensurate or lean in and help."

Stone observes a need for that type of community more in Houston than Silicon Valley, where she worked when she was at 23andMe. The Bayou City has less of a concentrated startup scene.

"Houston and the Bay Area could not be more different in a lot of ways," she explains. "Everybody I met had a startup in California — it didn't matter if they worked somewhere else, they had a startup.

"I would love to see more of that here in Houston," Stone continues. "Our founders in Houston are super scrappy. They do so much with so little, and we just do not have the amount of capital floating around this ecosystem that you do in SF. I'd love to see more of that here too."

The next opportunity to network with Bayou City Startups is Tuesday, July 18, from 5 to 7 pm at Kirby Ice House. Stone says she picks different types of bars all over the city to meet people where they are and to offer a variety of locations. She adds that she's always up for co-hosts and partners.

Part of what makes Stone, who consults with startups in a professional capacity, an interesting point of view is her "zig-zagging" career. She's held a wide range of roles at an even wider range of professions before she made it to tech startups.

“The through line for me is following my curiosity,” she says on the show. “I was interested in politics, so I did a White House internship. I had a background in science, so I wanted to do something with it, so I went into teaching. Through teaching, I got interested in web development and blogging, so that's how I made the transition into the digital space.”

Her advice to fellow zig-zaggers? Knowing when to say no to things.

"You can overcommit yourself and you're going to burnout or drop the ball or end up disappointing people," she says, admitting she's had to get better at this herself. "Practice saying no. Make it your default. Founders tend to say yes first."

Stone shares more about her career and her observations on Houston's startup ecosystem on the show. Listen to the interview below — or wherever you stream your podcasts — and subscribe for weekly episodes.

This week's innovators to know include Richard Seline of ResilientH20, Adrianne Stone of Capital Factory, and Ethan Saadia of Wayt. Courtesy photos

3 Houston innovators to know this week

who's who

Editor's note: All three of this week's Houston innovators to know started something new amid a global pandemic — a new job at a Texas-wide accelerator, a new app to help shops and businesses safely serve customers, and a new resilience-focused hub that launched just in time for hurricane season.

Richard Seline, managing director of ResilientH20

Richard Seline of ResilientH2O Partners explains how he's helping foster new hurricane and flood prevention technologies in the Bayou City. Photo courtesy of ResilientH20

Following Hurricane Harvey, Richard Seline saw several emerging startups focusing on flood tech. Meanwhile, he saw insurance companies very interested in finding new technologies in the same space. But, these two entities were not talking.

"It's two different languages," Seline says on the Houston Innovators Podcast. "There's a whole language and a whole mindset within the insurance industry that is not real well known."

Seline, managing director of ResilientH20, along with the Insurance Information Institute and The Cannon, has launched the Gulf Coast & Southwest Resilience Innovation Hub to foster this type of technology and bring insuratech startups and the big insurance players to the table. Stream the podcast and read more.

Adrianne Stone, venture associate for Capital Factory

Adrianne Stone has joined Capital Factory's Houston operations as the company prioritizes digital startup interaction. Photo courtesy of Capital Factory

After spending a year and a half in Silicon Valley on the products team for 23andme, Adrianne Stone is back in Houston, filling the venture associate role for Capital Factory. Stone got her Ph.D from Baylor College of Medicine and replaces Brittany Barreto, another BCM Ph.D who left the position to pursue a new venture.

"The mindset in Silicon Valley is different from how it is here in Texas — in good ways and bad ways. It was interesting to be exposed to a very potent startup vibe," Stone tells InnovationMap. "I'm looking forward to being able to meet all the cool companies, founders, and investors we have here in the Houston area." Read more.

Ethan Saadia, app developer and creator of Wayt

Ethan Saadia, a 17-year-old high school student, created an app to improve the user experience of shopping during a pandemic. Photo courtesy of Wayt

Like most of the world, Ethan Saadia has seen small, local businesses suffer from the social distancing mandates amid the COVID-19 outbreak. Saadia, a rising high school senior, wanted to do something to help.

He created Wayt, a smartphone app that provides businesses and their customers with a platform to communicate making curbside pickup, booking appointments, and even join a virtual line. Ultimately, Wayt has a great opportunity to help businesses — even outside of a pandemic

"From my perspective and experiences from my friends and family," says Saadia, "curbside pickup and virtual lines are definitely here to stay because even before the pandemic, popular places used to have long lines and that presented many new challenges. The pandemic is just accelerating technological change that will make our lives easier." Read more.

Adrianne Stone has joined Capital Factory's Houston operations as the company prioritizes digital startup interaction. Photo courtesy of Capital Factory

Statewide accelerator hires new Houston staffer and embraces 'virtual first' approach amid COVID-19

new hire

For years, Capital Factory has existed to promote innovation and grow startups across Texas and has expanded from its headquarters in Austin to Dallas, Houston, and beyond. In light of COVID-19, the organization has pivoted to make sure it can work with startups remotely and online.

"I think Capital Factory has successfully embraced virtual first," says Bryan Chambers, vice president of the accelerator and fund at Capital Factory. "I think it's gone well and it feels like we're just hitting our stride."

Chambers admits that the onset of the coronavirus had a great effect on Capital Factory — SXSW being canceled did its damage on the organization, which has a huge presence every year. However, cross-state startup collaboration is the driving force behind Capital Factory's Texas Manifesto.

"We're one big state, and we're one big startup ecosystem," Chambers says. "The resources across Dallas, Houston, Austin, North Texas, and San Antonio are available for everybody. Candidly, COVID aligns with that. There's no better time — COVID is erasing the boundaries in a virtual world."

In addition to navigating the transition to virtual operations, Capital Factory has also introduced its newest Houston staff member, as Adrianne Stone has started this week as venture associate for the organization. Stone received her Ph.D in Translational Biology and Molecular Medicine from Baylor College of Medicine before heading out to the West Coast and working at 23andme. She brings both her experience with health tech and Silicon Valley to her position.

"The mindset in Silicon Valley is different from how it is here in Texas — in good ways and bad ways. It was interesting to be exposed to a very potent startup vibe," Stone tells InnovationMap. "I'm looking forward to being able to meet all the cool companies, founders, and investors we have here in the Houston area."

Stone replaces Brittany Barreto, who helped in coordinating her replacement and is staying on part-time for the rest of August to help with training and immersion into the ecosystem. Barreto, who is one of the founders of the recently launched startup masterclass Founder's Compass, has also introduced a new brand called Femtech Focus, that includes a podcast where she talks to innovators in the women's health and wellness space.

"I'm ready to get back into the founder's saddle," Barreto says, adding that there's more to come for Femtech Focus.

Throughout her tenure, Barreto has overseen Capital Factory's Houston portfolio companies — both identifying potential investment opportunities and connecting startups to resources and mentors. She passes the torch to her former BCM classmate, and says she's excited to do so to a fellow Ph.D.

"The last year and a half, I've working really hard on laying this foundation. I don't want all that hard work to go away, so I cared a lot about who was going to take my position," she says. "I wanted to make sure that all my founders had someone who cared about them as much as I do."

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Houston startup debuts new drone for first responders

taking flight

Houston-based Paladin Drones has debuted Knighthawk 2.0, its new autonomous, first-responder drone.

The drone aims to strengthen emergency response and protect first responders, the company said in a news release.

“We’re excited to launch Knighthawk 2.0 to help build safer cities and give any city across the world less than a 70-second response time for any emergency,” said Divyaditya Shrivastava, CEO of Paladin.

The Knighthawk 2.0 is built on Paladin’s Drone as a First Responder (DFR) technology. It is equipped with an advanced thermal camera with long-range 5G/LTE connectivity that provides first responders with live, critical aerial awareness before crews reach the ground. The new drone is National Defense Authorization Act-compliant and integrates with Paladin's existing products, Watchtower and Paladin EXT.

Knighthawk 2.0 can log more than 40 minutes of flight time and is faster than its previous model, reaching a reported cruising speed of more than 70 kilometers per hour. It also features more advanced sensors, precision GPS and obstacle avoidance technology, which allows it to operate in a variety of terrains and emergency conditions.

Paladin also announced a partnership with Portuguese drone manufacturer Beyond Vision to integrate its Drone as a First Responder (DFR) technology with Beyond Vision’s NATO-compliant, fully autonomous unmanned aerial systems. Paladin has begun to deploy the Knighthawk 2.0 internationally, including in India and Portugal.

The company raised a $5.2 million seed round in 2024 and another round for an undisclosed amount earlier this year. In 2019, Houston’s Memorial Villages Police Department piloted Paladin’s technology.

According to the company, Paladin wants autonomous drones responding to every 911 call in the U.S. by 2027.

Rice research explores how shopping data could reshape credit scores

houston voices

More than a billion people worldwide can’t access credit cards or loans because they lack a traditional credit score. Without a formal borrowing history, banks often view them as unreliable and risky. To reach these borrowers, lenders have begun experimenting with alternative signals of financial reliability, such as consistent utility or mobile phone payments.

New research from Rice Business builds on that approach. Previous work by assistant professor of marketing Jung Youn Lee showed that everyday data like grocery store receipts can help expand access to credit and support upward mobility. Her latest study extends this insight, using broader consumer spending patterns to explore how alternative credit scores could be created for people with no credit history.

Forthcoming in the Journal of Marketing Research, the study finds that when lenders use data from daily purchases — at grocery, pharmacy, and home improvement stores — credit card approval rates rise. The findings give lenders a powerful new tool to connect the unbanked to credit, laying the foundation for long-term financial security and stronger local economies.

Turning Shopping Habits into Credit Data

To test the impact of retail transaction data on credit card approval rates, the researchers partnered with a Peruvian company that owns both retail businesses and a credit card issuer. In Peru, only 22% of people report borrowing money from a formal financial institution or using a mobile money account.

The team combined three sets of data: credit card applications from the company, loyalty card transactions, and individuals’ credit histories from Peru’s financial regulatory authority. The company’s point-of-sale data included the types of items purchased, how customers paid, and whether they bought sale items.

“The key takeaway is that we can create a new kind of credit score for people who lack traditional credit histories, using their retail shopping behavior to expand access to credit,” Lee says.

The final sample included 46,039 credit card applicants who had received a single credit decision, had no delinquent loans, and made at least one purchase between January 2021 and May 2022. Of these, 62% had a credit history and 38% did not.

Using this data, the researchers built an algorithm that generated credit scores based on retail purchases and predicted repayment behavior in the six months following the application. They then simulated credit card approval decisions.

Retail Scores Boost Approvals, Reduce Defaults

The researchers found that using retail purchase data to build credit scores for people without traditional credit histories significantly increased their chances of approval. Certain shopping behaviors — such as seeking out sale items — were linked to greater reliability as borrowers.

For lenders using a fixed credit score threshold, approval rates rose from 15.5% to 47.8%. Lenders basing decisions on a target loan default rate also saw approvals rise, from 15.6% to 31.3%.

“The key takeaway is that we can create a new kind of credit score for people who lack traditional credit histories, using their retail shopping behavior to expand access to credit,” Lee says. “This approach benefits unbanked applicants regardless of a lender’s specific goals — though the size of the benefit may vary.”

Applicants without credit histories who were approved using the retail-based credit score were also more likely to repay their loans, indicating genuine creditworthiness. Among first-time borrowers, the default rate dropped from 4.74% to 3.31% when lenders incorporated retail data into their decisions and kept approval rates constant.

For applicants with existing credit histories, the opposite was true: approval rates fell slightly, from 87.5% to 84.5%, as the new model more effectively screened out high-risk applicants.

Expanding Access, Managing Risk

The study offers clear takeaways for banks and credit card companies. Lenders who want to approve more applications without taking on too much risk can use parts of the researchers’ model to design their own credit scoring tools based on customers’ shopping habits.

Still, Lee says, the process must be transparent. Consumers should know how their spending data might be used and decide for themselves whether the potential benefits outweigh privacy concerns. That means lenders must clearly communicate how data is collected, stored, and protected—and ensure customers can opt in with informed consent.

Banks should also keep a close eye on first-time borrowers to make sure they’re using credit responsibly. “Proactive customer management is crucial,” Lee says. That might mean starting people off with lower credit limits and raising them gradually as they demonstrate good repayment behavior.

This approach can also discourage people from trying to “game the system” by changing their spending patterns temporarily to boost their retail-based credit score. Lenders can design their models to detect that kind of behavior, too.

The Future of Credit

One risk of using retail data is that lenders might unintentionally reject applicants who would have qualified under traditional criteria — say, because of one unusual purchase. Lee says banks can fine-tune their models to minimize those errors.

She also notes that the same approach could eventually be used for other types of loans, such as mortgages or auto loans. Combined with her earlier research showing that grocery purchase data can predict defaults, the findings strengthen the case that shopping behavior can reliably signal creditworthiness.

“If you tend to buy sale items, you’re more likely to be a good borrower. Or if you often buy healthy food, you’re probably more creditworthy,” Lee explains. “This idea can be applied broadly, but models should still be customized for different situations.”

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This article originally appeared on Rice Business Wisdom. Written by Deborah Lynn Blumberg

Anderson, Lee, and Yang (2025). “Who Benefits from Alternative Data for Credit Scoring? Evidence from Peru,” Journal of Marketing Research.

XSpace adds 3 Houston partners to fuel national expansion

growth mode

Texas-based XSpace Group has brought onboard three partners from the Houston area to ramp up the company’s national expansion.

The new partners of XSpace, which sells high-end multi-use commercial condos, are KDW, Pyek Financial and Welcome Wilson Jr. Houston-based KDW is a design-build real estate developer, Katy-based Pyek offers fractional CFO services and Wilson is president and CEO of Welcome Group, a Houston real estate development firm.

“KDW has been shaping the commercial [real estate] landscape in Texas for years, and Pyek Financial brings deep expertise in scaling businesses and creating long‑term value,” says Byron Smith, founder of XSpace. “Their commitment to XSpace is a powerful endorsement of our model and momentum. With their resources, we’re accelerating our growth and building the foundation for nationwide expansion.”

The expansion effort will target high-growth markets, potentially including Nashville, Tennessee; Orlando, Florida; and Charlotte and Raleigh, North Carolina.

XSpace launched in Austin with a $20 million, 90,000-square-foot project featuring 106 condos. The company later added locations on Old Katy Road in Houston and at The Woodlands Town Center. A third Houston-area location is coming to the Design District.

XSpace condos range in size from 300 to 3,000 square feet. They can accommodate a variety of uses, such as a luxury-car storage space, a satellite office, or a podcasting studio.

“XSpace has tapped into a fundamental shift in how entrepreneurs and professionals want to use space,” Wilson says. “Houston is one of the best places in the country to innovate and build, and XSpace’s model is perfectly aligned with the needs of this fast‑growing, opportunity‑driven market.”

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