After an IPO, zip codes close to a company's headquarters see certain home prices and consumer spending rise, while more new businesses and jobs are created. Photo via Pexels

A massive company announces plans to bring its headquarters to town, and the locals can't stop grumbling. The added traffic. The noise. The shifts in neighborhood routine as a giant new facility gets up and running.

Then the company files for an IPO.

Over the next two years, the traffic and dust may well be forgotten as residents watch their local economy transform. Anecdotal evidence suggests that the mere change in a company's listing status, along with the liquidity it brings its shareholders, can significantly influence local economies.

That was certainly the case with Facebook in 2012, when CEO Mark Zuckerberg helped create a thousand new millionaires and a dozen new billionaires. In the six months following Facebook's IPO, the newly rich drove up real estate prices in the San Francisco Bay area by more than 15 percent as their previously illiquid stock wealth became liquid. Two and a half decades earlier, Dell's 1988 IPO created "Dellionaires" who got rich off their shareholdings and promptly moved into McMansions in the Austin area, forever changing the city.

But were these spillover effects isolated incidents — or the norm? In a recent study, Rice Business professor Alexander W. Butler set out quantify the impact of spillover effects on local economies.

Collaborating with Larry Fauver of the University of Tennessee and Ioannis Spyridopoulos of American University, Butler found that Facebook's and Dell's impacts were not one-offs: IPOs typically spark significant positive spillovers in local economies. What's more, the team determined that it is the listing decision, rather than actual capital raising, that boosts local labor markets, business environments, consumer spending and real estate.

But why? An IPO doesn't create a new company. It does, however, generate significant liquidity for the firm, for employees and for other shareholders who go forth into the community to spend their new cash. Investors' wealth also rises if a firm's stock price climbs after listing, as does a firm's wealth as it raises new capital.

To be certain that it's not just a firm's raising of capital that causes these spillovers, Butler and his team also looked at the effects of seasoned equity offering (SEO) activity, which doesn't involve a change in a company's listing status. What they found is that the effect of SEOs on local economies is insignificant. So capital raising alone is not enough.

To reach their conclusions, Butler and his colleagues selected 1,365 zip codes that had at least one IPO between 1998 and 2015. (The years 1999, 2000 and 2003 were excluded due to a lack of income data at the zip code level.) They also identified zip codes that were two miles, five miles and ten miles from a newly public company's headquarters.

Then they compared their selected zip codes to control zip codes in the same county using a matching process to compare "apples to apples." The team compared figures such as changes in home prices, the number of new mortgages, zip code business patterns, credit card spending, and income and wages for the two years following an IPO.

Analyzing these data, they found that when an IPO occurs, each $10 million in proceeds leads to an extra 0.7 new businesses in the surrounding area and 41 new local jobs. And while the price of expensive homes in the newly public company's zip code didn't increase, the prices of expensive homes in other zip codes within two miles of headquarters did rise — by $3,900 for the average expensive home valued at $590,000.

Prices were also higher in zip codes two to five miles away from headquarters, but less so. Growth of home prices, they discovered, gets a boost after the lockup period ends and shareholders can sell their stock, supporting the hypothesis that changes in investor liquidity cause that spillover. Further evidence of this came when they found that home prices climb even more when a firm's stock price jumps after the IPO.

But IPOs are not all good news for communities. Findings also showed IPO activity increases the odds that middle- to lower-income residents may have to move to lower-income zip codes. In the years following Facebook's IPO, workers in the Bay area such as police officers, teachers and firefighters were priced out of the housing market and relegated to long commutes to work.

Facebook has taken notice. The Chan Zuckerberg Initiative, a charitable foundation Zuckerberg cofounded with his wife, Priscilla Chan, has donated $3.6 million toward the city's housing crisis.

As future companies go public, leaders could be well served to recognize Butler's team's findings. Yes, when their firm gains better access to financial markets, they're really are helping lift up the local economy — just not everyone who's living in it.

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This article originally ran on Rice Business Wisdom and is based on research from Alexander W. Butler, a professor of finance at Jones Graduate School of Business at Rice University.

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New UH survey reveals concerns over AI data center growth in Houston

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A new report out of the University of Houston shows that area residents remain wary of the long-term effects of operating data centers.

The recent survey from the University of Houston’s latest SPACE City Panel, conducted by the Center for Public Policy at the Hobby School of Public Affairs, shows that while 85 percent of Houston-area residents use AI, nearly 63 percent oppose the construction of AI data centers within 1 mile of their homes.

Respondents’ concerns centered around data centers’ high energy demand and the area’s power grid reliability. According to the survey, 32 percent of residents who oppose local data center projects would be more likely to support the centers if they relied on renewable energy over fossil fuels.

“Respondents understand that AI can bring economic and educational benefits, but they are also concerned about the physical infrastructure needed to fuel AI, especially data centers,” Soran Mohtadi, post-doctoral fellow at the Hobby School and a researcher on the report, said in a news release. “This physical infrastructure demands more electricity and water, leading to environmental impacts.”

Experts estimate that 6.5 gigawatts of data center capacity will be added to the Texas grid by 2030. And Houston’s data center capacity is predicted to more than double by 2028.

The Electric Reliability Council of Texas also projects electricity demand could reach 218 gigawatts by 2031, which would be more than double the record peak set in August 2023. Data centers are expected to account for 86 gigawatts of that new demand.

Survey respondents also said they are concerned about the state's future water supply, given the large amounts of water that data centers need to stay cool.

In terms of who’s responsible for that issue, 57.6 percent of respondents said they put the onus on Texas lawmakers, while 31.5 percent say tech companies should be responsible.

Additionally, more than 75 percent of respondents believed that data center developers and technology companies—not residents—should bear the cost of infrastructure upgrades to support data centers.

“Every decision legislators make has implications on residents’ everyday lives and local infrastructure now and in the future,” Maria P. Perez Arguelles, lead researcher on the report and research assistant professor at the Hobby School, added in the news release. “This issue is going to become more important in years to come, so this is just the beginning.”

Read the full report here.

Houston-born Cemvita makes breakthrough in sustainable fuel production

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Houston-based biotech company Cemvita announced that it recently reached a critical milestone in the development of its FermOil product, which can be used to create Sustainable Aviation Fuel (SAF) and other renewable fuels at industrial scale.

The company shared in a news release that it completed a 75,000-liter industrial fermentation run at Belgium's Bio Base Europe Pilot Plant.

The campaign achieved target technical metrics for the production of FermOil, Cemvita’s renewable natural oil (RNO). FermOil is produced from industrial crude glycerin, an industrial byproduct, as opposed to traditional sugar-based feedstocks used in many bio-oil fermentation processes. It's designed to be a drop-in feedstock for creating SAFs.

Cemvita had previously advanced its FermOil production process through multiple scale-up stages before successfully reaching the 75,000-liter demonstration campaign, according to the company.

“This is not just a fermentation milestone,” Moji Karimi, CEO at Cemvita, said in the release. “It is a blueprint for how existing industrial infrastructure can evolve into circular bioeconomy infrastructure. Every biodiesel plant generating crude glycerin is a potential platform for renewable natural oil production.”

The milestone also supports the deployment of Cemvita’s industrial biomanufacturing platform, FermWorks, which integrates with existing energy and industrial infrastructure to turn waste carbon streams into SAFs and other materials. According to the release, Cemvita plans to move forward with commercial deployment discussions with partners in Brazil, Europe and in the UK. Cemvita already has a partnership with the Brazilian sustainable research institution REMA.

“We are proud to support innovative companies like Cemvita in scaling breakthrough industrial biotechnology solutions,” Hendrik Waegeman, head of business operations at Bio Base Europe Pilot Plant, added in the release. “Successfully operating at the 75,000-liter scale using a feedstock such as crude glycerin highlights both the maturity of the technology and the quality of the scale-up execution achieved by the Cemvita team.”

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This article originally appeared on our sister site, EnergyCapitalHTX.com.

Eli Lilly scoops up Houston biotech startup in $300 million deal

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Pharmaceutical giant Eli Lilly has acquired Houston biotech startup CrossBridge Bio, which develops antibody-drug conjugates for cancer, in a deal worth up to $300 million. The deal was celebrated by TMC Venture Fund and the University of Texas Health Science Center at Houston last week.

CrossBridge, founded in 2023, is developing ADCs based on research by Kyoji Tsuchikama and Zhiqiang An, both of UT Health Houston. Tsuchikama is an associate professor of medicinal chemistry and a globally recognized ADC pioneer, and An is a professor of molecular science and vice president of drug discovery.

Antibody-drug conjugates (ADCs) are a potent combination of targeted therapy and chemotherapy that kills cancer cells while saving healthy tissue.

Clinical trials for CrossBridge’s primary ADC candidate, CBB-120, are expected to start this year, pending approval from the U.S. Food and Drug Administration (FDA).

“I’m proud of how well our team has executed and advanced our platform in such a short time since the company’s founding,” Michael Torres, co-founder and CEO of CrossBridge, said in a news release. “By becoming a part of Lilly, a leader in patient-focused therapeutic development, we are well-positioned to further accelerate the clinical potential of this approach.”

Under the Lilly deal, CrossBridge shareholders were expected to receive an upfront payment along with a follow-up payment based on the achievement of certain milestones.

In 2024, CrossBridge closed a $10 million seed round. Among the investors in CrossBridge are the Texas Medical Center Venture Fund, CE-Ventures, Alexandria Venture Investments, Portal Innovations, Linden Lake Labs, and the Cancer Prevention and Research Institute of Texas (CPRIT). It was formed in TMC Innovation’s Accelerator for Cancer Therapeutics program."Built within the TMC ecosystem, CrossBridge Bio grew with the support, funding, and resources that helped shape its trajectory. TMC led the company's early financing and watched it evolve from its earliest days to its acquisition by Eli Lilly," William McKeon, president and CEO of the Texas Medical Center, shared in a LinkedIn post. "[This is a] strong reminder that breakthrough science and the right early backing can change what’s possible."