Three non-Houston investors discussed the strengths and weaknesses of Houston's innovation ecosystem. Getty Images

3 observations about Houston's innovation ecosystem from out-of-town venture capitalists

Zooming out

You'll go cross-eyed looking at the same puzzle for too long, and sometimes it's better to take a step back and introduce some fresh perspectives and ideas from someone not so connected to the matter at hand.

At the second annual HX Capital Summit hosted by Houston Exponential at Rice University, HX gathered three out-of-town venture capital experts to discuss Houston's innovation ecosystem with Sandy Wallis, managing director at the HX Venture Fund. The fund-of-funds focuses on connecting non-local investors to Houston in order to bring new venture opportunities to town. On the panel, the experts discussed their observations about the Bayou City, which can be summed up as follows.

Community engagement and corporate interest are good signs for Houston 

Right off the bat, the panelists agreed that its much more encouraging visiting Houston nowadays than it was in the recent past. Clint Korver, managing director at San Francisco-based Ulu Ventures, has only recently played witness to the city, thanks to his firm's work with HX and the fund of funds.

"I'm just getting to know the Houston community," Korver says. "I'm really intrigued by how much community support there is."

Korver says that, not unlike Houston startups, Bay Area companies find it a challenge getting a foot in the door at major corporations. However, he's observed that Houston-based corporates want a seat at the table of Houston innovation.

"All the corporate attention that's being integrated here is super intriguing," Korver says. "That's our startups' hardest problems."

The other panelists, who are much closer to Houston, echoed Kover's interest in the role corporations play. Venu Shamapant, founding partner at Austin-based LiveOak Venture Partners, and Thomas Ball, founder and managing director at Austin-based Next Coast Ventures, have witnessed Houston evolve into what it is today over the past decade or so.

"We've both been coming to Houston over the past 20 years and been investing in startups, and it's been a dramatically different scene even in just the past five years," Shamapant says.

Houston's ecosystem is going to take time

While the panelists remarked on the evolution the city has and the support that large corporations seem to be willing to provide, Houston has other assets that's setting it up for success. The panelists mention a solid pool for talent, impressive educational institutions, and more.

"When I look at Houston, I think it has every ingredient for success, which is why I want to spend time here," Ball says.

Sure, as Ball says, Houston has the ingredients, but what it now needs is the time to cook.

"To me, it's more of just time that it's going to take. We can't bake this Houston cake by turning the thermostat up to 900 degrees in an hour. It's going to take three hours at 300," Ball says, adding that he doesn't know very much about baking. "It will take time. This won't be an overnight success. We're here for the long haul."

Houston has some challenges yet to overcome 

Wrapping up the panel, an audience member asked about the changes Houston still needs to make to really get to the point it needs to be at.

For Korver, the answer was pretty simple. Houston needs a big exit.

"There's this incredible amount of momentum that comes along with a successful company that takes a hold of everyone — the rising tide floats all boats thing," Korver says.

For Ball, particularly comparing Houston to other major innovation-focused cities, the issue is that Houston is so spread out.

"To me the one thing I struggle with in Houston is what I would call a density problem," Ball says. "I think you need density here and you need to concentrate your resources in certain places in this city."

For large companies, it's not just about the money. There's more they can offer startups. Getty Images

Here’s how big companies are looking to invest in Houston startups

B2B

As times and technologies change, large companies need to be able to adopt innovative techniques now more than ever. For some companies, that means making a strategic hire, investing in startups, or making acquisitions.

Three panelists with experience in corporate ventures took the stage at the inaugural HX Capital Summit to discuss their best advice for startups looking for investment from large companies.

The panel consisted of Roy Johnston, partner at The League of Worthwhile Ventures; Tom Luby, head of Jlabs; Andrea Course, venture principal at Schlumberger Technical Investments; and moderator Rashad Kurbanov, CEO of Houston-based iownit capital and markets.

The topic of conversation was how corporations work with startups. For Schlumberger, Course says, it's less about acquiring companies and more about investing in technologies those startups are working on.

"When Schlumberger does invest, we like to have a pilot and invest in properties we can grow," Course says. "Our intent is not to go out and buy a startup company, but to grow the technology and then become customers."

Schlumberger has a lot to offer a budding company, namely resources, infrastructure, assets, and a global footprint, Course says.

Previous to his position at The League, Johnston was the director in the venture capital arm of Waste Management, Inc. He says he saw a similar resources-based investment strategy.

"Waste Management might have been more hesitant to write a check, but they were very generous with their assets," Johnston says.

The company could make connections for the startups and provide other support for entrepreneurs in the early stages of starting a company. However, when it came to monetary investments, Johnston says, it was a different story.

"Where I think Waste Management comes in is later on — more of an acquirer than an investor," Johnston says.

When it comes to the types of startups big companies are looking to work with, industry isn't a big issue. Johnson & Johnson, for instance, has an open mind, Luby says.

"It's not an easy fit to say a specific area where J&J fits — if you look at the profile of things we do, we have a no-strings-attached incubation hub next door," he says.

Schlumberger similarly looks outward to spark innovation inward — mostly, Course says, because it's so challenging to think outside the box when you're working everyday inside the box.

"We mostly invest in companies outside of oil and gas, but that we see the potential of bringing used in our industry," Course says.

Houston, has a surplus of diversity — both industry and population, Johnston says. This will be a huge asset of the city, he says, since Houston is on the edge of another revolution for digitization.

"The businesses that are going to be built are going to need people who have a diverse understanding of problems," Johnston says. "That's where I think Houston's diversity is an enormous benefit to us."

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

Leading venture capitalists forecast the future of funding in Houston

Follow the money

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."

Ad Placement 300x100
Ad Placement 300x600

CultureMap Emails are Awesome

World's largest student startup competition names teams for 2025 Houston event

ready, set, pitch

The Rice Alliance for Technology and Entrepreneurship has announced the 42 student-led teams worldwide that will compete in the 25th annual Rice Business Plan Competition this spring.

The highly competitive event, known as one of the world’s largest and richest intercollegiate student startup challenges, will take place April 10–12 at Houston's The Ion. Teams in this year's competition represent 34 universities from four countries, including one team from Rice.

Graduate student-led teams from colleges or universities around the world will present their plans before more than 300 angel, venture capital, and corporate investors to compete for more than $1 million in prizes. Last year, top teams were awarded $1.5 million in investment and cash prizes.

The 2025 invitees include:

  • 3rd-i, University of Miami
  • AG3 Labs, Michigan State University
  • Arcticedge Technologies, University of Waterloo
  • Ark Health, University of Chicago
  • Automatic AI, University of Mississippi and University of New Orleans
  • Bobica Bars, Rowan University
  • Carbon Salary, Washington University in St. Louis
  • Carmine Minerals, California State University, San Bernardino
  • Celal-Mex, Monterrey Institute of Technology and Higher Education
  • CELLECT Laboratories, University of Waterloo
  • ECHO Solutions, University of Houston
  • EDUrain, University of Missouri-St. Louis
  • Eutrobac, University of California, Santa Cruz
  • FarmSmart.ai, Louisiana State University
  • Fetal Therapy Technologies, Johns Hopkins University
  • GreenLIB Materials, University of Ottawa
  • Humimic Biosystems, University of Arkansas
  • HydroHaul, Harvard University
  • Intero Biosystems, University of Michigan
  • Interplay, University of Missouri-Kansas City
  • MabLab, Harvard University
  • Microvitality, Tufts University
  • Mito Robotics, Carnegie Mellon University
  • Motmot, Michigan State University
  • Mud Rat, University of Connecticut
  • Nanoborne, University of Texas at Austin
  • NerView Surgical, McMaster University
  • NeuroFore, Washington University in St. Louis
  • Novus, Stanford University
  • OAQ, University of Toronto
  • Parthian Baattery Solutions, Columbia University
  • Pattern Materials, Rice University
  • Photon Queue, University of Illinois, Urbana-Champaign
  • re.solution, RWTH Aachen University
  • Rise Media, Yale University
  • Rivulet, University of Cambridge and Dartmouth College
  • Sabana, Carnegie Mellon University
  • SearchOwl, Case Western Reserve University
  • Six Carbons, Indiana University
  • Songscription, Stanford University
  • Watermarked.ai, University of Illinois, Urbana-Champaign
  • Xatoms, University of Toronto

This year's group joins more than 868 RBPC alums that have raised more than $6.1 billion in capital with 59 successful exits, according to the Rice Alliance.

Last year, Harvard's MesaQuantum, which was developing accurate and precise chip-scale clocks, took home the biggest sum of $335,000. While not named as a finalist, the team secured the most funding across a few prizes.

Protein Pints, a high-protein, low-sugar ice cream product from Michigan State University, won first place and the $150,000 GOOSE Capital Investment Grand Prize, as well as other prizes, bringing its total to $251,000.

Tesla recalling more than 375,000 vehicles due to power steering issue

Tesla Talk

Tesla is recalling more than 375,000 vehicles due to a power steering issue.

The recall is for certain 2023 Model 3 and Model Y vehicles operating software prior to 2023.38.4, according to the National Highway Traffic Safety Administration.

The printed circuit board for the electronic power steering assist may become overstressed, causing a loss of power steering assist when the vehicle reaches a stop and then accelerates again, the agency said.

The loss of power could required more effort to control the car by drivers, particularly at low speeds, increasing the risk of a crash.

Tesla isn't aware of any crashes, injuries, or deaths related to the condition.

The electric vehicle maker headed by Elon Musk has released a free software update to address the issue.

Letters are expected to be sent to vehicle owners on March 25. Owners may contact Tesla customer service at 1-877-798-3752 or the NHTSA at 1-888-327-4236.

Houston space tech companies land $25 million from Texas commission

Out Of This World

Two Houston aerospace companies have collectively received $25 million in grants from the Texas Space Commission.

Starlab Space picked up a $15 million grant, and Intuitive Machines gained a $10 million grant, according to a Space Commission news release.

Starlab Space says the money will help it develop the Systems Integration Lab in Webster, which will feature two components — the main lab and a software verification facility. The integration lab will aid creation of Starlab’s commercial space station.

“To ensure the success of our future space missions, we are starting with state-of-the-art testing facilities that will include the closest approximation to the flight environment as possible and allow us to verify requirements and validate the design of the Starlab space station,” Starlab CEO Tim Kopra said in a news release.

Starlab’s grant comes on top of a $217.5 million award from NASA to help eventually transition activity from the soon-to-be-retired International Space Station to new commercial destinations.

Intuitive Machines is a space exploration, infrastructure and services company. Among its projects are a lunar lander designed to land on the moon and a lunar rover designed for astronauts to travel on the moon’s surface.

The grants come from the Space Commission’s Space Exploration and Aeronautics Research Fund, which recently awarded $47.7 million to Texas companies.

Other recipients were:

  • Cedar Park-based Firefly Aerospace, which received $8.2 million
  • Brownsville-based Space Exploration Technologies (SpaceX), which received $7.5 million
  • Van Horn-based Blue Origin, which received $7 million

Gwen Griffin, chair of the commission, says the grants “will support Texas companies as we grow commercial, military, and civil aerospace activity across the state.”

State lawmakers established the commission in 2023, along with the Texas Aerospace Research & Space Economy Consortium, to bolster the state’s space industry.