Houston Mega-Project Spotlights Local Incubator

Houston is among the largest urban areas in America

Rice University affirmed plans for its Midtown Houston property last month. The parcel—historically leased to a Sears store—will be converted into a so-called “innovation hub,” anchoring a technology district. While the future is bright for regional entrepreneurs, the masterplan for this corner of the city now looks more like an elaborate real-estate development than the core of a major startup ecosystem.

Part of the broader political impetus behind the university announcement is the fact that Houston lost its short-list standing in Amazon’s search for a new headquarters to Dallas and Austin. The decision by the Seattle-based giant was a blow to municipal leaders who have long sought to diversify the economy. Houston centers on the oil and gas industry, although it is a heavyweight in some technology-driven niches such as medical science.

The economic landscape of one of the nation’s largest urban areas is not likely to make a Herculean shift favoring the technology industry. A regenerative startup ecosystem will take a decade—or longer—to coalesce, even with the largess of Rice University at hand. The project committee no doubt gazes aspirationally at the vibrant Kendall Square area that abuts the Massachusetts Institute of Technology.

The announcement draws attention to Station Houston. The local business incubator is an obvious winner from the economic-development effort. In its project announcement, Rice University emphasized that Station Houston will run the public programming efforts at the innovation hub, offering a fresh, if not well-funded, platform for the business incubator’s array of startup-centered activities.

Station Houston stirred some controversy in the local venture community when it converted to a non-profit. The shift from its original role as a for-profit may appear subtle, but the distinction between the two institutional models can lead to very different outcomes for startup founders and venture capitalists:

For Profit. The incubator barters management skills for equity stakes, helping nascent companies to succeed in the commercial marketplace. The concept implies that these entities excel at identifying the best startups to back at any given point in the economic cycle.

Non-Profit. The incubator relies heavily on institutional grants and corporate donations to fund entrepreneur-centered programs. That approach suggests, at least academically, that the organization runs the risk of losing its “edge” in the deal marketplace. Such criticism, in our view, seems arbitrary.

Most of the top incubators across the country—typically defined by the amount of external capital they raise for their in-house constituents—are structured along the lines of a for-profit model. Two notable exceptions, as cited by Station Houston, are Chicago-based 1871 and Boston-based MassChallenge.

One differentiating feature of Station Houston’s work is that it is centered on energy, transportation, and industrial startups. Gabriella Rowe, who became CEO in August 2018, commented in a corporate blog post: “I think we are only scratching the surface relative to the resources, education, and collaborations we can bring to make Houston a groundbreaking city for long-term innovation and entrepreneurship.” The statement is corporate-speak, but it suggests that entrepreneurs should keep a watchful eye on trending developments here.

Startup founders looking for a supportive commercial environment should be aware of the distinction between the two incubator models. We hesitate to pass judgement favoring one over the other. Success in these sort of collaborative programs depends on many variables, including specific incubator expertise, ability to access affinity-driven mentors, and local industry involvement.

Our Vantage Point: Houston offers some points of light in technology world, but its overall reputation as a startup ecosystem lags other cities, curiously so. The move to develop a major innovation hub, with a switched-on business incubator at its core, will change both perception and reality over time.

Learn more at the Houston Chronicle.

© 2019 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image shows Houston skyline. Credit: Sean Pavone Photo at Can Stock Photo Inc.

Startup Scene in Vietnam Turns Chaotic

Vietnamese cities are cluttered with motorcycles

The entire country of Vietnam is fast-transforming itself into the Silicon Valley of Southeast Asia. One reason is rapid economic growth; another is the youthful population. Those fundamentals are coalescing into venture anarchy as the volume of startups overwhelms the ability of the domestic ecosystem to support them. Constrained access to global capital may be a result of the poor quality of many startups, at least on a comparative basis, rather than lack of awareness by international investors.

Economy. Since 2014, Vietnam has been registering annual GDP growth at 6.0% or better, making it one of the best stories worldwide. The IMF expects that rate to continue through 2020. One key factor has been the government’s ability to attract foreign direct investment, especially in manufacturing.

Demographics. The population of Vietnam is close to 95 million, ranking it slightly smaller than the Philippines. The key metric is age structure: about 40% of the population is under 25 years old. The average age is near 30, some 10-to-15 years lower than in most developed nations.

That dynamism is leading to a surge in startup activity, at least in the headlines. Some prominent firms here have been built by the Vietnamese diaspora. Yet, many startups are founded by university graduates who cannot get jobs in established corporations. By one estimate, Vietnam is currently generating about 100,000 engineering graduates yearly, consistent with the figure for France and about 40% the number in the United States. Most of these aspiring executives lack the experience to run a successful company.

The government is actively supporting policies to turn Vietnam into a “Startup Nation” by 2020. The target is to have as many as one million firms registered as startups over the years ahead, supported by tax incentives and public-sector incubators. That buzz is infectious. But we are not sure that an economy now about the size of Pennsylvania needs that many tiny firms fighting over defined market share.

Vending sandwiches on the streets is not a startup. But selling sandwiches via smartphone apps is a startup.

Do Duc Kha
Deputy Head, Vietnam Institute for Entrepreneur Training and Development

On an up note, two major events in 2017 affirmed that select Vietnamese startups can compete for global capital. These developments injected even more life into the Vietnamese technology sector:

Public Listing. VNG announced its intention to list its equity on NASDAQ, although it may take a year or two before we actually see the IPO. The Ho Chi Minh City-based unicorn is active in gaming, social media, and mobile services.

Acquisition. Singapore-headquartered Sea bought an 82% interest in Foody. The Vietnamese firm runs a meal-booking and food-delivery service. The estimated value of the transaction was about $64 million. Sea is a NYSE-listed company.

Among investors, the case for Vietnamese startups may resonate best with those who have an affinity interest in the market. Key opportunities tend to be locally-adapted approaches to business models known elsewhere. Chinese billionaire Jack Ma highlighted the potential here with Alibaba’s investment in regional e-commerce firm Lazada and local payment processor Napas. Yet investors looking for fresh developments in artificial intelligence and blockchain may want to look beyond Vietnam.

Our Vantage Point: Startups can play an important role in driving economic development. But they are only one component of a broader growth strategy. In Vietnam, the mix is increasingly out-of-balance.

Learn more at VietNamNet Bridge.

© 2018 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Triip.me is a travel-related site started in Vietnam. Credit: Kyolshin at Can Stock Photo Inc.

Let’s Do Crypto. Or Blockchain. Or Both.

Kodak joins the fintech revolution

Kodak declared this week that it was getting into the cryptocurrency and blockchain business. The announcement was thin on details and big on splash, suggesting that the investor relations staff was far ahead of the corporate strategy team. The move is a daring one for the Rochester, New York-based company. Its total miss of the digital-photography revolution was probably one of the great corporate blunders of all time. Apparently, its current management is dead set on reversing that legacy.

Investors gorged themselves on the move. Kodak stock closed at $10.70 after the announcement, representing a more than 300% gain over its previous value. The frenzy suggests that some investors have gone off the rails. Implementation of a blockchain-based photographer rights platform is unproven; the company is merely licensing its name to another firm to develop it. And the use of soon-to-be minted KodakCoin to pay for those usage rights seems to be a stretch, when traditional payment mechanisms or broadly-accepted cryptocurrencies would suffice.

The parody-like development appears to be an act of desperation for the faltered company. Jeff Clarke, Kodak’s chief executive officer, was a c-suite executive with Compaq at the peak of the dot-com bubble in 2000. His high-risk fintech strategy is informed by those dizzying years in which investors shoveled money at internet-related firms. What he may not recall is that those companies that survived the dot-com crash were largely those that eschewed hype and micro-managed their profit margins.

Our Vantage Point: Issuers and investors seem to be drinking the same potion, as they maneuver to exploit the crypto-craze. A likely meltdown in the market will set back fintech innovation by many years.

Learn more at The Verge.

© 2018 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Fast-evolving cryptocurrencies are a controversial asset class. Credit: Violka08 at Can Stock Photo Inc.