Austin loses another high-growth company!
This letter is in response to the news that the acquisition of LifeSize, a conference phone technology company based here in Austin, Texas, by Logitech for $405m is now complete. For starters, I'm happy for LifeSize and their workforce. They have certainly worked hard over the years bringing their technology to market and the business to a successful exit strategy. Whether the purchase price is an accurate representation of the company's true value does not really concern me; it's what Logitech was willing to pay for it; whether the investment pans out or not remains to be seen.
What concerns me, however, is that another successful Austin technology company with a mountain of promise decides to cash it in and sell to the highest bidder, a company outside of Austin. I'm so proud of what Austin has done from the perspective of technology innovation, start-up track records and general revenue growth. What really gets my goat, though, is how so many companies are put up for sale as quickly as possible and so never deliver on the potential economic engine they can bring to Central Texas.
What do I mean by that? Too many times, successful technology companies with annual revenues in excess of $20m and upwards of $70-80m, just like LifeSize, follow a pre-ordained path of growth-growth-growth then sale-sale-sale! I understand that the financial backers need their return on invested capital, which explains the myopic focus on an ultimate exit strategy.
Where it leaves a bad taste in the mouth is how it results in an anemic contribution to the overall economy. I'm talking about companies that start and grow into mature companies with annual revenues between $75m and $500m. Companies like that serve as the backbone of a healthy economy. Because they're headquartered here, they make purchasing decisions that positively impact the local economy. They hire executives, middle managers, temp accountants, which often require the help of local recruiting firms. They purchase accounting and CRM systems to run their expanded operations, again to the benefit of local companies. They help fuel the real estate, restaurant and entertainment industries. They are much like a mid-growth forest benefiting the business ecosystem closer to the ground; more so than the old-growth forest, which blocks out light and, in the case of large companies like Dell, have a tendency to rely upon companies outside Austin to meet their needs-- running a company cafeteria, supplying inventory, and so on.
What Austin needs are growth companies that stick around long enough to grow out of their highly spending-averse habits enforced by VC budget hawks. These companies would breathe so much more life into the Central Texas economy than the usual, run-of-the-mill VC-backed tech start-up. No knock against the economic impact from those VC-run start-ups! They do stoke the economy! They do bring in some employee talent (when they're not re-hiring the same old guys from their previous ventures, that is). The problem is their pecuniary ways mean we're given a white-bread diet of investment, which while filling and tasty today is altogether unwholesome and unsubstantial for tomorrow.
What's an economy to do? The Austin city government, UT and the Chamber of Commerce can and should do more to promote longer commitments to the Austin economy from successful start-ups. Disincentives to sell or actual incentives to keep ownership, and ultimately growth, here in Central Texas should be a priority. How else can we avoid raids from large outside multinationals on growth companies that offer so much economic promise? How many times do we have to see start-ups pirated, their ultimate economic treasure shifted to large corporate offices located far away from the shores of Ladybird Lake?
We need a small Dell to come of age in the 2nd decade of 2000. The global winds of change have buffeted Dell and, while they're still going strong by most business measures, there's no guarantee that one day they themselves might not relocate in search of more favorable tax treatment or possibly die a slow death as more nimble companies find ways to eclipse it.
I think it's time Austin invested more time and resources into ways that don’t just attract but keep growth-oriented companies that will help fuel our future economic growth. It's time to do what's right for the future of Austin, not just what's right for the pocketbooks of a few well-connected individuals. Empower, reward and prosper -- those terms are not against the interests of Austin and her citizens, are they?
Dave Manzer, The Sage Closer
7 Responses to “Austin Loses More Than Just Another High-Tech Company in LifeSize Sale” Leave a reply ›
Hi Dave,
I very much agree with your comments and appreciate your honesty in assessing the current tech scene in Austin/Central Texas. I've been in the software industry for over 20 years, several of which have been in Austin.
"Flipping" tech companies at a constant rate definitely is not beneficial to long-term growth of the local economy or to maintaining healthy employment levels.
Cheers,
Julie Hunt
Julie Hunt Consulting
Hello Dave. I was very surprised to learn that there are few medium sized companies here (250 to 1500 employees), although there are some very large ones.
My theory is that Austin professionals only come in a few flavors. They are either start-up minded and desire only to work for themselves, or they want to work for the largest employers. I have not met anyone who wants to help a small company grow steadily, organically, over a 5 to 10 year period.
Looking at the civic structures in place to incent and assist companies, I see the same two types. The huge companies gain tax and investment help from the city, and there are incubators and shared resource centers to help start-ups.
What do you think small companies need to grow to a next level, and how can the city help? Perhaps the city of San Jose is an example. This community is fueled by software companies (and thus 'silicon valley' is a misnomer) large and small.
I'm no fan of growth for growth's sake. I think Ausitn can be smart about fostering more growth. A recruiting campaign would be a good place to start, with a focus on high potential companies that can benefit from what Austin has to offer: highly educated workers, growth-minded businesses, great quality of life, etc.
We can also encourage our current crop of high-tech companies to keep their purchases and hiring local as much as possible. Perhaps incentives could be offered as well; even though I'm not a huge fan of incentives, targeted investments can and do pay-off in the long run if done for the right reasons. Sitting idly by while growth companies, and the jobs and economic benefits they represent, are sucked out of Central Texas is certainly NOT the right thing to do!
Lombardi Software just sold to IBM. Lombardi is venture funded and sell Business Process Management Software. Fortunately, IBM has a sizable presence here.
http://austin.bizjournals.com/...-12-16&ana=e_du_pub
The recession is providing ample shopping opportunities for large companies looking for technology bargains.
Dave, you make a valid point that Austin would benefit from its start-up fledglings staying to roost, rather than being taken to slaughter for short-term gain of their owners. But throughout your article, I get the impression that you think they should stay the course for the greater good. This seems to be your thesis as expressed in the last line, "Empower, reward and prosper -- those terms are not against the interests of Austin and her citizens, are they?"
The owners of start-ups that seek to cash out are doing so for their own good, not to spite the community. And when presented with the choice of locking in a return now, versus building a long-term business, why shouldn't they choose the sure thing over the fate of Dell, as you yourself allude to.
If you really want to contribute to the analysis of why this happens in Austin more than other places, perhaps you could identify the factors about here that contribute to this decision. Is it the economic environment that tax incentives and other governmental action would benefit? What do they do differently in Dallas, San Francisco and Seattle?
My experience from working in these environments is that its is a mental attitude borne of the millennial dot-com crash, sort of an economic 9/11. The reaction by local rainmakers to that sudden deflation of the "irrational exuberance" in tech investment was a new formula: Create what you want to work on or use, build it just enough to become viable, and then sell it off and move on. Like those late-night get-rich-quick schemes that advocated buying real estate with dozens of credit cards, this is essentially a Ponzi scheme where the top of the pyramid gets the booty and everyone else is left with holding the bag. Remember Liberty Lunch and the Intel Shell?
You recommend the City and UT consider instituting "Disincentives to sell or actual incentives to keep ownership [...] here". While disincentives to sell might equally discourage initial investment, I would be interested to hear how you would encourage the long-term business objective over the short-term jackpot mentality.
Codex,
You point out the huge challenge of combining the pursuit personal gain with that of doing something that benefits a community at large are well taken. The pursuit of personal gain is without a doubt the most primal of the two, and therefore has a tendency to dominate the psyche of the average business person and citizen. But there are examples of how a joint venture between government/non-profit and business can and do succeed at creating wealth while achieving a higher purpose. One only need to look back at Sematech, a non-profit consortioum involving many high-tech companies and the US government, established in Austin back around 1987. It was designed to restablish America's edge in the semiconductor industry and to counter Japan's emerging dominance in that field. It worked so well that it's possible to argue, were it not for Sematech, the the support infrastructure we now have in place for high tech companies of all stripes in Austin would not have been possible without it.
There has to be enough political and social will to do something about the current high tech snatch-and-grab problem, though. There has to be some kind of measurable gain to be had, an ROI, if you will, before the public and private sector will get behind such an initiative. The good news is that we don't have to start from scratch. We have Sematech as a shining example of how private and public interests can dovetail to accomplish results that benefit both the pocket-books and the future well-being of the community at large. We have all the pieces neccessary to execute a high tech growth strategy: a great university system, high tech companies a-plenty, a well-educated workforce, a community of risk-takers, VC companies, a growing population, etc. We simply have to be willing to take risks, put in the work and wait for the results to slowly spring forth.
The real issue for Austin, and I have some experience raising a bunch of VC from out of town in the early-mid '00s, is one of location. Austin is increasingly becoming irrelevant to the tech economy and any serious money won't invest (or not much at least) when there are no direct flights in for board meetings, they burn a couple days just on travel to get face-to-face, and they all want AV in the deal when AV is one of the worst non-enablers of start-ups in central TX. It would be nice to go back to the days when Austin was the 'Silicon Hills' but its hard to keep those kind of labels when even Sematch relocated to NY. I know a lot of tech people who have left Austin, I'm afraid we might not have reached critical mass 10 years ago and its a painful slide...