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Case Study

What Works: Houston Incubator Taps Into Cluster Strengths, Emerging Tech

Objective: This What Works for Cities case study looks at the 15-year old Houston Technology Center, which has managed to adapt over time to support companies in its already strong energy sector, but also tap into the information technology cluster, which was just coming of age in the 1990s.

Major Participants: City of Houston; The University of Texas at Austin; the Greater Houston Partnership; the Johnson Space Center of NASA; numerous corporations, community members and volunteers.

Background: In early 1997, the City of Houston, through its Office of Planning & Development, applied for a federal grant with the U.S. Economic Development Administration in order to fund the redevelopment of a city-owned building into a centrally-located business incubator. The University of Texas at Austin provided technical assistance and helped to form a leadership team, which included the Greater Houston Partnership and the Johnson Space Center at NASA.

During a series of community meetings held in the fall of 1997, a few things became clear: first, the incubator should function as an autonomous organization, and not be managed directly by the City or on the campus of any hospital or university. An early Board of Directors would help to plan the facilities, raise money and create a strategic business plan. Second, the incubator should be designed with the intention of diversifying Houston’s economy. Already, the City was a leader in the energy industry, but this cluster experienced peaks and valleys. Given that this was during the Dot-Com Era, community members wanted the incubator to grow the technology cluster, including nanotechnology, information technology, green energy, life sciences and aerospace. For nearly a year and a half, a team of dedicated champions worked to turn an outdated Midtown property into what is now the largest tech incubator and accelerator in Texas – the 50,000 sq. ft., state-of-the-art Houston Technology Center (HTC).

How it Works: As an established 501(c)3 nonprofit, HTC staff and partners work closely with entrepreneurs and startups to provide in-depth strategic and technical assistance to help speed the growth of companies and the commercialization of their products. HTC does so with an incubator and an accelerator.

The HTC incubator is designed for early-stage companies, engineers, professors, scientists and other “ideators” who think they have a market solution but need support to turn that idea, product or service into a business. To be eligible, the company must be headquartered in the Gulf Coast area or willing to relocate; be in one of the incubator’s cluster areas; have proprietary, disruptive technology; and be willing to assemble a management team if one does not already exist. Qualified candidates then move through an eight-month incubation phase, in which they meet with their Incubator Director at least once per week. During the first 60 days of the program, CEOs also must establish legal standing (e.g., LLC, S-Corp., etc.). The goal of the incubator program is to prepare early-stage companies for the more intensive HTC Accelerator.

Though many companies do graduate from the Incubator to the Accelerator, the Incubator is not a precursor to the HTC Accelerator. Any company interested in the Accelerator must first meet with the Director to assess business readiness. Qualified candidates refine their business plans, which often requires up to six months of executive coaching with the HTC Acceleration Director and feedback from the screening committee. Once deemed an official “HTC Client,” companies work with a pool of business advisors to establish goals, hone their business plans and refine their pitches. The Client stage can last anywhere from 1-2 years. During the next phase, “Advanced Clients” begin to execute their business plans under the advisement of various business leaders. This phase typically lasts for one year. Once companies begin generating positive cash flow, they move out of the accelerator as “HTC Graduates”. In order to be considered a Graduate, companies must have accrued six months of revenue or sustainable working capital and have major liquidity or a funding event, IPO or Merger/Acquisition or Grant on the horizon. In all, the accelerator is roughly a three-year process.

Funding for the HTC is primarily through 300+ of Houston’s leading corporations and academic institutions, as well as the Greater Houston Partnership and the City of Houston. Houston has a large, actively engaged civic community, which also generously supports the HTC. Additionally, more than 230 professional advisors and mentors provide thousands of volunteer hours to incubating companies each year.

Results for Local Economy: Since its inception, HTC has provided business assistance to well over 300 clients. At any given point, there are 50 companies participating in one HTC program or another. In 2015, HTC hopes to add another 30 companies to its existing client base.

Over the past 15 years, HTC companies have raised more than $1.6 billion in capital. HTC clients and graduates created 4,595 new jobs between 1999 and 2012, and in 2012 alone, contributed more than $687 million to Houston’s local economy. HTC also serves as the Gulf Coast Regional Center of Innovation and Commercialization (Gulf Coast RCIC) for the Texas Emerging Technology Fund, and these 41 companies have secured $50 million in funding to date.

Remaining Challenges: At this point, HTC has been able to build a strong enough brand that funding and recruitment are less of a challenge than in years past. The struggle now is finding ways to enhance HTC’s mission and scale impact. For instance, HTC clients have been able to raise sufficient revenue, but how do they grow to scale? How does HTC help its member companies commercialize locally so that they can create 10,000 new jobs, instead of just half that? How can HTC take better advantage of the Houston Port area?

Meanwhile, while HTC’s benefits to the local community have been enormous, there is more that could be done to ensure that prosperity reaches every corner of the city. HTC has intentionally avoided taking on the role of connecting inner city and/or lower income residents to the STEM jobs created by their client base. While this is important work, HTC acknowledges that there are other organizations far better equipped to train and connect workers—instead, HTC remains committed to its core mission, which is to support innovators and entrepreneurs in their targeted clusters, and to create jobs and economic development in the Greater Houston area.

Lessons Learned: It’s important to raise the capital early on in order to sustain the incubator/accelerator, especially if it is not tied to any one university or hospital (which has its own benefits and drawbacks). Before hiring even the first employee, the steering committee should help to raise enough money to bring the center through the first three years of its operations. Otherwise, the Executive Director will spend all of his or her time fundraising during those early years, when he or she should instead be building the business model and ensuring that incubating companies have what they need to become successful. At HTC, where so many companies are focused on life sciences, aerospace and other high-technology products, it can take a company at least three years to show progress—yet the ability to produce results is critical to sustain funder support.

For more information, visit the HTC website at http://houstontech.org/.

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