Statistics can often provide valuable insights into all sorts of emerging trends, but they can sometimes also be misleading, especially when they are measuring a constantly moving target like startup funding.
A recent report published by Rice University’s Baker Institute for Public Policy (via Dallas Business Journal) says that venture capital in Texas is on the decline and that the state has already dropped to fourth in the nation and may fall to as low as sixth by the end of the year.
“In Texas, entrepreneurship should be strengthening the economic power and stability of the state,” the authors of the report, Edward Egan and Rachel Garber, wrote in a brief. “An examination of Texas’ venture capital industry strongly suggests that this isn’t the case.”
One of the biggest issues with this report is the fact that the authors repeatedly conflate entrepreneurial success with venture capital funding, and while the two can often go hand-in-hand, they are hardly synonymous, and looking at rates of venture capital in a vacuum paints an incomplete picture of the startup scene in Texas.
For example, the report fails to take into account how many startups are able to self-fund, either through personal investment or by establishing early revenue streams, and it neglects to mention the number of startups that are able to form valuable partnerships with local businesses.
The report’s authors also make long-term predictions based on short-term trends, saying, “If current trends hold over the next decade, Austin’s entrepreneurship ecosystem will prosper, San Antonio’s may find traction, and both Dallas’ and Houston’s will fail.”
The authors did admit, however, that decline of venture capital in Texas, specifically in Dallas and Houston, can easily reverse itself.
“Both Houston and Dallas have the human and financial capital needed to build a great ecosystem,” the authors wrote. “Texas urgently needs to find a catalyst for change if it is to remain at least a top 10 venture capital state.”
Of course, that sort of catalyst for change is exactly the sort of thing that an analysis of funding trends could never predict.
Blog post by: Eric David