Houston Mega-Project Spotlights Local Incubator

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.

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