Investors in Innovation- Financing Texas’ Innovation Economy

Session Overview

Consistent and reliable capital is the lifeblood of commercializing and scaling innovation, be it critical infrastructure security (CIS), cybersecurity, or any other tech-driven sector. In this session, leaders of some of Texas’ leading innovation investors highlighted how they are providing the backing needed to kickstart a new wave of technology growth in the state, and opportunities that would expand innovation investment even further.

Key Session Insights

Texas has established itself as a premier destination for business investment, not by leading with incentives, but by cultivating a favorable economic environment. Mr. Aaron Demerson, President and CEO of the Texas Economic Development Corporation, claimed that the state's success stems from a combination of workforce development, economic policies, and education. The factors have helped Texas maintain its reputation as a pro-business state while fostering innovation and long-term investment.

Building on this idea, Ms. Korry Castillo, Associate Deputy Comptroller of the Texas Comptroller’s Office, provided a more detailed look at the specific factors that contribute to the state's attractiveness. Texas' tax structure, licensing policies, and workforce training programs play a significant role in bringing companies to the state. While financial incentives are available, they are only one part of a broader effort to support firms as they establish operations.

Beyond policy and infrastructure, financial commitment is another essential factor in Texas’ successful innovation hub. Dr. Gilroy Vandentop, Vice President of Intel Labs, stressed that it is not enough for a state to claim it supports business—there must also be tangible investment behind it. "Everyone can talk about a business-enabling landscape, but having money saved for investments is key," he noted. Texas' ability to allocate funds specifically for economic development creates a competitive advantage, allowing the state to support industries like technology and manufacturing.

In addition to financial backing, the broader economic landscape plays a crucial role in attracting businesses. Mr. Sebastian Garzon, Executive Director of Alamo Angels, pointed out that Texas benefits from a lower cost of living compared to high-cost innovation hubs like New York and Silicon Valley. This affordability has become even more relevant in the wake of the COVID-19 pandemic, which demonstrated that businesses can operate remotely while still accessing top-tier talent and resources. As a result, Texas has emerged as a viable alternative for startups and corporations looking to maximize their operational efficiency without the burden of exorbitant overhead costs.

While creating a pro-business environment creates the potential for private sector innovation, this potential is made more impactful when leveraged with the resources of academia and the government. Such partnerships are a key ingredient of innovation. However for investments in innovative enterprises to succeed, it is crucial that all stakeholders become involved early. Dr. Gilroy Vandentop pointed out that companies expect to be collaborators before they can become investors. A major challenge in these collaborations is the issue of intellectual property (IP) ownership, as universities and companies often struggle to reach agreements on IP rights. To resolve this, Dr. Vandentop proposed the creation of a state-wide master collaboration agreement that universities could adopt. Such an agreement would provide a standardized framework for companies and universities to engage more easily, helping to overcome the complexities of IP ownership and facilitating smoother partnerships.

Similarly, Mr. Garzon also advocated for a more active role of venture capitalists in innovation. Modern investors must be actively involved in the development of the companies they support to ensure they grow and reach their potential. Mr. Garzon explained that the role of investors goes beyond just providing capital, but also extends to mentorship, strategic guidance, and resource-sharing. Furthermore, investors should extent their collaboration not just to innovators, but to the wider venture capitalist network. Texas already has a robust network of angel investors, but Mr. Garzon noted that these networks could significantly improve their impact through greater collaboration.Co-investment opportunities, where multiple investors contribute to a single startup, are a crucial mechanism for scaling young companies and ensuring they receive the support needed to thrive. To maximize investment success, Mr. Garzon outlined three key priorities: leveraging Texas’ existing entrepreneurial ecosystem, fostering collaboration among investors to accelerate startup growth, and improving education on venture capital for all stakeholders.

Building on the importance of collaboration for innovation, Ms. Castillo discussed the role of government in supporting innovation and ensuring that public-private partnerships thrive. The Texas Legislature works to avoid policies that could inhibit investment, aiming to create an environment where businesses can flourish. She noted that early collaboration between investors and the government is crucial for adjusting policies in ways that can help sustain investment and growth. To show the active role Texas’ government is playing in the state’s innovation ecosystem, Ms. Castillo discussed two key government initiatives: Governor Abbott’s creation of the Texas Cyber Command in San Antonio, which aims to support and strengthen the state’s cybersecurity ecosystem, and the establishment of the Texas Broadband Development Office, designed to improve digital infrastructure and further enable innovation.

Although Texas has made tremendous progress in developing its digital infrastructure for innovation, it is faced with the challenge of ensuring its critical infrastructure for resource management, namely power and water, are suited to fit the growing demands of emerging technology. Ms. Castillo brought this issue to light by discussing the substantial water demands associated with data centers, which are essential for running technologies like AI. Texas has made strides in various areas of economic development and water infrastructure is a critical issue for the state’s future. As Texas looks to attract more innovation-driven investment, Ms. Castillo stressed that regions with a robust infrastructure system to support the demands of resource intensive technology will be more likely to succeed. Investors prioritize these areas when deciding where to allocate resources, making it even more important for Texas to address these challenges.

Building on Ms. Castillo’s point, Dr. Vandentop further delved into the growing energy demands driven by technological advancements. He explained that as technology progresses—especially in sectors like AI and data centers—energy consumption has increased dramatically. With both energy and water being key resources for innovation, managing these infrastructure challenges will be crucial to Texas’ ability to maintain its competitive edge in the tech sector.

Despite these aforementioned challenges, Texas stands at a pivotal moment in its economic evolution, with emerging industries like space technology and artificial intelligence poised to shape the future of the state and the country. By cultivating a strong investment ecosystem, attracting top talent, and fostering an environment where emerging industries can thrive, Texas has the potential to become a major hub for cutting-edge advancements. The challenge now is ensuring the state can adapt to these changes and seize the opportunities that lie ahead. As succinctly put by Mr. Garzon, “venture capitalists, rather than thinking about what could go wrong, like to focus on what could go right.”