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Settled in the 1830s along the banks of the Colorado River and named for the Father of Texas Stephen F. Austin, the city of Austin is known for its thriving music scene and as the home of the University of Texas (UT) Longhorns. But in the past few decades, the Texas capital has built up a reputation of a different sort.

With companies headquartered in Austin like Dell and Freescale Semiconductor, a spin-off of Motorola, the city has become a hotbed of information technology hardware and software. In the mid 1990s, Austin was put on the map by software companies like Motive, Vignette and Tivoli, the latter of which was quickly scooped up by IBM in 1996.

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But something these companies have in common other than their birthplace is that they were all funded by Austin Ventures, the earliest player in the venture capital industry in the city.

“Austin Ventures was pretty much the only significant game in town when it came to funding, and they knew IT software best,” says Jonas Lamis of Tech Ranch Austin, an incubator for early-stage startups.

With help from Austin Ventures, dozens of technology companies have grown out of Austin – several of which have been acquired by top IT companies like IBM, Alcatel-Lucent, Hewlett Packard, and Sun Microsystems, to name a few. With just under $4 billion in assets, Austin Ventures has become the largest non-coastal venture capital firm in the United States.

Lamis says that while a less “sexy” vertical like IT still pays the bills, its proliferation in the Austin area has been both positive and negative.

“The good news is there’s a vibrant market for it,” Lamis told ReadWriteWeb. “The bad news is that consumer internet startups were missing from Austin and even today there’s very few of them.”

But there are exceptions to every rule. Smaller startups like Gowalla (Alamofire), Socialware, Piryx and OtherInbox, as well as larger ones like Bazaarvoice, Spiceworks and SolarWinds have all found a home in Austin. And of course one would be remiss to forget the Austin community’s pride and joy, the interactive portion of South By Southwest (SXSW). A yearly showcase of some of the hottest startups and emerging technologies, SXSW has served as a launch pad for now ubiquitous startups like Twitter and Foursquare.

Another industry thriving in the Austin startup scene is biosciences and environmental businesses, spurred by the Austin Technology Incubator at the University of Texas. In addition to IT and wireless, ATI hosts divisions devoted to helping launch startups in the clean-tech and bioscience industries. Executive Director of the Austin Wireless Alliance and ATI Director Bart Bohn says the last few years have seen a large uptake in traction for clean energy startups.

“One event that signaled the transformation was the first Clean Energy Venture Summit in May of 2007 in Austin,” Bohn told ReadWriteWeb. “Thirty to forty investors came to listen to 15 or so startups, and 400 people attended. It was standing-room-only in biggest ballroom we could find.”

Along with other groups such as CleanTX and the Solar Energies Entrepreneurs Network, Austin has quickly become known for clean energy innovation. Another organization, the Pecan Street Project, a coalition of various organizations and Fortune 100 companies, plans to redevelop an old municipal airport just a few miles from the UT campus into a community hooked into a smart electrical grid.

This blending of unique industries in Austin is just a small part of what makes the city unique from other entrepreneurial communities like Silicon Valley. Mike Maples of Maples Investments knows the dichotomy that is the relationship between the Valley and Austin because his Silicon Valley-based agency invests roughly 20-25% of its money in Austin-based startups.

“Silicon Valley is an acceleration machine for sure, but the downside is there can be a flight of talent to the winning ideas,” Maples told ReadWriteWeb. “Austin is a better place to have a stable base of people working at a company.”

While Maples recognizes that Silicon Valley is a mecca for startups, he also says that arguing one over the other is like comparing apples to oranges – each has its pros and cons.

“The other issue is that sometimes Silicon Valley is like 9-year-olds playing soccer, they just all chase after the ball,” says Maples. “Austin benefits from that. You get the occasional idea that no one in Silicon Valley cares about, but its a great idea.”

Helping the Austin startup community take advantage of these opportunities are the numerous organizations and events in the city. Tech Ranch Austin, Capital Factory, Bootstrap Austin, Conjunctured, and the Austin Technology Incubator are just a few of the organizations working with Austin startups. Some of the more popular events in Austin include of course SXSW, Mobile Monday Austin, TeXchange, Austin Tech Happy Hour, and Ignite Austin.

Maples envisions only more growth from the Austin community in the future and encourages them to not mimic Silicon Valley. Instead he suggests they jump ahead of the curve to the next big thing, which he says could be the consumerization of their already massive IT businesses.

“For Austin, the opportunity is to merge software and services,” Maples says, encouraging the city to focus on what it knows best. “Always try to be your best self.”

Photos by Flickr users roland and Kumar Appaiah.

Special thanks to C. Enrique Ortiz, Jonas Lamis, Bart Bohn and Mike Maples for their help in gathering information for this article.

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