Houston’s energy sector is an economic powerhouse, but not one usually associated with startup culture.
“Energy is extremely global but it’s also extremely myopic,” says Kirk Coburn, founder and managing director of Surge Accelerator in Houston. “It doesn’t look outside the industry for solutions.”
Industry giants have venture arms, but Houston lacked a fully formed ecosystem that includes innovation at its most basic level—startups and the entrepreneurs who lead them. Surge was founded in 2011 to help fill in those gaps, Coburn (an Xconomist, pictured above) says: “We connect the energy world to entrepreneurs.”
One example of this is DrillMap, which has created a subscription-based Internet database that displays publicly available and private data on wells and pipelines on maps that can be viewed on smartphones, computers, and other devices, similar to the way you could plug queries into a GPS database for restaurants in your area. The Austin company was part of Surge’s inaugural class last year and has so far raised $6.25 million in venture funding from two venture capital firms and one major energy company.
“We were generating revenue before Surge, but since Surge, we’ve signed major clients, and, of course, all the fundraising has been spurred on by our experience there,” says Ross Peery, DrillMap’s CEO.
Coburn himself had founded three companies in Austin when he decided to return to his hometown of Houston two years ago. Though Austin has a reputation of being a startup haven, Houston’s entrepreneurial scene was lost in the shadows of the city’s multinational corporations and international scientific institutions, he says.
So, Coburn decided to found Surge and in 2011 recruited an initial class of 10 startups that were brought together in a rented red-brick mansion along a leafy boulevard west of downtown Houston. Each company at the for-profit accelerator receives $30,000 in funding and the usual assortment of business support and mentoring sessions. Surge can also invest up to $50,000 in optional convertible notes in each startup, something it did in half of the first year’s class. In return, the accelerator takes 6 percent of the company’s equity.
To pay for the space (see photo) and get Surge going, Coburn says he put $75,000 of his own money into the accelerator. He also invested $100,000 of the total $1 million he raised for the small venture fund that provides the seed funding for the startups at Surge. Members of the Houston Angel Network put in $800,000, while Houston-based Mercury Fund invested the remaining $100,000.
Surge companies have raised about $14 million to date. Five hundred hopeful startups applied for the dozen available places in its current class, and these entrepreneurs will make presentations before prominent venture capitalists, angel investors, and business leaders at the second annual Surge Day on May 22.
Surge is one of a handful of Texas-based accelerators, which include Capital Factory in Austin and Tech Wildcatters in Dallas, but is the only one to focus exclusively on software companies designed to innovate and promote efficiencies in the energy industry, a sector not typically known for its entrepreneurial standouts.
Coburn says Surge wasn’t an easy sell to either startups or the corporate establishment at first. Houston’s business community is more risk averse than what you typically find in entrepreneurial hotbeds, he added. “I was given a thorough background check,” Coburn says, as he laughed. “There is a big focus on reputational risk here.”
But he added that Surge’s purpose—to boost innovation in energy IT—ultimately secured buy-in from some of the sector’s major players, including Shell, Schlumberger, and Conoco Phillips. “They recognize that now is the time to look outside their walls for new technologies,” Coburn says.
One of Surge’s ongoing challenges, however, has less to do with the technical aspects of the energy industry: the perception of Texas as “flyover country,” or a place not usually associated with innovation. Entrepreneurs might be interested in coming here, Coburn says, but they are worried what others in Boston or Silicon Valley might say about them.
The bottom line, he says, is that Houston is the hub of the world’s energy industry. “If you want to solve energy problems, we are a good place to connect with the energy world,” he says.
Coburn’s thinking is already large enough to expand potential Surge franchises into the world’s other energy capitals, including Tel Aviv, Calgary, and possibly, Dubai.
