South by Social: Austin is the capital of impact entrepreneurship, too

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This time of year, people from all over the country don their best hipster duds, dust off their cowboy boots and descend on Austin, Texas, for SXSW (pro tip: just call it “South by”).

The smorgasbord of panels, films, events and concerts every spring has elevated Austin’s national reputation as a hub for technology, breakfast tacos, and great craft beer. But visitors might miss Austin’s year-round vibe as an emerging center of enterprise-driven social innovation.

Long a hub for technology innovation — starting with the founding of Dell in 1984 — Austin is now also a hub for social innovation. The city’s economic and population growth over the last two decades has given rise to a strong entrepreneurial ecosystem. The city’s progressive culture and community obsession with supporting small business (“keep Austin weird”), has a long history of creating socially-minded business — Austin did, after all, birth Whole Foods.

Many of the city’s entrepreneurs are bent on building organizations that will change the world for the better.

Austin denizens boldly envision a world-renowned capital for live music and social innovation. By bringing together human and financial capital, innovative models and a commitment to collaboration, Austin provides an approach to inclusive growth other cities can learn from.

Collaborative space

Austin’s expanding co-working options offer more than just stylish office space. The city now features two Impact Hubs and the Center for Social Innovation, recently launched by Notley, a local family office that supports social innovation in Austin.

The Center for Social Innovation, says Dan Graham, co-founder of Notley, is “a space for people inciting action around social causes to connect with nonprofits, educational systems and entrepreneurial programs while coming together to drive scalable and sustainable purpose-driven ventures.”

Notley and Capital Factory partner on Austin social coworking space

Interdisciplinary talent

Critical to achieving the city’s ambitions for inclusive growth is talent. Austin, with a population of almost 1 million, has grown by more than 2% every year since 2005, according to government data, making it one of the fastest-growing cities in the country. It is also well-known as the home of the University of Texas, which is contributing knowledge and talent to the local impact investing market and beyond.

Last year, the university launched the Social Innovation Initiative within the McCombs School of Business in response to student demand for coursework and activities on pursuing a business career with greater societal benefit.

“Our students’ passion for social impact is reflected in the fact that we have 16 undergraduate and graduate student organizations whose missions are related to social impact,” says Dr. Meeta Kothare, who is leading the effort. “This new generation of business leaders will need interdisciplinary skills as they are increasingly called upon to create positive environmental and social impact while creating economic value for their organizations. ”

Capital supply

Local investment capital is still limited, but an emerging set of funders are helping to catalyze the market. Fund managers TrueWealth Ventures and Affordable Central Texas support women-led companies and affordable housing, respectively. The city also boasts investor networks like Austin Foodshed Investors and the Southwest Angel Network, which bring together like-minded individual investors to support impact businesses in the Central Texas region with both capital and mentorship.

At Austin’s first impact investing gathering last year — hosted by the Michael & Susan Dell Foundation, a long-time impact investor — more than 60 local leaders showed up to debate financial models best positioned to tackle issues facing the city.

“The convening highlighted the key ingredients for a thriving impact investing ecosystem: significant need, intentionality and commitment from key players, and pockets of experimentation,” says Neeraj Aggarwal, who drove the initiative for the foundation. “Given the remarkable set of individuals in the room — and the initiatives they represent — I think we are on the cusp of something exciting here in Austin.”

Financial innovation

Financial innovation is key to impact investing and several organizations have made Austin a base to launch new financial approaches to social issues. For example, Social Finance opened an Austin office a few years ago to explore pay-for-success structures around issues like workforce development and homelessness. The team is working with the City of Austin, Travis County, and the healthcare community to develop a pay-for-success project to help the chronically homelessness.

Mission Capital seeks to build sustainable, scalable interventions to the most pressing local problems. A major thrust is educating and advising nonprofits on how to move beyond grant funding, connecting them with resources and expertise to develop stable operating models.

Last year, Techstars chose Austin to launch an Impact Accelerator to support for-profit entrepreneurs using technology to solve social and environmental problems. “With a world-class research institution in our backyard and an emerging community of impact investors, we benefit from a supportive environment for founders looking to build scalable solutions to tackle societal challenges,” says Techstars managing director Zoe Schlag. The program will start its first cohort in June.

Techstars doubles down on impact with new accelerator

Housing test

The sector with the most impact investing activity in Austin is affordable housing. Strong economic growth has meant the city is increasingly unaffordable to many of its residents, particularly low-income and minority populations. Given the strong link between where a person lives and the types of economic and life opportunities that are available, affordable housing has become a galvanizing area of focus for those who want to make a positive impact on the city.

Affordable Central Texas, for example, grew out of that enthusiasm by private sector and non-profit leaders. Its first fund, the Austin Housing Conservancy, provides financing to add and preserve affordable housing, without government subsidies. Impact Hub launched its first accelerator last year to identify innovative solutions for tackling the gaps in affordable housing. This included, among others, the Austin Community Data Coalition, which tracks and shares centralized impact data with affordable housing actors to ensure their activities are fully realizing their impact objectives. And, existing non-profit housing organizations such as Foundation Communities — which provides housing to more than 2,800 families in Austin — continue to grow and innovate.

Impact Hub Austin launches affordable housing accelerator

Significant gaps remain. In early 2017, the city government launched Austin’s Strategic Housing Blueprint, a plan to create and maintain affordable housing. Alongside policy interventions, the plan envisions financial intermediation as a critical tool for achieving the city’s goals.

Austin Community Foundation — which launched its impact investing initiative three years ago — is collaborating with local leaders to create long-term, sustainable affordable housing options. “The pace of Austin’s growth is tearing at the fabric of the community we love,” said Mike Nellis, the foundation’s CEO. “We see an opportunity to invest additional capital with effective organizations that share our desire to quickly close the opportunity gap in Central Texas.”

Austin calling

Scale remains Austin’s biggest challenge when it comes to realizing impact across the city.

Many of the actors and initiatives mentioned above are exploring strategies to create opportunities, catalyze new sources of capital and develop infrastructure for the city to become a thriving center of social innovation. Local leaders, eager to learn from other cities efforts, are active in national networks and gatherings to build awareness of what’s happening in Austin and identify models that could work in the city.

So whether it’s for SXSW, some live music or you just need to put a hankering for Tex-Mex to rest, y’all are welcome to come down to Austin. Hear more about what we’re up to, and talk to us about what’s working in your city. Together, we can build the solutions and pathways that will help cities provide an inclusive economy and community for all.