For decades, incumbents in industries such as energy, health care, and finance have enjoyed the luxury of regulatory protection. This has provided a moat against competition and minimized the need for innovation, leaving behind inefficient businesses and frustrated consumers. However, rapidly changing customer expectations have put pressure on these industries and opened a major opportunity for those prepared to build impactful, durable businesses.
Unsurprisingly, the concentration of talent in some of these industries is higher outside of Silicon Valley, in cities where those sectors play an outsized role in the local economy. This density enables several of the qualities — such as network effects and proximity to potential customers — that make Silicon Valley a hub of innovation. The metros listed below have a high number of industry experts and the technical talent to implement solutions that will trigger a massive wave of disruption in regulated industries.
Energy: Houston
Houston is the energy capital of North America, so it should surprise no one that the city has a chance to play a significant role in shaping the future of the energy sector. Texas accounts for 31 percent (335,000) of the nation’s oil and gas-related jobs, thanks in large part to the international energy behemoths — such as Exxon, Shell, Schlumberger, BP, and Engie — that call Houston home.
The industry is full of seasoned employees who have spent most, if not all, of their careers in the energy space accumulating impressive field-specific experience. This dense, highly specialized network creates unique advantages for energy-focused startups — such as a labor-force with knowledge of a complex industry, hundreds of potential customers within close geographical proximity, and low-friction business development opportunities.
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Traditional fuel sources aren’t the only major area for jobs, as cleantech-focused jobs number close to 50,000 and Texas ranks first and ninth in wind and solar generation, respectively. This diversity in energy sources has made Texas’ grid among the most complex and advanced in the U.S. It also has the fourth-highest penetration of smart meters (80 percent), which means startups can easily access the energy usage data for approximately 7.5 million households.
Additionally, utility regulators in Texas are forward-thinking compared to the rest of the country, and end-users are acutely aware of their energy usage due to volatile weather and comparatively large home sizes. When combined, these factors make Houston the perfect testing ground for consumer and utility products such as demand-response, utility-scale IIoT (industrial internet of things), and grid security.
Sectors to watch: digital oil field, cleantech, DER software, utility-focused IIoT
Finance: Atlanta
Atlanta affectionately calls itself “Transaction Alley,” and with good reason. Several of the world’s largest payment processors are headquartered or have major offices in the city, including First Data, Fiserv, Global Payments, and World Pay. Additionally, Charlotte, currently the third-largest banking city in the U.S., is only a one-hour flight away.
Local heavyweights provide Atlanta startups with the industry talent and partnerships needed to fuel growth. One particular example is the Advanced Technology Development Center at Georgia Tech, which includes a fintech-specific incubator funded in part by a $1 million donation from World Pay in 2015.
In addition to large financial companies, Atlanta is home to corporations like UPS, Home Depot, Delta Airlines, and Coca-Cola, which give growing startups potential anchor customers. These firms don’t just represent large revenue opportunities, all of them have provided local incubators and coworking spaces with sponsorships and donations to support the local ecosystem.
Atlanta is already becoming known as a fintech leader, thanks to the notable successes of local startups Kabbage, Cardlytics, and BitPay. These companies have the visibility to cement Atlanta’s status as a fintech hub for decades to come, while incubating talent that could start the next wave of great companies in the space.
Sectors to watch: payment processing/disintermediation, cryptocurrency, authorization, automation
Health care: Nashville
Nashville is much more than the country music capital of the world. It’s also a major center of health care, which contributes more than $40 billion annually to the local economy and supplies residents with over 250,000 jobs.
The impressive numbers don’t end there. Eighteen publicly traded health care firms, 4,000 small businesses related to health care, and Vanderbilt University (ranked 14th among medical research universities, according to US News) reside in the metro. The result is an unmatched opportunity for clinical trials via hospital systems like HCA and Vanderbilt, as well as a large customer base for software solutions for small and large practices.
Perhaps more than any other sector, health care requires deep industry knowledge. Key areas include, but are not limited to, the regulatory pathway, intellectual property rights, and role of insurance in the overall revenue of hospitals and small practices. Nashville’s diverse but concentrated talent base provides founders with an abundance of resources to solve these problems as they work to get their startup off the ground.
Sectors to watch: patient compliance, remote patient monitoring, and hospital system operations
Kevin Stevens is a partner at Intelis Capital, a new early-stage VC firm based in Dallas, TX. This post first appeared on his personal blog.
