The 40-Year Overnight Success: Why Jason Scharf Says Austin Is Still Early

This week's Founder Friday is about Jason Scharf, a podcaster and investor who came here to figure out why Austin works, and ended up with a thesis the rest of the country is starting to borrow.

Austin Next is a podcast about the nature of innovation, with Austin as both the lab and the lens. Jason started it in 2021 as a hack to meet people after moving from San Diego, and 100+ episodes later, the Wall Street Journal is calling him for quotes on the Austin boom. His operating thesis: Austin is the convergence of atoms, bits, and intelligence, and the next decade belongs to founders building in the physical world.

What founders can steal from this:

• Building in categories where Austin's atoms-bits-intelligence convergence is a structural advantage
• Dropping the "Silicon X" framing and owning your city's distinctive identity
• Using AI as the tiger team you used to have to hire eight people for

Here's what Jason shared...

What is the Austin Next Podcast, and who is it for?

The origin was purely for me. It was a hack to meet interesting people and build social capital when I moved here. I came down from San Diego at the end of 2020. At that time, New York and the Bay were the main hubs, I didn't know anybody, and we were still in that COVID-y stretch in 2021 where people weren't sure if they were going out or not. So I figured, let me start a podcast. For the first 100 episodes or so, it was actually co-hosted with my father. The whole idea was, "Hey, can I meet you, talk to you?" That's how I started meeting people.

The other piece I wanted to change was the classic regional innovation podcast format, which is essentially, "Hey, that company you've never heard of? According to the venture power law, you'll never hear of it again. Would you like to hear an interview where all they can do is pitch their company?" There are plenty of people who do that well, and the market already seemed saturated. Instead, the initial question for me was, "Austin is clearly turning into the next superstar ecosystem. Why is that? What's behind it? What comes next?"

By episode 100, I had taken it over solo. It's interesting that I'm now approaching the point where I've done more episodes by myself than with my father. The show is really about the nature of innovation, whether at the micro individual level or all the way up to ecosystems, with Austin as the lab and the lens. You have people outside who don't understand ecosystems, and people inside who are trying to understand the flywheel. I have my own theories I'm trying to suss out through these conversations.

Part of it is, if I have a great conversation and nobody listens, it's still valuable to me because I get to play with these theories. I think there is a grand unified theory of ecosystems. And here's something shocking: innovation and tech ecosystems existed before Silicon Valley. So what can we learn from Silicon Valley, from industrial Manchester, from 1920s Paris, from Imperial Rome to Renaissance Florence? There are first principles and common lessons, and there are also unique elements.

I hate, with a passion, Silicon Hills, Silicon Slopes, Silicon Beach, because you're always going to be second. Be the first Austin. The first Salt Lake City. The first Miami, whatever it ends up being. It's a long-winded way of saying it's an exploration that people have started to find interesting.

What have you learned from studying Austin since 2020, and how has the city changed?

The first thing is, it's a 40-year overnight success. It didn't start in 2020. Go back to MCC bringing semiconductors here, to Dell and Trilogy and Tivoli and IBM. There was a core piece being built out in the 90s. Then you had HomeAway and others. That had been the case for a long time. What changed in 2020 was that the heavyweight class moved to Austin.

What I mean is people who individually can change the nature and scope of a city. Elon moves here, and within two or three years Tesla is a top three employer. Joe Lonsdale moves here and creates the University of Austin and the Cicero Institute, and 8VC becomes a very big power.

Joe Rogan: we already had a comedy scene in Austin, but I was doing an AI search the other day and asked, "What are the top five comedy scenes in the country?" It put Austin third, which was shocking. The fact that we were ahead of one of LA, New York, or Chicago blew my mind, because it happened in hyperdrive. We've become the podcast center of the universe. That acceleration is what happened in 2020. It just went vertical.

With companies like Amazon and NVIDIA expanding nearby, is this a continuation of what started in 2020, or something separate?

A perfect example: this morning there was news that Blue Origin might be coming to Williamson County. That gets back to the first principles of why Tesla, Firefly, and SpaceX came here. It's the nature of something different being built here. If you want to build manufacturing and physical products, you can't do that in California anymore. You have to go to a place with the land, the regulatory ease, and the ability and talent to build physical things.

Back to MCC: of all the places that say Silicon XYZ besides Silicon Valley, Austin is one of the few where it actually meant silicon. We have chips here. The Samsung plant up in Taylor was happening as I was moving here. One framework I use for Austin is that it's the convergence of atoms, bits, and intelligence. If you're building purely in the digital space, foundational AI models, go to SF. That makes the most sense. But if you're thinking about embodied AI, robots, satellites, autonomous cars, things you actually have to physically build, then Austin makes perfect sense.

How is this shift affecting Austin's startups and smaller business communities?

These are the startups. Think about Saronic, which I believe is now the highest valued company in Austin's startup space. They came about in 2022. Apptronik is another one. Function. NinjaOne. The startups are what's driving this.

That becomes the big flip when I have discussions about economic development. People say, "We need to pull in XYZ company and get them to move here." It's wonderful when they move. But the only time it has truly transformative effects is something like Tesla, where you can go from 0 to 20,000 people. Versus a headquarters relocation that brings 100 people.

The homegrown companies, which is what Dell was, create the real change. What's happening now is that Austin used to be a lot more about smaller exits. You'd build to a Series B or C and exit. Now you have the Silicon Valley moonshot mindset. I'm going to build a generational company. Base Power, Saronic, Apptronik. Aalo, building small modular nuclear reactors. All these companies are vastly changing what is possible. Recently, I heard someone say, in all earnestness, "This is our path to a trillion dollar outcome." That phrase wasn't said in Austin before 2020. I'm not sure it was said anywhere before 2020. Now, there are plausible companies that can do that here.

Beyond legislation and physical space, what cultural and talent factors make Austin a feasible launchpad?

Let me split the culture from the access to people. On the talent, capital, and infrastructure side, the challenge is that Austin continues to punch above its weight. The weight has to catch up now. We need more people, more capital, more actual physical infrastructure. We need more of all of it. We're doing amazing, and now the weight has to catch up. The gravity is increasing. You're seeing the schooling side improve. It will be a solved problem, but if you're looking for AI engineering talent today, it's tough.

Culturally, I think we're there. We're a little more cowboy, a little more counter-culture. I'm going to go be bigger here. What counter-culture means changes over time, which is part of the tension in Austin. People say, "I was the rebel." And I say, "Well, now you're not. You're the establishment."

I saw an article from the Statesman from the 80s that said, "Traffic sucks and everyone's moving here." You can go back further. There's a publication that pulled articles from the 1890s with essentially the same version of this complaint. It was perfect yesterday, before all you guys got here. I think this is the right frame: the best day in Austin is tomorrow.

Some founders say they have to move to California to raise capital. Is that true, and will it change?

I'm going to put it in the middle. I publish an annual Austin bio and health report, and there are something like 50 or 60 VC firms in Austin that invest in that space. However, once you narrow it down to your particular company and stage, you're at maybe 10 or 15. Versus the Bay, where after narrowing down you're still at 50 or 60. On one hand, there is less. Our sweet spot tends to be Series A. That's where most of the firms are sitting. There's a bit of a gap at C. Late stage is much more of a national game anyway.

We'll start to see more late stage coming here, and it is happening. People are thinking, "If I'm here, I can get access first," versus going on a national road show. We need more capital. But I want to push back on something. Whenever somebody says there's no money here, my response is: there's no money for you. Anybody I know who has raised will tell you it's hard in general. I don't care if you're in SF or wherever. Yes, they tend to move faster there. There's also a difference between the legacy Austin VCs and the new Silicon Valley folks who moved here.

The idea that you have to move to SF depends on what you're building. If you're building hard tech, why would you leave? If you're building defense or aerospace, you stay. There's a lot of hard tech and robotics. But if you're building a pure digital play, there is a strong case for SF. There are first principles to an ecosystem that act as a tailwind, not just agglomeration effects. If you're doing foundational model work, go there. But if you're doing it differently than they are, then it changes. One of our unicorns here is WebAI. They're building foundation models that work very differently from the big OpenAI and Anthropic models, and them being here makes more sense.

What advantages does Austin have over the next 10 years that other places don't?

Sectorally, I think we already covered the big ones, and they build off what was previously here. I also think this is probably the number one ecosystem for families. House prices have gone up since 2018 or 2019, but especially with all the secondaries happening at OpenAI and Anthropic, and the fact that they don't build new housing in SF, you can't really build a life there. It's $5 million for a hole in the wall.

You can actually build a life here. I've had many schooling conversations on the podcast. The educational innovation happening here means it's the best time to be a kid. All of those factors are extremely positive. Then there's the permissiveness of being in Texas: I can go build.

The last piece is the Texas triangle mega-region. There are only two states in the country that have a true mega-region: California and Texas. Everywhere else, the New York ecosystem is New York City. The Massachusetts ecosystem is Boston. When I got here, I raised my hand and said, "I'm in Austin," and I met people in Houston, San Antonio, and Dallas without even trying. There's this great connectivity. But there's also coopetition. Nobody in Houston has ever said, "I just want to be just like Dallas." You'd get punched in the face for that. You want to be the best, but we're all kind of in Texas together.

Having grown up in Southern California, until very recently with SF and Gundo there was no interconnectivity between LA, San Diego, and the Bay. You might know people in those places, but there wasn't a real connection point. On top of that, San Diego, which I love, had an inferiority complex. They wanted to be just like other places rather than understanding their own first principles. In the teens, people were saying, "Where's our social media company?" And I'd say, "What in San Diego says we have any ability to build a social media company?" Versus med tech, bio, defense, cybersecurity, chips, all of that made perfect sense there. You need to embrace what you are. Don't be the next Silicon Valley. Be the first Austin, the first San Diego, the first Salt Lake City.

What makes Austin's culture of openness and support unique?

I call it one of our superpowers: a culture of helping and open networks. Think about ecosystems as onions. As you go down a layer, you find wealth, power, and so on. When I was in San Diego, the center of the onion was Irwin Jacobs, the founder of Qualcomm. Besides the dean of my business school, and I was there for 15 years across two stints, I didn't know anybody who knew him. I had never met him. In theory, he went to the same synagogue as I did, but I never met him there. As soon as I started investing, I went down a layer and met all these people. It was like, "Where have you all been?"

Austin has been just the opposite. Within five and a half years, I've either met everybody, been in the room with everybody, or am one degree away. That openness permeates everything, including the people who moved here. It's a major superpower.

There is a shadow side to it I didn't realize until recently, which is that I think we have a lot more wantrepreneurs than other places. I'm not using the word fraud. It's a lack of understanding of what true building looks like. The issue with the helping side is twofold. First, there are fewer people who will say, "That sucks. That's a bad idea, and here's why." Nobody is as sharp elbowed about that, so people run along with bad ideas. Second is pure density. If you're in SF, you either are at one of these rocket ship companies or you know somebody who is, because there are so many of them. We have them now, but not the density where everybody knows somebody at one of these 25 companies. Once that happens, you start to see, "Oh, that's what working at one of those looks like in practice."

What needs to change for that deeper understanding of real building to permeate the ecosystem?

It's just density. More of them. More size. The agglomeration effect has to reach the point where you can't be here and not know somebody, because either the companies are so large or there are so many of them. There's no magic wand. It just takes compounding.

What company stories or trends in Austin are you most excited about right now?

It's twofold. Personally, since I invest in bio and health companies, that area is not getting the coverage it deserves, which is one of the reasons I get loud and obnoxious about it. We were 17th or 18th in 2018 in VC funding. We were sixth last year just in bio and health alone. Between us, San Diego, and LA, which were four, five, and six, the gap was $100 million. We essentially tied with the top four. We were running number five all year, and then San Diego had some big deal at the end of the year that put them over.

With Dell Med School coming up, with Dell's $750 million investment, which is crazy numbers, we're going to be a huge bio and health hub, and it's going to look different. It won't be, "Here's a 20% better stent. Here's a 15% better therapeutic that fits well into the current system." If that's what you're doing, go to Boston. They have the capital stack and infrastructure for it. But for entirely new business structures, bringing in AI and new types of sensors, that's where Austin will shine.

The other thing is the deep tech, hard tech explosion. I used to call it something else, but a guy on X called it Autonomous Austin, which I'm now running with. The other day we were going downtown to the trail for Mother's Day, and there was a Cybercab on the freeway. Robots running around. New ways of doing power. Mike Maples talks about future founder fit, the right person to bring these things forward. I think there's also an ecosystem future fit. As things shift, the physical world is now where the momentum in innovation lives, and we're at the center of that.

Which Austin people, resources, or communities are doing the most to support the businesses coming up here?

The Musk stack, all of Musk Incorporated, whether it's Boring, Tesla, SpaceX, or Neuralink, is doing amazing things here. I saw the news on X the other day, and it's going to have a huge second order effect. The estimate was something like 100 people with $100 million more in Austin, and 12 billionaires just from the SpaceX IPO that's coming up. Even if this is half right, you will see considerable second and third order effects.

Many of the companies I've mentioned, Base, Saronic, Apptronik, Icon, Firefly, Aalo, our unicorn and soon to be unicorn stack. They're changing the face of the country. On the funder side, Ensemble, S3, 8VC, Trust Ventures, Virtue, B Capital, both the new ones and the ones that have moved in, have a different mindset, a moonshot mindset.

The two things that have changed since 2020, that the Silicon Valley crew really brought in, are: one, the no BS culture, where you're going to build something hard and we're going to talk about it honestly. That's part of fixing the wantrepreneur thing, where someone will say, "No, that idea sucks." And two, the moonshot mentality of building something that will drastically change the world.

What advice do you have for people building businesses in Austin, whether VC funded or bootstrapped?

Let me break that in half, because the nature of what is VC backable is changing with AI. What used to be a VC business can now just be a great business. You can bootstrap and create something where you say, "I make $5 million a year." For an individual, that's awesome.

My general advice for younger people is to take more risks. When you have a mortgage and three kids, certain levels of risk are different than when you're 22. If you go to a startup and it fails at 22, it's a nice resume boost. You've learned something. So on the younger side, take more risks. Entrepreneurship by its nature is countercultural, because you have to say, "That thing isn't working. That giant company doing that thing isn't doing it right, and I know better, so I'm going to go build."

One of the problems with SF in B2B is that it's, "I'm going to make the next thing" as a way to get the bag. If you flip it on its head: if you go help a billion people, you'll make a billion dollars. Go for the giant mission first. When Base raised their billion, they put out a phenomenal campaign in the Statesman, a physical newspaper ad with a 50s vibe. A man with his son standing over the hills, and the line, "Don't tell your grandkids you did B2B SaaS." It was perfect. Go big mission. Do something big. There are other places if you just want to make your app and try to score big and quick. I don't knock anybody doing that, but it's a different kind of culture than what's here.

How does the local, community focused small business approach fit with the moonshot mentality?

It rhymes. A lot of what I was saying was about the VC backed world. We're in the most thriving time for the "let me just make a good business" approach. Let me do something that has impact.

I'm sure I'm going to get flack for saying this, but think about Lucy in the Sky with Diamonds, the costume shop that closed down a couple years ago. It had been around for 20 years. People said, "It's terrible." Okay, but it was a costume shop that existed all year round, so they clearly figured something out. There was a demographic that wanted that and made it a thriving business. Austin is now bigger and wealthier, and now they close. That feels like a you problem. What was your growth plan? I don't mean growth like going to two stores or 10 stores. I mean a 2% per year growth plan. If rent is the issue, what's your 2% a year plan? It's not that hard to do, especially now with AI tools.

Small businesses can absolutely thrive, but you have to think of it like a business. Cody Sanchez talks about this. The guys at American Operator talk about this a lot. You have this moment of switching, with the baby boom selling off businesses. So this is an amazing moment for small businesses. If you look at the origin of Keep Austin Weird, I think that phrase has been weaponized recently, but it really was about keep Austin local. I think it was an anti campaign against bookstores like Barnes and Noble coming in. We have amazing Austin businesses, and we can still have that. For VC, go big. For small business, go help locally, but run it like a business. You don't have to take over the world to have a sustainable business.

How is AI changing what's possible for small businesses?

It's a powerful shift. When I was at Becton Dickinson, I ran a market intelligence team with some analysts. One of the tensions was, "I'd love to explore this question, but it's going to take them two or three weeks. If there's nothing there, it's not worth doing." With AI today, I can go down those rabbit holes. I have a gigantic spreadsheet with all the data from my podcast in Google Sheets, so I just ask Gemini questions. Before, that ability would have been a superpower.

I used to work in the infusion pump business. It's a razors model: the pump itself, plus the tubing as recurring revenue. Adoption rate wasn't as high as we wanted, and we needed to figure out why. We pulled together a tiger team of eight people across multiple functions. I'm sure we could do that same analysis in two hours today. Just poking and prodding to see what's there. As a small business, you can now use these tools to act like a larger business in ways that weren't available before.

What is the real superpower AI gives business owners?

It's not just "run my business, make no mistakes." The superpower lies in the agency, the understanding, the thinking. It's why I hate when people say, "We're going to have AI CEOs running businesses." Who's telling that AI what to do? Even if the length of time it runs without you is shifting, you're still the one operating it. I never liked the "human in the loop" framing, because it makes the human sound like something separate. What we're really doing is creating humans with superpowers.

I steal a line others have said: I don't think AI is going to replace you. Someone using AI will absolutely replace you.

How is Austin's venture funding performing compared to last year?

Last year, the Wall Street Journal published an article that said, "The Austin tech boom is over," and I spent two days smacking them upside the head. Funny enough, this January the Wall Street Journal was quoting me about what's going on in Austin. The origin of that piece was analysis on venture funding. Everyone's numbers were up, total value was up, but only two places had market share go up: the Bay (we know what's going on there) and Austin. All the people in New York were going, "What the hell is going on?" They found their way to me, and I was happy to explain it.

Austin hit an all time high in venture funding last year. My original prediction was a step down this year, because a lot of what happened last year wouldn't repeat. I was wrong. Q1 of last year was our biggest quarter of all time, and Q1 of this year beat it. Saronic raised last year, then raised again this year for $1.75 billion. That changes things. There are a number of other large deals coming down the pike, so I think we have a good shot at $10 billion this year. We were at $8 billion last year, and right now we're around $4.5 to $5 billion.

Q3 will be interesting, because it's summer, and obviously that'll be a dip. I'm a data nerd, and I looked at the monthly data. The worst month for Austin is July. It's hot and people leave. You're not cutting many deals in July. At least you're not announcing many deals in July.

How can the Austin community help?

Subscribe to his podcast. It's everywhere: YouTube and all the platforms.

He also has a Substack called Ecosystem Metacognition, where he does standalone essays and broader analysis of the podcast.

Where can people learn more?

Connect with Jason on LinkedIn and X. As Jason puts it, "I'm loud and obnoxious online, so it's hard not to find me."