For decades, incumbents in industries such as energy, healthcare, and finance have enjoyed the luxury of being protected by regulation. This has provided a moat against competition and eliminated the need for innovation leaving behind inefficient businesses and frustrated consumers. However, customer expectations are changing rapidly resulting in a demand for change and a major opportunity for building impactful, durable businesses.
Unsurprisingly, the concentration of talent in several regulated industries is actually higher outside of Silicon Valley and in cities where those sectors play an outsized role in the local economy. This density enables several of the same 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 the solutions that will trigger a massive wave of disruption in regulated industries.
“I also see tremendous stuff happening in highly-regulated markets where there is such a demand for change. I think the dismantling of regulated markets through software is something to think about and watch.” - Chamath Palihapitiya
Houston is the energy capital of North America so it should be no surprise the city has a great chance to play a significant role in shaping the future of the energy sector. Texas accounts for 31% (335,000) of the nation's oil and gas related jobs thanks in large part to its largest city and 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 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.
Traditional fuel sources aren't the only major source of jobs as cleantech-related jobs number close to 50,000, while Texas ranks 1st and 9th in wind and solar generation respectively. The diversity in energy sources has made Texas' grid among the most complex and advanced in the US, but the fourth-highest penetration of smart meters (80%) gives startups the potential to easily access the energy usage data for approximately 7.5 million households.
Additionally, utility regulators in Texas are forward thinking when 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, and grid security.
Sectors to watch: digital oilfield, cleantech, DER software, utility-focused IIoT
Atlanta affectionately calls itself “Transaction Alley” and with good reason. Several of the world's largest payment processors are headquartered or have major offices located in the city including First Data, Fiserv, Global Payments, and World Pay. Additionally, Charlotte, currently the third largest banking city in the US, is only a one hour flight away.
These industry heavyweights provide Atlanta startups with the industry talent and local 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 $1M donation from World Pay in 2015.
In addition to large financial companies, Atlanta is home to large corporations like UPS, Home Depot, Delta Airlines, and Coca-Cola which provide growing startups with potential anchor customers. These firms don't just represent large revenue opportunities, all of them have provided local incubators and co-working spaces with sponsorships and donations to support the local ecosystem.
The perception of Atlanta as a FinTech leader is already well underway due to the large successes of local startups Kabbage, Cardlytics, and BitPay. For most, Groupon and Braintree helped to put Chicago's tech ecosystem on the map. 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
Nashville is much more than the country music capital of the world. It's also a major center of healthcare contributing more than $40B annually to the local economy and supplying residents with over 250,000 jobs.
The impressive numbers don't end there. Eighteen publicly traded healthcare firms, 4,000 small businesses related to healthcare, and Vanderbilt University (the 14th best medical research university 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 software solutions for small and large practices.
Perhaps more than any other industry, healthcare requires a deep industry knowledge including, but not limited to, issues such as the regulatory pathway, intellectual property rights, and the 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 as to solve these problems as they work to get their startup off the ground.
Sectors to watch: patient compliance, remote patient monitoring, small practice and hospital system operations
Regulated industries have been absent of major innovation for several decades but as customer expectations evolve these businesses will be next in line for a wave of disruption. Due to the nuances of these sectors, it just so happens those waves are likely to be triggered from outside Silicon Valley and from the metros which know them best.