Hot Zones

Even the students themselves can come in handy. M.B.A. students from UNC have worked at Capital Savings for credit, developing the company's human-resources program and preparing a valuation for possible venture-capital investment. "You can get them for free when they're in college, but the instant they graduate, they cost you a small fortune," Ballenger jokes.

The Insider
In 1991, when Casey Hoffman founded Child Support Enforcement (CSE) -- now called Supportkids.com -- in Austin, he figured he had a sure thing. Hoffman had the perfect background for running a business that collected unpaid child support on a contingency-fee basis. He had just spent five years as head of the Texas attorney general's child-support-enforcement program. Under Hoffman collections rose from $18 million to $200 million; but only 15% of the parents who turned to the overwhelmed agency ever collected a check. He wanted to bridge that gap using his knowledge of the system and his contacts in state government.

It didn't work out at first. When a new attorney general took office, Hoffman found himself with fewer supporters in the state capital. It was especially discouraging because to Hoffman, CSE was not just a business but a cause. Drawing on media contacts from his years in government, he got himself some publicity and attracted enough clients to keep CSE going. But there were still a lot of nights when, meeting some of his old state-agency colleagues for a few beers at one of Austin's open-air bars, the embattled CEO would wonder aloud why this terrific idea of his wasn't catching fire. "We built a field of dreams and no one showed up," Hoffman says. "The best description I can give you is, I jumped off a building with no wings."

Then Hoffman found out why so many CEOs love Austin: it's flush with capital looking for investment. As the home of such success stories as Dell Computer and Texas Instruments, Austin has been the building site for more than a few fortunes. Homebred venture capitalists often like to invest in local start-ups -- it's the old giveback principle -- as Hoffman found out after he hooked up with Austin Ventures. (According to Venture Economics/National Venture Capital Association figures, this year venture capitalists have funded more companies in the Austin area than in any other metro area in Texas and more than in the entire states of Virginia or Georgia.)

The venture-capital firm is the largest of a crop of investment firms that have helped fuel the growth of tech companies and other businesses in town. According to principal Ross Cockrell, Austin Ventures was intrigued by the sheer size of "the problem-slash-market-opportunity" in unpaid child support: a number the firm believed was $57 billion.

In 1997, when Hoffman received a $5.5-million investment from Austin Ventures, the company really started to fly. CSE began advertising nationally with commercials on the Lifetime cable-television channel. The Austin Ventures imprimatur also helped Hoffman recruit high-level managers like chief technology officer Steve Padgett, former chief information officer of Tivoli Systems. And Padgett began overseeing the transformation of CSE into Supportkids.com, now a $7-million company. The move to the Web allowed the company to reach a national clientele more efficiently.

Austin Ventures also has a pipeline to the most energetic movers and shakers in the state capital. Recently, partner Ken DeAngelis introduced Hoffman to adman Roy Spence of Austin's GSD&M, an agency that serves big-name companies such as Southwest Airlines. Pitching his company's social mission, Hoffman persuaded GSD&M to waive most of its usual fee in exchange for equity. "It was extremely validating for us," he says. Not only is Hoffman's company located in a community with lots of local capital, but he has benefited from an entrepreneurial spirit that is carefully nurtured by local VCs, public officials, and fellow CEOs.

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