As Innovation Economy Grows, San Diego Seeks Dorm Room Entrepreneurs
San Diego’s innovation economy has come a long way since the bitter winter of 2009. As the great recession deepened, venture investments in the region fell to a 12-year low in the first quarter, with less than $101 million invested in 17 companies, according to one venture industry survey.
As a point of contrast, venture firms poured $334.1 million into 27 deals in San Diego during the last three months of 2015—and invested more than $1 billion here over the entire year.
The numbers only tell part of the story, however.
In a presentation last week for the MIT Enterprise Forum, serial entrepreneur (and San Diego Xconomist) Mark Bowles said there are now more organizations for startups and entrepreneurs in San Diego in terms of incubators, accelerators, and support groups than there were in Silicon Valley when he left 12 years ago.
As Bowles put it, “We’re swimming in a community that celebrates entrepreneurs and entrepreneurship.”
One example: More than 500 people registered to participate when Startup San Diego organized a three-day “convergence” for tech startups earlier this month. The weekend schedule included multiple tours of tech startups in downtown San Diego, an internship fair at UC San Diego, and Demo Night XIII, organized by San Diego Tech Founders.
“About 200 showed up for the first night, and about 150 of them were new people and good people,” said Austin Neudecker, who is helping organize San Diego Startup Week this June. “There were people who were like, ‘I’ve been coding an app in my basement and I don’t know what to do next. That’s perfect!”
The goal of the convergence weekend was to highlight the growing community for tech startups in downtown San Diego, and to get more college students involved, according to Neal Bloom, who organized the weekend event.
“About two years ago, we realized that we had no student attendance” at Startup Week, said Bloom, a local tech entrepreneur who is now a San Diego-based representative for Hired, the San Francisco-based online marketplace for tech jobs. Many students are graduating from UC San Diego, San Diego State University, and the University of San Diego, and leaving town for jobs in Silicon Valley without knowing that Web companies like Tealium, Kyriba, Classy, and Take Lessons, are expanding here, Bloom said.
Many students are also unaware of the startup resources that have emerged in San Diego since 2009. Bowles highlighted 10 local incubators and accelerator programs in his presentation, including EvoNexus, Plug and Play San Diego, Janssen Labs, and West Health. Local co-working spaces include CyberHive, DeskHub, Co-Merge, 3rd Space, and the Vine.
Getting entrepreneurial-minded students involved in the local startup ecosystem might just be the type of catalyst that San Diego needs when Bowles says, “We are on the verge of breaking out as an entrepreneurial innovation community.”
But San Diego’s tech ecosystem also faces a few challenges.
The issue most frequently cited is the availability of venture capital for tech startups in San Diego.
“As one of the country’s innovation hubs, we flog ourselves for being a backwater region that doesn’t get any [venture capital] money, but it’s just not true,” Bowles told me. Citing data from City Lab, he said San Diego ranks among the top 10 cities worldwide in terms of total venture capital funding (including life sciences).
“It’s true that we don’t have a lot of local money,” Bowles added. Out-of-town venture firms provide much of the funding for many new tech startups in San Diego. But he said that only makes it challenging—not impossible—for local entrepreneurs to raise venture capital.
Because VCs typically don’t hunt in San Diego, they just have to be pursued—which makes it important for San Diego tech entrepreneurs to find ways to plug into Northern California’s VC and angel networks.
Bowles told me the tech ecosystem also has a “generation gap” that makes it harder to get young entrepreneurs committed to stay in San Diego—especially after they graduate with a science, engineering, or business degree.
“I started my first company in ’94,” Bowles said, “and the big change that has happened since then—and not just in San Diego, but everywhere—is this idea that you could start a company in your dorm room. There’s a new generation of people who are inspired right out of college.”
The challenge here, Bowles said, is that San Diego’s previous generation of tech startups were dominated by entrepreneurs who were experts in their chosen field—with deep domain expertise in semiconductors, software, or biotechnology.
“What changed was that all of a sudden, it got to be cool to be an entrepreneur right out of your college dorm room,” Bowles said. “It created a gap between the entrepreneurs and the mentors. They don’t necessarily speak the same language.”
At about the same time, Bowles said the hottest innovations to emerge out of Silicon Valley involved social media like Facebook, the iPhone and mobile apps, and a new generation of Web-based companies and Software-as-a-Service technologies. “It didn’t look like the sort of things that traditional entrepreneurs have been doing in San Diego with their deep domain expertise,” he explained.
As a result, Bowles said the youngest generation of entrepreneurs in San Diego grew frustrated, and began to discount the advice they were getting from previous generations of local mentors. They also came to mistrust some of the nonprofit organizations that had been created to foster technology innovation and entrepreneurship—and had become part of the “innovation establishment” in San Diego.
Bowles said the situation became unfortunately polarized almost three years ago, when Brant Cooper, a local proponent of the lean entrepreneur business model for tech startups, described the pent-up frustrations and mistrust of young entrepreneurs in a blog that came to be known as “Brant’s Rant.”
Cooper’s blog incensed Martha Dennis, a serial entrepreneur and startup mentor with deep domain expertise, who responded with a post in the Xconomist Forum. She wrote that Cooper had taken a hatchet to San Diego’s well-established and highly respected organizations that provide startup support in this city and voiced “a ‘you-can’t-trust-anyone-over-30’ attitude about San Diego’s rich system for supporting entrepreneurs.”
In the years since this flare-up, a new generation of volunteers has stepped forward through organizations like Startup San Diego and EvoNexus to help early stage entrepreneurs in software and tech ventures. According to Neudecker, they are now looking in particular for ways to engage student entrepreneurs, and to bridge the generation gap in technology innovation in San Diego. (It has been easier to get students involved at SDSU and USD than at UC San Diego, he said.)
For Neudecker and others, the main event for the next generation of local innovation entrepreneurs is San Diego Startup Week, set for June 12-18. The five-day event is intended to build momentum and support for technology innovation with 80 scheduled events, “teach-ins,” and presentations across four tracks: Idea, Seed, Developer, and Scale. The Startup Week schedule also includes meetups, mingles, happy hours, and other social events.
Neudecker says the event has been doubling in size every year.
Last year, about 1,600 people registered for San Diego Startup Week. This year, Neudecker anticipates between 3,000 and 4,000 people will register this year. That would be a pretty good sign that the next generation of innovation entrepreneurs is gaining momentum here.