Can Sacramento End Its Innovation Drought?

The Sacramento-Davis Corridor: Seeding an Innovation Cluster

Xconomy presents a two-part series on efforts to transform the Sacramento region into a major new innovation cluster. Part 1, today, looks at changes in Sacramento that could make the city more hospitable for technology entrepreneurs. Part 2, coming May 15, focuses on nearby Davis—home to the University of California's leading agricultural campus—and its role as an innovation engine for the region.

It’s raining, at last, in the Sacramento region.

It’s just past noon on the last day of March. As I’d glided east on Interstate 80 that morning, the sky had been darkly pregnant, a wash of Payne’s Gray. Yet not a drop of rain had streaked my windshield.

Now, as I’m leaving City Hall in Davis, CA, the sky is opening up and the sidewalks are beginning to splotch. I trot toward the parking lot, pulling a windbreaker out of my backpack and throwing it over my head. My umbrella, naturally, is inside the car.

I won’t be separated from it for the rest of my trip. A protracted drought—bad enough to provoke Governor Jerry Brown to declare a California-wide state of emergency—has suddenly turned into a continuous, but gloriously welcome, downpour.

In Sacramento, the storm will bring nearly two inches of precipitation over the next 24 hours, a record for that day of the year. Before I arrived, Folsom Lake, the area’s largest reservoir, had dwindled to 25 percent of its normal volume—far enough to uncover Mormon Island, a town submerged since the construction of Folsom Dam in 1955. By the time I left, rainwater had restored the lake to 71 percent of capacity.

I won’t claim that I brought the rain to Sacramento. But it certainly augured well for the work I was there to do, which was to document the region’s emergence as a hub for high-tech entrepreneurship.

In San Francisco and Silicon Valley, my usual haunts, the Great Recession of 2008-2009 is a distant memory, and the venture money is showering down on startups at a rate not seen since the dot-com boom of 1999-2000. The peninsula is soaking in cash—and in people competing with one another to earn it and spend it, which is driving rent and other costs to historic highs.

Sacramento, just 85 miles to the northeast, was hit harder by the recession and by the state government’s resulting fiscal woes, and has been much slower to bounce back. Venture firms have closed a mere 34 deals in the Sacramento/Northern California region since 2009, compared to 6,216 in Silicon Valley, according to data from the National Venture Capital Association. When Davis-based natural pesticide maker Marrone Bio Innovations went public last August, raising $57 million, it was the region’s first IPO in eight years.

The population of Sacramento County—including key Sacramento suburbs like Folsom, Rancho Cordova, and Elk Grove—is 1.4 million, which makes it more than half again as large as San Francisco. But in terms of the number of high-tech startups per capita, Sacramento doesn’t make the list of the nation’s top 20 densest startup hubs; it’s behind places like Atlanta, GA, Fort Lauderdale, FL, and Kansas City, MO. In a 2013 survey of small-business friendliness by Thumbtack and the Kauffman Foundation, Sacramento was one of only four big cities to receive a failing grade; the other three were Cincinnati, OH, Newark, NJ, and San Diego. [Update, 6/11/14: Thumbtack’s 2014 survey is out now, and Sacramento again received a failing grade.] Two years ago, the region’s largest publicly traded company, Waste Connections, shut down its Folsom headquarters and moved to Texas, citing regulatory hassles and the high cost of doing business in California.

So the capital region has a long way to go if it wants to be seen as a haven for new high-tech companies. Nevertheless, advocates believe things are moving in the right direction. For several years, local investors, university administrators, city leaders, and community boosters have been pursuing a range of separate projects to make the Sacramento area more hospitable for startups, and some of the local entrepreneurs I talked to said the efforts are beginning to have an effect.

A crescent-shaped sliver of Sacramento County extends all the way down to the confluence of the Sacramento and San Joaquin Rivers near Pittsburgh and Antioch, but the city itself (in red) is about 85 miles from San Francisco. Public domain map from Wikimedia Commons.

A crescent-shaped sliver of Sacramento County extends all the way down to the confluence of the Sacramento and San Joaquin Rivers near Pittsburgh and Antioch, but the city itself (in red) is about 85 miles from San Francisco.

Combine that with the region’s built-in advantages—including open space for expansion, deep expertise in key areas like food production and healthcare, one of the nation’s best-funded research universities (UC Davis), and a cost of living that’s modest compared to the Bay Area—and you can begin to see why Vivek Ranadivé, chief executive at Palo Alto, CA-based TIBCO, says Sacramento has the opportunity to become California’s “next hub of creativity and innovation.”

Ranadivé is putting his money where his mouth is. Last year he led a group that purchased a majority share in the Sacramento Kings at a valuation of $534 million, the highest ever for an NBA franchise at the time of purchase. Another $477 million will go toward a new high-tech arena on the site of Sacramento’s shuttered Downtown Plaza mall.

The fact that the Ranadivé ownership team was able to keep the Kings out of the clutches of Seattle and other rival cities was “a minor miracle,” says Dave Sanders, an executive recruiter with WorldBridge Partners in Roseville and the head of venture programs at the Sacramento Area Regional Technology Alliance (SARTA), a non-profit that aims to help local technology companies grow faster. He and many other area residents hope that the arena’s construction will spur more economic development and accelerate a cultural and commercial renaissance that has begun to sweep through other parts of the city.

And that’s exactly what the Kings are promising. Sacramento is in position to be the first fully modern city to emerge in the 21st century, Ranadivé says. “It’s close enough to San Francisco and Silicon Valley that you can draw from that,” he says. “But it’s growing, it’s inexpensive, the weather is great, and we are going to have the coolest, hippest downtown on the planet. And the arena and the team are no small part of that.”

But just as a couple of inches of rain doesn’t make up for a 16-month drought, the new Kings Arena by itself won’t transform the regional economy. Groups working to boost innovation and entrepreneurship in and around Sacramento face a laundry list of challenges, including a shortage of local investment capital for new ventures, a talent squeeze, and a perception that it’s far easier for startups to get things done in the Bay Area.

Old Sacramento, on the western bank of the Sacramento River, is one of the city's top tourist attractions. The "Ziggurat" building in West Sacramento (far left), built in the 1990s, was originally home to The Money Store, once the region's largest publicly traded company. It now houses the State of California Department of General Services.

Old Sacramento, on the eastern bank of the Sacramento River, is one of the city’s top tourist destinations. The “Ziggurat” building in West Sacramento (far left), built in the 1990s, was originally home to The Money Store, once the region’s largest publicly traded company. It now houses the State of California Department of General Services.

There’s a decent base of small- to medium-sized technology companies in the region—about 350, by SARTA’s count. Growth is healthy in certain sectors, like cleantech and medtech. And there are success stories: Rocklin, CA-based 5th Planet Games, a five-year-old maker of massively multiplayer online games, recently passed the $10 million mark in annual revenue. And this year San Mateo, CA-based online backup company Backblaze selected Sacramento as the site for a large, 500-petabyte data center. (Backblaze praised the city for both its low costs and its seismic stability.)

But regional leaders know it could take years to turn Sacramento into the next “hot” location for high-tech entrepreneurs, professionals, and investors. The truth is that when Sand Hill Road investors look Sacramento’s way—well, to borrow a line from Gertrude Stein, they don’t yet see a lot of there there. Norm Fogelsong, general partner at Institutional Venture Partners, a large venture capital firm in Menlo Park, CA, says “there is not a lot of tech action in the Sacramento area. Given all the IT spending by the state government, there could be some opportunities for tech services companies. However, given the lack of a significant tech ecosystem, I expect that the best startup opportunities will be in the non-tech fields.”

In one sense, this is just a larger version of the problem faced by Santa Cruz, CA, which I visited on a similar mission last summer. If you’re a Northern California city and you want to build your own distinct entrepreneurial culture, what do you do about the reality that Silicon Valley is just a short drive away? Do you treat it as a resource, or a threat, or both?

Sacramento’s proximity to San Francisco “is a real double-edged sword,” SARTA chief executive Meg Arnold told me. “The awesome edge is that there is capital, talent, peer companies for people to learn from. And it’s a heck of a lot easier to get down to a meeting on Sand Hill Road from here than it would be if we were in Denver. The challenging side of being so close is that … Next Page »

Single PageCurrently on Page: 1 2 3 4 5

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

Trending on Xconomy

By posting a comment, you agree to our terms and conditions.

4 responses to “Can Sacramento End Its Innovation Drought?”

  1. Julia Mjehovich says:

    As a Sacramento native, it was SO great to see an in depth article like this shining a spotlight on the city we love. I moved to SF to go to college and stayed to work in tech. However, I moved home to Sacramento to work at the startup I’m currently at because I had faith in the region’s ability to prosper and for the quality of life issues mentioned. Sacramento is a fantastic city to live and work in and it’s wonderful to see it finally getting some of the attention it deserves, especially from such a well-respected journalist.

  2. Michael Fitzgeraldmffitzgerald says:

    Joan Didion wrote that Sacramento was a Valley town, but the Valley is the real Valley, the Central Valley. As such, she wrote, it suffers the Valley fate, “which is to be paralyzed by a past no longer relevant.” She wrote that in the 1960s, of course, before people knew what Silicon Valley was. But your piece reminded me of her words. It is hard to change a place’s identity, and take people away from the allure of making it big in the place that really matters. As you indirectly document, Sacramento’s tech industry has the same problem as theatre entrepreneurs in the midwest: the best talent wants to be someplace else, for reasons that have nothing to do with quality of life.

  3. Paschall (Moon/Pope/Triangle) says:

    Hahahahahahaha Ahahahaha and LOL.

    Sacramento’s problem is the people. The lamest laziest bozo bureaucrats in all of society. Just sit your fat stupid asses behind an old moldy desk, stop extorting the actual economy of the areas which actually constitute the greatness of California, then shoot yourselves. Maybe in the aftermath you might have a chance in hell to ever compare your tertiary swamp town to secondary cities like Oakland or Fresno or Long Beach.

    Boston or San Francisco. Hahahahahaahahahaahahahaahaha.

    The capital belongs atop a barge, and you dumb swamp people are spoiled rotten by extorting the work ethic and intelligence of the metropolitan areas which actually constitute this great state. The actual people and the actual public which actually produce something of value. Sacramento is a painfully tertiary market, the dirty backwater that actually wishes it could be more brackish as it looks up to second rate cities. I have seen too many people and organizations rot away under the egalitarian sociopathy and general retardation towards the bottom half of humanity which dominate the definition of public service propagated in Sacramento.

    I will make sure the world has an accurate description of your economy, people, culture, society, built environment, policies, politics, governance, administration, business savvy or lack thereof, and every other metric worth measuring to ensure the appropriate fear requisite to repel anyone with even the slightest amount of work ethic or intelligence from ever letting themselves become infected by Sacramento.

    A bunch of demented blue collar union retiree transplants from Alabama and Kansas and druggy disturbed mums combined with a bunch of used car salesmen and reinsurance salesmen and ignorant real estate salesmen of nasty crappy overpriced poorly framed cheap tilt-up junk. The whole place is designed to wash away. The 2006 USGS 1,000 year flood; that is Sacramento’s only hope of reinventing itself. ‘Out and out extortion’; no one will miss you.

    It has nothing to do with quantities and everything to do with qualities. Bozo psychopath bureaucrats who spend their life extorting the public for their own private personal gain then skulk back to their shanty like coward bastard squatters who do nothing but squander what is created by creators while creating nothing themselves.

    The unions have built a collection of the most uneducated, unqualified, unlicensed, uncertified, untrained, lazy, mismanaged, poor quality, unproductive, inefficient and overpaid labor pool in the history of all society. They are horrible people living in a horrible cheap crappy backwater swamp town. They all deserve the guillotine. Let us see the utility of their precious paper cash benefits at $40 an orange and $2,000 a barrel.

    How dare you associate this publication with anything remotely to do with economics. You would receive a D+ in the NORMAL SYSTEM for this crap. Your information is wrong, mostly because you simply borrowed it from the misinformation published by idiot bureaucrats. Sacramento workers are hired solely based on their penchant to coerce and extort the public, personal disregard for remedying the atrocities of their piss poor administration, and strong aversion to correcting the operations generating the negative externalities.


    Departments of Transportation, Public Safety, and the Judicial branch are excluded from aforementioned descriptions.

    Sacramento was never innovative. ‘Drought’ means prolonged absence indicating that the specified something was at one point present. Innovation has never existed since the conception of Nueva Helvetia. The tiniest bit that does exist in recent present history, inconsequential as it may be, is still nonetheless located in the foothills near Granite Bay and EDH and arising entirely from bay area transplants having absolutely NOTHING to do with Sacramento.

    To drive the point home, bureaucrats actually thrive on reverting back to old times. Like the Catholic Church, these people actually want to go back to the 1500’s. They use their dysfunction, ineptitude, sloth, and resulting poor performance to justify the extortion of more money in larger budgets with zero intent to fix the dysfunction with technology and every incentive to compound the dysfunction.

    Innovative… Ahahahahahahahahahaha. Like the Catholic church before it, in the age of enlightenment Sacramento chose darkness.

    One day, the 38 million people of California will be forced to stop ignoring how the 313,000 current State employees and 1.6 million retirees bilked us. And then we will be glad that your residences are public information stored on digital databases; your pension payments and salaries are public information stored and distributed on digital databases; and we already have copies of those databases.

    I am so proud of my father for being an Accountant in this swampy moldy disgusting tertiary backwater of idiot bureaucrats. I am so fucking proud of that big brilliant bear ensuring he and his clients never made any taxable money.

    Here is another brief glimpse into the degree of fragility of your retarded system of extortion protecting the retards of Sacramento. Of the over 22 million filers of personal income tax statements in California, 6,789 claimed $1 million or greater. Those 6,789 people accounted for 48% of all personal income taxes paid to the state. Personal Income Taxes account for 30% of the entire annual revenue of the state. I’ll leave you to do the math. My father’s accounting firm has a new potential client list.

    IHS αμδγ