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.

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we’re always comparing ourselves [to Silicon Valley], and usually that doesn’t come out in our favor.”

Part of Arnold’s job is to share the region’s success stories and promote its strengths in areas like infotech, energy, agriculture, and medical technology. But while SARTA has been around since 2001, the devastating hit sustained by the state’s capital region during and after the recession means that in a way, the organization is still just getting started. If the tentative progress so far is to continue, the region will need to build up not just its public image but its financial and human capital.

That includes attracting more people like Eric Ullrich, the 28-year-old co-founder of a downtown co-working facility called Hacker Lab, which offers classes, workshops, cheap startup office space, and community events. He’s a native of Woodland, north of Davis, and went to college in San Diego, but came back after he was unable to find a job in Southern California. To Ullrich, the point of places like Hacker Lab—and the key to the region’s growth—is to cultivate an entrepreneurial state of mind in Sacramentans.

“Figuring out ways to inspire more people to do things and create things is, I think, the best thing we could do,” he says.

Planning for the Next Economy

If you’ve never been to Sacramento—or if you know the area mostly as a bathroom stop on the way to Tahoe, as so many oblivious Bay Area residents do—there are a few key points of geography to understand.

The city was built at the confluence of the American River and the Sacramento River beginning in 1848, the year gold was discovered in the Sierra foothills to the northeast. It’s been the state capital since 1854. It was the western terminus of the Transcontinental Railroad, and it’s still an inland port served by a deep-water ship channel that stretches 43 miles down the Sacramento River to San Francisco Bay. Crucially, it’s at the northern edge of the most fertile agriculture region on Earth, the San Joaquin Valley, which is famous for its grapes, raisins, cotton, almonds, pistachios, citrus, and vegetables, and accounts for about one-eighth of the nation’s entire agricultural output.

Dramatis Personae
A few of the Sacramento-area business leaders and innovators mentioned in this story
Bob AdamsDirector, UC Davis Sustainable AgTech Innovation Center
Meg ArnoldCEO, Sacramento Area Regional Technology Alliance (SARTA)
Atri ChatterjeeChief Marketing Officer, Act-On Software
Jack CrawfordGeneral Partner, Velocity Venture Capital
Cleve JustisExecutive Director, Child Family Institute for Innovation and Entrepreneurship
Dushyant PathakAssociate Vice Chancellor for Technology Management and Corporate Relations, UC Davis
Vivek RanadivéCEO, TIBCO, Owner, Sacramento Kings
Dave SandersManaging Partner, WorldBridge Partners, Mentor, SARTA VentureStart
Eric UllrichCo-founder and COO, Hacker Lab
Peter Van DeventerCo-founder, SynapsSense, Board Chair, SARTA
Brandon WeberManager, Urban Hive
Rob WhiteChief Innovation Officer, City of Davis

For most of the 20th century, Sacramento was a sedate place dominated by the farming economy, state government, railroads, a couple of military bases, and the businesses serving them. It was also prone to catastrophic flooding, which brought billions of dollars of state and federal spending on dams, levees, and other flood control projects.

In the 1980s, companies like Hewlett-Packard and Intel, looking for places to expand outside of Silicon Valley, began a high-tech transformation by building big campuses in the Sacramento suburbs. (HP still has 3,000 workers in Roseville, and Intel employs 6,500 people in Folsom.)

That helped seed the area with tech talent. During the dot-com years, startups in the region attracted a respectable amount of venture capital: $119 million in 1999, $372 million in 2000, and $203 million in 2001. The region also saw a few profitable exits. In 1999, Intel bought Sacramento-born Level One Communications for $2.2 billion. The following year, Agilent bought Folsom-based OSI for $665 million, and in 2006, Emulex bought Sierra Logic for $180 million.

But by the early 2000s, the pace of startup investment had cooled, and the small contingent of venture firms with offices in the region, such as American River Ventures and DFJ Frontier, had shrunk or become less active. Then came the recession, hitting Sacramento with a triple whammy: large-scale layoffs of state government workers, huge cuts in state spending on contract work, and a brutal correction in the housing market, which had become significantly overbuilt and overpriced.

If there is one priority on which every business leader in Sacramento now agrees, it’s diversifying the local economy. The region is still massively dependent on government jobs, with nearly 70,000 Sacramento County residents employed by the State of California, and another 30,000 working for the city, the county, and the local school districts. Together, these public employees represent about a quarter of the workforce. Then there are the healthcare giants—Dignity Health, Kaiser Permanante, Sutter Health, and the UC Davis Health System—which employ another 27,000 people in Sacramento County. There’s only one technology company, Intel, among the region’s top 10 employers.

In 2011, convinced that the region’s economic advantages were narrowing, several area CEOs, non-profits, and business leadership groups—including SARTA, the Sacramento Metro Chamber, the Sacramento Area Commerce and Trade Organization (SACTO), and Valley Vision—convened to draft a “prosperity plan” for the six-county capital region. Branded the “Next Economy” initiative, the plan calls for diversification through investment in high-tech innovation, especially in six industries where the Sacramento region already shows promise: advanced manufacturing, agriculture and food, clean energy, education, information and communication technology, and life sciences and health services.

Arnold, SARTA’s head, says there are three main reasons for the Next Economy emphasis on technology. First, when successful tech companies start to scale up, they can add jobs quickly. Second, the jobs they add are generally high-value, well-paid, knowledge-based positions. Third, tech companies are better than others at bringing in wealth from outside the region.

The California State Capitol was built between 1861 and 1874. Today, the state government is by far the Sacramento region's largest employer, with almost 70,000 workers. While the overall number fluctuates depending on the economy, government offices employ between 23 and 28 percent of Sacramento's workforce, according to SARTA chief Meg Arnold.

The California State Capitol was built between 1861 and 1874. Today, the state government is by far the Sacramento region’s largest employer, with almost 70,000 workers. While the overall number fluctuates depending on the economy, government offices employ between 23 and 28 percent of Sacramento’s workforce, according to SARTA chief Meg Arnold.

A car dealership might facilitate local economic churn—you buy a car, and some of the money goes to the dealer’s employees and their families, who use it to buy groceries, and so forth—“but that is not increasing the growth, the wealth of the region,” Arnold explains. Tech firms “do that until they are blue in the face.”

Arnold’s biggest effort of late has been to build three vertical programs—AgStart, CleanStart, and MedStart—focused on promoting specific industry clusters. In the sustainable agriculture cluster, she says, SARTA has identified 66 companies in the nine-county area around Sacramento. Most are in or near Davis. In clean energy, there are 99 companies, and in medical devices and biosciences, there are 137. The programs sponsor mixers, showcases, and other networking events designed to publicize the accomplishments of local firms and ensure that people working within each cluster get to know each other.

The area’s single largest engine for generating ideas that can grow into companies, Arnold says, is the University of California, Davis, which captured a stunning $754 million in research funding in 2012-13, putting it ahead of powerhouses like UC Berkeley, MIT, and Harvard. In fact, that’s where Arnold cut her economic-development teeth. From 2002 to 2008 she worked in the university’s technology transfer office, where she helped to run a program called UC Davis Connect that was designed, she says, to “better connect the intellectual horsepower of the campus with the commercialization potential of the private sector.”

But the program had mixed results, and only in the last couple of years has the university begun to experiment with … Next Page »

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

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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