Seeding a New Generation of Startups in Santa Cruz

7/31/13Follow @wroush

This is Part 2 of a three-part series on efforts to create a stand-alone startup culture in Santa Cruz, CA. Part 1 was published on July 30.

Norm Fogelsong, a general partner at Menlo Park venture capital firm IVP, and an early investor in Santa Cruz-born hard disk pioneer Seagate Technology, says he looks for three things when he’s putting money into a company in an unfamiliar geography: Does the area have unique local expertise? Have other companies succeeded before, creating a network of entrepreneurs who can help guide and inspire new businesses? Are there enough qualified workers?

In Santa Cruz, the answer to Fogelsong’s second question is multi-layered. It’s a crucial issue, since startups thrive best when they’re immersed in a culture of risk-taking and a large network of mentors, advisors, and investors. Look at most thriving tech hubs—especially Silicon Valley—and you’ll find multiple anchor companies that create wealth, buy up other local companies, and produce a constant stream of skilled engineers and managers who can start or advise new businesses.

Santa Cruz has spawned several such companies over the last 40 years—but not recently enough to have a strong impact today. And that’s one of the city’s key challenges. It will need a few more big wins before the cycle of entrepreneurship is firmly established.

A Distant Legacy

Most of the companies that locals mention as the progenitors of the technology scene in Santa Cruz and Scotts Valley are long gone today. One of the biggest was Borland Software, which incorporated in 1983. It made tools for software development, database management, and office productivity, and is probably most famous for its Quattro Pro spreadsheet program, released in 1989. Borland’s founding CEO Philippe Kahn is still the city’s most prominent and successful serial entrepreneur, having gone on to found Starfish Software (acquired by Motorola in 1998), LightSurf Technologies (acquired by VeriSign in 2005), and Fullpower Technologies, maker of the accelerometer technology inside the Nike+ and many other health and fitness devices. But Borland itself moved to Cupertino in the early 2000s, and is now based in Austin, TX; today its former headquarters, a palatial seven-building campus adjacent to Highway 17, stands nearly empty.

Other high-tech companies that built major operations in the area, only to ship the jobs elsewhere later, include Texas Instruments, which shut down its Santa Cruz chip fabrication plant in 2001; Santa Cruz Operation, or SCO, a UNIX pioneer that sold its products and services divisions to Caldera in 2001 (Caldera later renamed itself the SCO Group, launched a controversial series of lawsuits against Linux users, and went bankrupt); Netflix, which was founded in Scotts Valley in 1997 and moved to Los Gatos in 1999; and Seagate, once the largest employer in Scotts Valley, which moved to Cupertino in 2011.

Today the only large technology company still based in Santa Cruz is Plantronics, which has been making a variety of audio gadgets since the early 1960s. (The Apollo astronauts wore Plantronics headsets inside their spacesuits.) With some 500 local workers, Plantronics is the city’s fourth-largest employer, after the university and the city and county governments. It’s a big supporter of the community, in part through its charitable work with groups like Second Harvest, but it’s not known as a training ground for future startup founders or angel investors, the way many Silicon Valley companies of comparable size are.

So Santa Cruz lacks an anchor company that might play the role of a Google, a Facebook, an Intel, or even a Dropbox, to name just a few of the companies that keep the Bay Area technology scene humming. What it does have is a collection of small, young startups that tap into the Silicon Valley ecosystem but have begun to band together to create their own network of mutual support and invite more entrepreneurs into the community.

Partying on Pacific Avenue

Take Looker, the downtown startup where Margaret Rosas heads client services and support. Looker makes Web-based software that helps other companies visualize their business data; it competes with vendors like Tableau Software, Microstrategies, Birst, and Good Data. This spring, the 14-employee company raised $2 million in outside funding from San Francisco-based First Round Capital and PivotNorth Capital, a micro-fund launched by former Seqouia Capital partner Tim Connors.

Looker’s founder and chairman is Lloyd Tabb, who got his start in the business as a database architect at Borland and went on to become chief technology officer at LiveOps, a Redwood City enterprise that makes cloud-based customer service software. At LiveOps, Tabb worked alongside Bill Trenchard, who later went on to be a partner at First Round. He also became an angel investor, putting seed funds into search startup Blekko alongside Connors. Those Valley connections were key for the new startup. “Lloyd has been investing with Bill and Tim for a long time,” says Rosas. “The lesson for me in Looker is that building those networks and those relationships is what creates the ability to get funding.”

The company is deeply involved in Santa Cruz’s nascent startup scene. Rosas is the three-time organizer of TechRaising, a 48-hour hackathon event where coders, designers, and what Rosas calls “business types” invent product ideas from scratch and spend the weekend working with mentors to build them. “We feed them great organic local food and do some fun keynote talks and workshops, and then we have demos on Sunday, and a panel gives feedback and advice,” Rosas says. “It’s very much a way of growing the community—to understand what a VC is, what an MVP [minimum viable product] is.” The last TechRaising, in October 2012, drew 100 people who self-organized into a dozen teams; Tabb was a mentor.

In addition to TechRaising, Santa Cruz is home to an active chapter of PechaKucha Night, a Tokyo-born tradition where … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Alice Resnick

    What a pleasant surprise to see this series on Santa Cruz. My son just graduated from UC Santa Cruz with a degree in physics, and I know he’d love to be able to find a job on that side of the hill, a place he has come to love. A more robust business community would certainly help—but would it change the character of the place? Illustrating that UCSC is a heavyweight: Times Higher Education reports that UCSC ranks in the 99.9th percentile in research influence, and 11th overall among the 100 top universities in the world less than 50 years old.