Building an Entrepreneurial Pipeline in Santa Cruz

8/1/13Follow @wroush

This is Part 3 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 and Part 2 was published on July 31.

UC Santa Cruz, tucked into the folds of a redwood-covered hill about three miles outside the downtown, is the city’s richest intellectual resource. One obvious way to fill the city’s talent pool and build a stronger entrepreneurial culture would be to create a pipeline that carries more graduating UCSC students into the local startup scene—the way Stanford University supplies Silicon Valley with a constant flow of young engineers and MBAs. But efforts in that direction have only just begun.

The truth is that town-gown relations in Santa Cruz have never been entirely smooth. Many old-timers in this once conservative seaside city didn’t want the university in the first place, predicting (correctly) that the presence of tens of thousands of students and faculty would lead to a leftward push in the town’s politics. A protracted lawsuit brought by the city, the county, and neighboring residents to stop university expansion plans—finally settled in 2008—cost the community years of potential progress, to the exasperation of many businesspeople.

“The university has been here for 40 years and there are still people in town who are mad about that,” says Neuner. “But this is the goose that lays the golden eggs. This is where the jobs are, this is where the innovation is happening. People are just now starting to figure out ways to connect the university to the town and vice versa.”

Bradley Smith, an adunct faculty member in UC Santa Cruz Department of Computer Engineering, says more students would stay in Santa Cruz if given the opportunity.

Bradley Smith, an adunct faculty member in UC Santa Cruz Department of Computer Engineering, says more students would stay in Santa Cruz if given the opportunity.

Predictably, many UC Santa Cruz graduates with degrees in areas like computer science or biomolecular engineering seek jobs in Silicon Valley, Boston, and other big tech hubs. But Bradley Smith, an adjunct faculty member in the computer engineering department who earned his bachelor’s, master’s, and doctoral degrees at the university and now oversees much of the campus’s IT network, says more business-inclined graduates would probably stay in Santa Cruz after graduation if they had the opportunity. “There is a non-trivial group of [budding entrepreneurs] who come through as students—maybe a third, or 40 percent—who would love to tap into the dynamics of Silicon Valley, but grow their companies in Santa Cruz,” Smith says.

But among students and former students, there isn’t a perception that UC Santa Cruz is set up to meet that desire. “Getting people started in the startup world is not something the university embraces,” says Civinomics’ Robert Singleton. “Is it anything like Stanford? No way in hell. None of the professors are going to drop what they are doing and help you make a product.”

In fact, there are formal programs in place at the university to cultivate students’ entrepreneurial instincts and connect them to the city—but they’re still so new that they are only beginning to have an impact.

Three years ago, the university’s engineering school set up the Center for Entrepreneurship, or C4E. Director Brent Haddad says its mission is threefold: helping to commercialize inventions from the university’s labs, building a general culture of entrepreneurship on campus, and perhaps most importantly, teaching students how to start companies. To a large extent, that means building a network of mentors and advisors from the private sector. “You have a very skilled pool of students coming out of the university, and you have a nice place for them to live,” Haddad says. “The next piece is, do you have the resources such as venture capital, legal assistance, and other entrepreneurs to bounce ideas off of?”

As the branch of the University of California closest to Silicon Valley, UC Santa Cruz is officially tasked with continuing-education duties in the South Bay, which means it can tap some of the needed resources through its extension campus off Highway 101 in Santa Clara. For the last two years, the extension has been the scene of a series of business design showcases where student teams pitch startup projects to panels of judges drawn from local businesses and venture firms. There’s also an annual entrepreneurship summit in Santa Cruz proper, and C4E collaborates with the city’s economic development department to sponsor a local internship program called the Project for Innovation and Entrepreneurship, or PIE. According to Lipscomb, many of the companies participating in the program hire their student interns full-time after they graduate.

The internship programs, showcases, and entrepreneurship courses reach about 100 students per year, in Haddad’s estimation, and so far they haven’t given birth to any actual startups. “It’s taken a couple of years to get to the point where we have the curriculum, we have the mentors and the network and the students who are excited about this and willing to sign up,” he says. “So now it’s really about building that culture of entrepreneurship.”

Comparisons to Stanford, while understandable, are premature. Stanford students—with a startup haven like Palo Alto on their doorstep, Sand Hill Road as a virtual private bank, and success stories like Google’s to entice them—live in what amounts to the world’s largest, richest, and most effective technology incubator. It’s no longer surprising when 20 of them drop out en masse to join a digital payments startup founded by a 19-year-old wunderkind (I’m talking about Clinkle).

That kind of thing won’t happen in Santa Cruz anytime soon. “Stanford and Silicon Valley were 100 years in the making,” Neuner observes. “We are just starting the process, and it will take time for those relationships and those well-worn pathways to emerge.”

The Three-Pound Joint: A Battle of Perceptions

Even as Santa Cruz develops answers to Fogelsong’s three questions, it has a few more hurdles to overcome. For one thing, there are still political divisions in the city over the right way to pursue business growth—or whether to pursue it at all. On top of that, Santa Cruz has a largely self-inflicted reputation as a haven for beach bums and pot smokers, and was the scene earlier this year of a disturbing crime wave. That’s not exactly the image you want to project if you’re trying to attract serious, fast-growing new enterprises.

From one point of view, Santa Cruz is saddled with many of the same kinds of cultural, political, and social challenges as nearby San Francisco, just on one-tenth the scale. Jason Hoppin, a writer at the Santa Cruz Sentinel, put this well in a March essay entitled “The Cost of Keeping Santa Cruz Weird”:

Since the countercultural revolution half a century ago, Santa Cruz has drawn more than its share of freaks, hippies, surf rats, pothead programmers, environmental hardliners, lefties, cultists, druggies, punks and dropouts. Together, they established Santa Cruz’s reputation for tolerance and free-thinking. But there has always been a dark side. From 1970s serial killers to an ongoing, seemingly intractable homelessness problem, Santa Cruz has never been the idyll it appears at first glance.

That’s certainly been true this year. A series of assaults and fatal and non-fatal shootings involving local residents and university students climaxed in February with the executions of two Santa Cruz Police Department detectives; the suspected shooter in that case, an alleged sex offender who had worked in a Santa Cruz coffee shop, was later gunned down by police. The episodes stunned residents, and local politicians are now forced to combat perceptions that the city is unsafe. “We have some significant public safety challenges we have been facing, that play into that image,” says Santa Cruz Mayor Hilary Bryant. “There is not a day that goes by that I am not working in some way, shape, or form to address those challenges and problems.”

On a milder level, Santa Cruz is dogged by its history of tolerance for marijuana usage. In 2006, by a margin of nearly two to one, voters approved Measure K, which instructs the local police to make enforcement of marijuana laws their lowest priority. And every April, the UC Santa Cruz campus is the scene of one of the country’s largest “420” events, where hundreds of students gather in a meadow to light up. The students usually face no official opposition, but this year police confiscated a gargantuan joint weighing nearly 3 pounds.

“I don’t think we do ourselves any favors when the 420 thing happens at UC Santa Cruz,” Neuner says. “That’s one of those headline-grabbing things that only reinforces the idea that we are nothing more than a bunch of stoners. It plays right into the hands of people who want to dismiss the town and all the great things happening here.”

In other words, it’s easy to caricature Santa Cruz as a place to hang out, go to the beach and the boardwalk, and maybe smoke a bowl, while all the serious work gets done in Silicon Valley. “There is an unfortunate perception out there in the marketplace that we are all a bunch of pot-smoking flakes down here,” says attorney Jason Book. But worse than that, according to Erodr CEO Andy Halliday, there’s a common bias among venture capitalists—the people holding the purse-strings—that “if you are living in Santa Cruz, you are prioritizing lifestyle over success.”

And there may be a small kernel of truth to that sentiment. There’s a lingering anti-business feeling in the city—a fear that too much commerce and development will destroy the town’s easy-going character. “I have been in Santa Cruz since the late seventies, and there has always been a resistance to growth and commercialization,” says Smith. “‘Carmelizing’ Santa Cruz is the term people use.” That’s a reference to nearby Carmel-by-the-Sea, CA, which is seen as having succumbed to vapid gentrification and rows of luxury shops and restaurants.

But the new generation of civic leaders in Santa Cruz, including people like Neuner, Bryant, and former mayor Ryan Coonerty, see the choice between development and local character as a false one. “Even if your issue is that we need more money for social services or to protect the environment, you aren’t going to get any of that unless you have businesses contributing to the tax base,” says Bryant. “I ran for office on a platform that all these things are linked.”

“There is this old-versus-new dichotomy that does pop its head up quite a bit, and it goes like this: if we do anything to promote the growth of business and a faster-paced society, then we will ruin everything that is great about Santa Cruz and turn it into the horrible wasteland that is Silicon Valley,” Neuner says. “I understand the caution. But what we, the younger generation of 20-, 30-, and 40-somethings are saying is yes, we recognize that Santa Cruz is a special place; no, we don’t want to ruin it; yes, we want to maintain the natural beauty of the town and the surrounding area, but you can do that while still creating a vibrant, robust, modern economy.”

A Budding Ecosystem

David Britton, the founder of the Makers Factory 3D printing operation and an advisor to many of the startups in the Cruzio building, says there has been a slow but noticeable pro-business transformation in Santa Cruz since he moved to the city in 1989.

David Britton, founder of MakersFactory, shows objects students have created using the company's 3D printing and laser cutting equipment.

Britton had previously co-founded Britton Lee, one of the first companies to offer relational database management software, and in an early legal skirmish with the city council, which he says wanted to bulldoze part of the street leading to his home, he acquired a reputation as “the SOB businessman out on West Cliff Drive.” But after he helped to spearhead a “shop local” campaign to boost local stores, and after a turnover in city council membership brought in leaders like Coonerty and Bryant, he says he’s now in better favor with the city. Makers Factory is seen as an important provider of after-school training and summer classes for local kids, and Britton was even invited to travel to San Luis Obispo, CA, and Boulder, CO, as part of two city-sponsored expeditions studying how those cities have worked to support local entrepreneurs.

Boulder, in particular, has “a whole ecosystem of entrepreneurship and technology,” Britton says. Like Santa Cruz, it’s got a left-wing element (and an even larger 420 event), but it’s been more successful so far at drawing students and faculty from the local university—the University of Colorado Boulder—into the entrepreneurial community, through programs like the TechStars startup accelerator. “I have been pushing technology ecosystems ever since I came to Cruzio, and we are at the point now where I think that will happen soon,” Britton says.

The Santa Cruz government’s commitment to promoting entrepreneurship is clear. In 2009, Santa Cruz won $5 million in federal stimulus funding to help finish the Tannery Arts Center, an 1870s-era industrial complex north of downtown that’s being rebuilt to serve as an arts and cultural center and a potential future home for companies like Five 3 Genomics and Makers Factory. In 2012 Santa Cruz was one of 12 cities picked by Code for America as locations for civic software development projects, and the result was Open Counter, an online portal where companies can get started on all the permits and licenses they need to do business in the city. And this year, according to Bonnie Lipscomb, the economic development director, the city plans to mount a competition that will award free coworking berths to four out-of-town startups in order to entice them to bring jobs to Santa Cruz—two at Cruzioworks and two at Nextspace. (The contest hasn’t been formally announced yet, but Lipscomb says interested companies can contact her office for details.)

Will it all be enough to make Santa Cruz into a self-sustaining startup hub? It’s hard to tell, but it’s probable that special programs like the Project for Innovation and Entrepreneurship will be needed indefinitely. At Santa Cruz’s small scale, everything takes more effort, and “that won’t be solved until we get some big wins here,” in Halliday’s words.

Silicon Valley is “this huge Petri dish of experiments going on, where all you need is a fraction of a percent of them to succeed,” says Smith. “The challenge with Santa Cruz is that the dish is smaller. You are going to have to go a longer time between successes. How do you improve that? You create the environment to support more experiments.”

And you also, perhaps, work harder to reinforce the budding narrative about the city’s attractions for certain kinds of entrepreneurs—those who care about their surroundings as much as they do about their software (and who see no reason to risk their lives driving over Highway 17 every day).

“The difference between Boulder and Santa Cruz in many ways is that Boulder knows how to tell their story,” says Lipscomb. “We have so many positive things going for us in Santa Cruz. We just need to do a better job of actually communicating them.”

Special thanks to Doug Klein for helping to arrange my initial round of interviews in Santa Cruz, and for shuttling me around town.

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • Sandra Kaufman

    Excellent, excellent article, Wade. I wish you would also try and have it published in the Sentinel, if that is possible. Thanks for writing it.

  • Thomas Clements

    Great articles; I love your city. I am sure you will do well.

  • Robert Singleton

    The Project for Innovation and Entrepreneurship (PIE) hasn’t been active for over a year now from my understanding. We used to get interns from them (of varying degrees of quality), but no longer because we lost contact with them.

    I do think there is a lot of truth to Bonnie’s last statement, in that we do have a problem with telling our story. But I feel the problem is more closer to we have trouble telling our story to ourselves, that is most people in town don’t even know a tech scene exists.

    • Career Center

      Agreed! PIE has been inactive, but I heard fieldstudy.net is the replacement!

  • bespoked

    I have been enjoying your articles for some time now, so
    imagine my delight when I saw that you had chosen my home town as the focus for this article. I’d bet I’m not the only “local” whose understanding of their own area’s economy has been improved. Regarding the lack of anchor companies: another “headwind” we’re facing here is the high cost of living and
    accompanying tech salaries that are high relative to many other regions. This
    creates considerable pressure to move these jobs to those lower-salary regions.
    And if the decision makers themselves don’t live here, they might not be
    personally-motivated, or even able, to take the impacts of their decisions on
    the economic health of the area into account. All of this contributes to the
    lack of Google-style anchor companies, I suspect.

  • CS Prof

    “None of the professors are going to drop what they are doing and help you make a product.” Not true. I, and several of my colleagues in the School of Engineering, have been heavily involved in startups, though typically in Silicon Valley, not Santa Cruz. But there’s usually more talent and easier access to money in SV, based on our experiences trying to found a startup in SC several years ago.