Can Sacramento End Its Innovation Drought?

5/14/14Follow @wroush

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 have been able to mobilize that capital and give them an efficient access point for qualified startup companies.”

Velocity expects to spread its own $20 million fund across roughly 20 startups. The firm has plans to raise a “significantly larger” second fund that will allow Velocity to “not only invest in more companies, but also actively and aggressively participate in follow-on financing of our portfolio companies,” Crawford says.

Silicon Valley Career, Sacramento Lifestyle

Everyone in Sacramento has an interest in making their city sound more attractive. Even so, I was struck by how often my interviewees used the same phrase: “quality of life.”

Partly, this was a reference to Sacramento’s ideal location, in a sunny spot that’s within easy driving distance of the beaches of Marin County, the wine country of Napa Valley, and the ski mountains at Lake Tahoe. As Van Deventer, the SARTA board chairman, jokes, Sacramento is “in the middle of nowhere, but the center of everything.”

There’s also access to a prestigious art museum (the Crocker), numerous farmers markets, a new annual restaurant festival called Farm to Fork, boating and kayaking on Folsom Lake, and miles of biking and horseback riding trails. It all makes for a “work hard and play hard” culture in the region, says Crawford. “You can blend the three-hour bike ride with learning about the startup company that you want to know more about, so you go hard with regard to fitness, but you also get something accomplished on the business front.”

But I think the quality-of-life meme is also code for some other important features of life in Sacramento. One is the radically lower cost of housing. Home prices are on the rise again in Sacramento after a severe dip, but the median value of a home in the city is still only $237,000, compared to $909,000 in San Francisco and $985,000 in Sunnyvale. When Hacker Lab’s Ullrich told me that he pays only $400 per month for his share of the 4-bedroom Victorian that he rents with three other people in Midtown, I nearly cried.

Startup founders and investors gather at Velocity Venture Capital's new Entrepreneurs' Campus in Folsom; this photo was snapped by an aerial drone. Source: Velocity Venture Capital.

Startup founders and investors gather at Velocity Venture Capital’s new Entrepreneurs’ Campus in Folsom; this photo was snapped by an aerial drone. Source: Velocity Venture Capital.

The fact that Sacramento has relatively cheap housing could turn it into an important release valve for the overcrowded, overpriced Bay Area—and local companies know it. As you head east from the downtown on Highway 50, you’ll see a giant billboard that says “Silicon Valley Career, Sacramento Lifestyle.” It’s a recruiting ad for Act-On Software, a marketing automation startup with a large sales office in Roseville. The company, which competes with the likes of Marketo, Eloqua, and HubSpot, is formally headquartered in Beaverton, OR, but about 110 of its 250 employees are in the Sacramento area, chief marketing officer Atri Chatterjee told me.

The growth of the Roseville office was partly an accident of timing: the company picked up a number of Sacramento-based WebEx employees who wanted to move to a smaller, nimbler company after WebEx’s acquisition by Cisco. [Corrected 5/14/14: The former WebEx employees weren't "downsized" by Cisco, as a previous version of this sentence indicated.] But the location also turned out to be a recruiting tool. At Act-On, ambitious sales professionals of software developers can work at a fast-growing startup without having to cope with Silicon Valley traffic and mortgages, Chatterjee says. “We are able to build a Bay Area sales culture without the expense and cost and, frankly, the lower quality of life that those same employees would have if they were in the Bay Area,” he says.

It’s unlikely that Sacramento will ever develop the Bay Area’s pull as a magnet for young technology talent. On the other hand, nobody can stay 22 forever—and not everyone in Silicon Valley gets rich.

There’s a vision of Sacramento where the city isn’t a bedroom community for the Bay Area, but an alternative stage for a whole career; a place where people can enjoy Northern California living without having to be part of the 1 percent. “Pulling all-nighters becomes a little less sexy when you are 30-plus and you have a family and other things you are trying to balance,” Sanders says. “I think there is a tremendous opportunity for us to grab all of those students who moved to the Bay Area, have been there six or eight years, got a lot of great experience but didn’t make the big bucks, and are now starting to think about raising a family. Good luck buying a house in the Bay Area.”

Continue to Part 2, where we complete our look at innovation in the Sacramento area by venturing to Davis, and ask how the city and its university are solving the entrepreneurship challenge on an even more local level—and what that could mean for the region.

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

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  • Julia Mjehovich

    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.

    • http://www.xconomy.com/san-francisco Wade Roush

      Thank you, Julia. I hope Sacramento can convince more of its native sons and daughters to move back!

  • mffitzgerald

    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.