This week AZ-VC Managing Partner, Jack Selby, posted about a significant loss for the State of Arizona. While the post isn’t specifically about the state of the VC market in Arizona it highlights some of the shortcomings of a market we love – but when it comes to our relationship with AZ (like other active V.C.s in the state), well… it’s complicated.
Those of us in the Arizona market have heard the rumblings of the sleeping giant in “The Silicon Desert“ for decades, only for those promises to continually fall short. It feels like there is momentum to some, but the reality is there are some serious shortcomings in this market marked by three key factors.
Corporate Involvement
From where I sit, this is the biggest issue with the State of Arizona, and it’s a real blocker to success. We have very few fortune 500 companies headquartered here, currently 10, if you walked into any restaurant or bar in the state and surveyed the guests, I’d set the over under at ‘1’ for the number of people who can name the biggest company in our state. Therein lies the problem. The biggest company in our state, Freeport McMoran (a global mining company) is not involved. They have no community presence and certainly aren’t supporting the venture community. Other large corporates like APS (a Phoenix based power company) is chalked full of engineers, but how many of them are spinning out to form startups? Effervescent venture markets like Atlanta have deep corporate involvement from brands like Home Depot, Georgia Power and UPS who engage with the venture community through startups development programs and partnerships with local V.C.s, as well as capital contributions. The ‘Engage’ program run one of our partners, Tech Square Ventures (we co-invested in Pitstop with them) in Atlanta is truly best in class. Arizona on the other hand, has a few large corporates seemingly more focused on putting their (brand) mark on stadiums than making their mark on startups and entrepreneur development.
Access to Talent
Arizona State is the largest research and innovation university in the country, yet I rarely see talent bursting out of their doors to start a homegrown company. Even when great talent does emerge from ASU, they’re often bursting through those doors and right on out of the state to chase more established ecosystems in other regions. The University of Arizona boasts a massive and highly accredited medical college, despite that I am hard pressed to think of a SaaS founder to come out of the program looking to solve one of the umpteenth problems in the medical profession. Arizona is home to four very sizable universities, one literally the largest in the country. Students come from all over the world to attend their colleges, many of them engineers, scientists and mathematicians – and then they graduate and leave.
During my time selling in Silicon Valley, the sales, marketing, operations and finance talent I ran across within the average technology startup is unparalleled, especially in Arizona. There is simply a gap between other geographies and our hometown. The founders in our portfolio who are based here locally in Arizona are forced to make a terrible decision, they’re faced with the choice between building a great team and building a local team. Unfortunately, you can see that’s no choice at all.
Founders with Exits
Which leads me to the third and final ingredient, founders with exits. Highly visible and successful founders who have a massive exit is a win, it must be celebrated and also re-invested, in order to grow the ecosystem. Gregg Scoresby, Managing Partner at PHX Ventures is a great example of this. He successfully exited CampusLogic and now gives back to the ecosystem through his Seed fund at PHX Ventures. Beyond that he’s also prioritized education and training through their non-profit program PHX Forward, for which he is also the primary benefactor. It’s a start, but one is not enough.
OG founders like the Crown brothers, who exited Insight Enterprises in the 1990s got the ball rolling with their investment portfolio, but for me, it never seemed connected. More like passion projects than an intentional play to grow Arizona. Not to beat a dead horse but look at Atlanta, several massive exits through companies like Pardot and Salesloft, and those founders continue to be visible and invest in the ecosystem that invested in them.
One of my favorite movie lines is, “I was a Sun Devil Jerry, I went to Arizona State!” This line was delivered by Cuba Gooding Jr. in the movie Jerry Maguire. The Devils and the Cards being highlighted in a major movie in the 1990’s… as an Arizona native and ASU Alum, I couldn’t ask for anything more. I reference this line because there has been this cultural narrative since I was a kid, a lore about Sun Devil Football. It’s a sleeping giant, just waiting to erupt. Great weather, massive alumni base, huge media market… yet we are primarily delivered hope only to find despair.
How do we awaken the sleeping giant that is the “Silicon Desert?” A unified and intentional effort, driven and curated by our capital allocators, with backing from our corporates, schools, and successful founders would be one hell of a start.
