From the November 2000 issue of Startups

These days when someone says "start-up," they mean high-tech. Nationwide, there's a feverish rush to create the next hot tech start-up, the new Yahoo! or eBay (and do note the word "nationwide"). High-tech entrepreneurship has spread well out of Silicon Valley, and as the new millenium dawns, few areas of the United States aren't focused on tech. Vivid proof: In this year's ranking by Dun & Bradstreet (D&B) and Start-Ups, the Silicon Valley area doesn't even place in the top 10.

Sure, the Valley is still the planet's most techcentric slice of real estate-D& B estimates 100 percent of the business activity around San Jose is high-tech related-and it's home to the biggest tech names around: Intel, Hewlett-Packard, Sun, Oracle and more. But between the treacherously high cost of real estate (in some parts of the Valley, "fixer-upper" homes start at $1 million, and office rents are no cheaper) and a drum-tight labor market, many start-ups are launching elsewhere.

So the race for tech start-up capital is wide open. What's it take to become a hotbed of tech entrepreneurship? Experts wrangle over the exact ingredients, but there's general consensus that to be fertile turf for start-ups, a region needs several things: lots of brains, supported by good universities that churn out a quality labor force; investment cash, and that money could come from government programs, venture capitalists or angels; ethnic diversity-the more scramble a region, the tastier the tech omelette; and a supportive government-as much as that means a government the erects few hurdles that thwart start-ups.



 

It hurt in 1959 when Texas had to change the wording of its state song, "Texas, Our Texas," to edit out "largest," as Alaska had claimed that spot. In its wisdom, the state legislature scratched out "largest" and stuck in "boldest," and, OK, they produced a really boring "boldest and grandest, withstanding ev'ry test." But nowadays, Texas has every good reason to sing its song, because it can claim five of the top 10 tech hot spots: Austin (#1), San Antonio (#2), Fort Worth (#4), Dallas (#8) and Houston (#10). Wow! Maybe it's time to kick back with a longneck Lone Star and learn the rest of the words to "Texas, Our Texas."

Check out the complete list of the top 50 high-tech hot spots.

Texas may be in the lead, but it cannot claim a monopoly. Among the leaders, New Jersey, for instance, claims #6 (Middlesex/ Somerset/ Hunterdon counties) and #11 (Monmouth/ Ocean counties). California owns #13 (San Jose), #16 (San Francisco) and #18 (Orange County). Florida, too, has multiple top 20 towns-Orlando (#5) and Ft. Lauderdale (#19).

What may be most exciting about this year's ratings is the geographic spread. That's why the big lesson from the D&B rankings is that wherever you are, it's safe to think start-up. Today, tech is everywhere.

Want sharper insights into precisely which regions are shining? Read on for snapshots of some of this year's highest-ranked cities.

How did we create this list?

You think our ratings are screwy? Argue with Dun & Bradstreet, the folks who put them together for us. (They didn't use Tarot cards or a Ouija board, either.) This was serious number crunching, with the final scorecard shaped by two key sets of numbers:
1) The percentage of businesses in the region that count as high-tech.
2) The percentage of those businesses that qualify as entrepreneurial start-ups.

D&B looked at 60 MSAs (metropolitan statistical areas) that qualify as large (more than 1 million residents) and another 79 that are midsized-between them, these categories include every major city in the nation and many minor ones, too. For its raw material, D&B used its voluminous business information file, which includes pretty much every company around. So some regions may dislike these rankings-but they are the facts, just the facts.

#1 Austin, Texas

Make it a two-fer-because last year, Austin also topped this list. By now, there's no question that the transformation of this Texas town into a global tech powerhouse is complete. Best news about Austin just may be that it blends blockbuster home-grown tech successes (Dell, Vignette) with entrenched tech leaders that maintain large, local presences (Motorola, IBM) and an ever-growing roster of start-ups. Add in the vibrancy provided by one of the nation's best and biggest universities-the University of Texas, Austin-and there are the ingredients that make for a winning tech hub. Talk with Austin folks, and they exude civic pride-they definitely like where they are.

Why it's hot: The big plusses are the obvious ones-the established tech businesses and the university. But there are many more, including an affordable housing market (nice homes sell for under $200,000); a strongly youth-oriented culture that's fueled by UT; "pay scales that are lower than in Silicon Valley," says Rob Carruthers, managing partner of the Austin office of STARTech, a high-tech business accelerator; and "favorable taxation rates," adds Carruthers, who points out that Texas doesn't have a state income tax.

What's not hot: Ouch, it gets literally hot in the summer-but that's not the biggest negative here. "[It's] the traffic," says Betty Otter-Nickerson, chair of the board of directors of the Austin Software Council and a vice president at BMC Software, an e-business systems management provider.

Another negative: "In the past five years, the cost of living here has jumped," says Carruthers. And another: "The labor market is super tight," he says. "Fortunately, it's still easy to recruit people to work in Austin. People moving here from California, not people moving there."

Hot eats: For breakfast, go to the swank Four Seasons downtown; lunch at Z Tejas Grill; end the day with supper at Louie's 106. Want to meet Michael Dell? He often eats at Sullivan's Steak House, which is always filled "with bigwigs doing deals," says PR executive Angela Garris of the PetersGroup.

Hot networking spot: The place to meet and greet is the popular High Tech Happy Hour (HTHH). Host 33-year-old Harry Pape, founder/president of Networker.com, says 1,250 people dropped by a recent HTHH. Proceeds go to charity. Contact Pape at harry@austin.rr.com.

 

A dozen years ago, Julie Fergerson was a fresh dropout from the University of Texas, Austin ("I liked the tech classes, but English?"). Flash forward to now, and the 32-year-old is Chief Technology Officer and a major shareholder of Austin-based ClearCommerce Corp. (www.clearcommerce.com), a company she co-founded in 1995 and which today is a leading provider of e-commerce transaction software. Its tools process credit card payments and guard against fraud, and customers include name-brand outfits, from Mary Kay Cosmetics to Hewlett-Packard and Apple Computer. This is one very hot company-in February 2000 it raised $30 million in a venture funding round (with money coming from local VC firm Austin Ventures as well as global players like Intel)-and, says Fergerson, the Texas location is all to the good. "We have customers on both coasts, and, being centrally located, it's easier for us to serve all of them," she says. "We find it very easy to recruit the people we want, and, once people live in Austin, they don't want to leave." Herself an Ohio native whose family moved to Dallas when she was a high school senior, Fergerson adds: "This is beautiful country. There are lakes everywhere; it's green most of the year. You quickly learn to love it."

Oh, and Fergerson loves her work, too. "Here I always get to play with the best toys. This is my dream come true."



 

#5 Orlando, Florida

The mouse is roaring loud now because Orlando can claim to be every bit as big a deal as Texas on the tech scene. Last year, it placed #8; this year, it's climbed three spots, and the future trajectory will be straight up as the region's tech reputation spreads, says Mike Kovac, executive director of High Technology Engineering Development for the University of South Florida. He adds, "Five years ago, we set out to market Orlando/Tampa as a high-tech corridor, and we've been succeeding."

Who's there? The big player is Lucent/Cirent-the AT&T spin-off that's a leader in providing the infrastructure that powers the Internet-but there are hundreds of smaller companies. And Orlando wants to keep growing. "The government is very supportive," says John Krug, a vice president of the Metro Orlando Economic Development Commission. A giant Orlando plus: "Every year, millions of executives vacation here. They like what they see, and many think about living here full time," says Krug. That's a boost both to recruitment of employees and campaigns to get whole companies to relocate.

Why it's hot: "This is as close to a tropical paradise as you can get but still be in a metro area," says Krug. Add in affordable housing and business costs, and Orlando is sold.

So it's hard to find venture capital in this city-not a problem! Read The Truth About Venture Capital to work your way to start-up cash.

What's not hot: "There's still not enough local venture capital," admits Kovac. "It's increasing, but we need much more." Another drawback: Vacationing hordes can clog roadways in the summer.

Hot eats: The "in" place is the Citrus Club, says Jackie Kelvington, director of PR for the Metro Orlando Economic Development Commission. Another "in" eatery: Pebbles downtown.

Hot networking spots: Orlando offers plenty of meeting spots, including the Church Street Station Presidential Ballroom or any of the events put on by the Central Florida Business & Technology Incubator.

Follow The Money

Feast on this: In the first quarter of 2000, $17.22 billion in venture capital flooded into fledgling firms, a hefty increase over the $14.68 billion recorded in 1999's fourth quarter, according to PricewaterhouseCooper's Money Tree Survey. "This is a rising tide that is raising many boats," says Kirk Walden, PricewaterhouseCoopers' national director of venture capital research.

Bright news in recent surveys is that "more funding is occurring in more parts of the country," says Walden. Silicon Valley still comfortably leads this pack (the Valley got 36 percent of all venture funding in Q1 2000), but the fastest rate of growth in venture funding is elsewhere. "We're seeing much more venture funding in Atlanta and Chicago, for instance," says Walden, who adds that VC firms are looking pretty much everywhere in a hunt for prospects to fund. "The VCs are putting feet on the street around the country."

They are finding plenty of businesses to fund, too. In Q1 2000, 1,423 companies won venture funding by the Money Tree count, and that's up from 732 companies a year earlier.

But big as this VC money gusher is, it's still tough to win a share of this investment capital, even for tech start-ups. "Funding rates at VC firms range from one in 200 business plans that get reviewed to one in 1,000," says Walden.

Another dose of hard news: "Established VC firms increasingly are reluctant to make investments under $500,000," says Walden-and many firms are setting their minimums at $1 million. Why? Demands on partners' times are much the same, whether an investment is for $50,000 or $5 million, and with partners engaged in a hectic search for bright new prospects, the big firms seem to have decided to put more money into every deal that gets done. A lesson to learn: When seeking VC cash, be prepared to make a credible case for receiving substantial funding.

What if that door is closed? Do as start-up entrepreneurs have always done: "Angels remain a primary funding source," says Walden, who acknowledges his firm doesn't track the scope of investments by these friends and family members but concludes that angels are often the best bets for small, early-stage start-ups.

Find out more about this PricewaterhouseCoopers research by visiting www.pwcmoneytree.com.



 

#7 Atlanta, Georgia

"I could live anywhere, but Atlanta is where I choose to live," says Lloyd Solomon, director of the Yamacraw Seed Capital Fund, a Georgia-sponsored program that aims to pump cash into tech start-ups. "We are a world-class technology city." There's reason for that confidence. Big players call Atlanta home-the marquee names are Earthlink and WebMD-but the tech sector runs deep. "We have 200,000 workers in 10,000 companies," says Hans Gant, senior vice president of economic development for the metro Atlanta Chamber of Commerce.

Why it's hot: Georgia Tech offers brains as bedrock, and Atlanta has built out its strengths. The city has one of the globe's best telecommunications infrastructures, low costs of doing business and living, and a powerfully growing enthusiasm for entrepreneurship. Another plus: venture capital has been flooding the region.

What's not hot: Summers are plain horrible. Also, fast growth has spawned legendary traffic jams. A third problem: Some of the country still sees Atlanta as the Deep South, and that label means the town is perceived as backward-an issue in recruiting staff.

Hot eats: Try the Buckhead Diner-don't miss the homemade potato chips served with warm blue cheese dip. Another must-eat: the White House Restaurant. "Lots of deals get done there," says Denise Garner, an account executive with Duffey Communications.

Hot networking spots: The annual Georgia Technology Forum is "the hottest event in town," says Rebecca Thompson, senior account executive with Manning Selvage & Lee PR.

#14 Las Vegas, Nevada

Don't blink your eyes; you read it right. Tech entrepreneurs are storming into town, with Lowestfare.com and Travelscape.com leading the pack. But there are hundreds more companies, mainly small operations. That's a plus for fledgling entrepreneurs: "Do you want to get out of the shadows of big companies? Come here, and you can be a big cheese," says Doug Lein, interim manager for economic development for the city of Las Vegas. "We are a city of start-ups."

Why it's hot: "We take [recruits] to see houses they can buy here for $150,000-and we bring along a job application. When they see the houses, they want to work here," says Chris Carton, president and CEO of PurchasePro.com, a provider of b2b e-commerce solutions.

Other plusses: Despite Vegas' rep as a wild party town, Carton says that away from the Strip, "Las Vegas is a calm, well-run and well-kept city. It's a great place to raise a family." A key advantage: There's no state income tax, so employees get an immediate de facto boost in pay.

More advantages: "We have the space for businesses to grow, at comparatively low costs," says Joseph Marcella, who manages information technology for the City of Las Vegas. And for start-ups, simply getting going is a snap: "Our government is very pro-business," says Lein. "It's easy to start a business here."

What's not hot: Several of our top tech towns get low marks for weather-but Las Vegas is dead last, at least in summer. Another drawback: The city's got growing pains. "The whole town can seem as though it's under construction," says Lein. A last problem: Wall Street is struggling to see Las Vegas as a serious place to do business, and that can complicate raising cash.

Hot eats: For lunch, get a table at the Carson Street Cafe-locals say you frequently see heavyweight politicians, corporate big-wigs and others.

Hot networking spots: Grab a pint at Gordon Biersch. And mark your calendar, because every year, the mother of all tech events, COMDEX, is held in Vegas, and locals have a ringside seat. This year's will be November 13-17.

#16 San Francisco, California

San Francisco is a city of endless reinvention-and now, again, it's recreating itself as one of the most dynamic hubs of Internet and e-commerce activity. "Talented people just like living and working in San Francisco," says Jon Gregory, president and CEO of Golden State Capital Network, a nonprofit organization that provides assistance and access to capital to businesses.

What's hot: Talent, money and an entrenched entrepreneurial culture: "All the related resources are at hand," says Mo Bjornestad, development director for the Bay Area Regional Technology Alliance, a state-funded agency dedicated to helping tech businesses grow.

What's not hot: Got bucks? If you don't, "the City" is a tough playground. One-bedroom apartments in so-so neighborhoods go for $1,500 per month-and there are often waiting lists of prospective tenants. Office rental space is about as pricey, and vacancies are few. Other hassles: traffic and parking. However, a first-rate public transit system, Bay Area Rapid Transit, or BART, alleviates some of that problem.

Hot eats: Elizabeth Ripley, the marketing communications manager with hot b2b dotcom WorldRes.com, points to 42 Degrees and Moma's. Lots of dotcommers favor both eateries. A third choice: Moose's, where the City's heaviest hitters hang out. Big deals get done at the bar.

Hot networking spots: The hot ticket is the Friday night bashes hosted by trade publication The Industry Standard. Also hot: the San Francisco Bay Club, a members-only workout salon. Try dotcom launch parties-they're lavish, with invites easy to come by.

The List

Well, here they are, the top 50 hot spots for high-tech biz:1. Austin/San Marcos, TX
2. San Antonio, TX
3. Salt Lake City
4. Fort Worth/Arlington, TX
5. Orlando, FL
6. Middlesex/Somerset/Hunterdon, NJ
7. Atlanta
8. Dallas
9. Ralieigh/Durham/Chapel Hill, NC
10. Houston
11. Monmouth/Ocean, NJ
12. Seattle/Bellevue/Everett, WA
13. San Jose, CA
14. Las Vegas
15. Denver
16. San Francisco
17. Washington, DC/MD/VA/WV
18. Orange County, CA
19. Fort Lauderdale, FL
20. Phoenix/Mesa, AZ
21. Sacramento, CA
22. Norfolk/Virginia Beach/Newport News, VA
23. Baltimore, MD
24. San Diego
25. Portland/Vancouver, OR/WA
26. West Palm Beach/Boca Raton, FL
27. Miami
28. Oakland, CA
29. Riverside/San Bernardino, CA
30. Tampa/St. Petersburg/Clearwater, FL
31. Memphis, TN
32. New York City
33. Columbus, OH
34. Jacksonville, FL
35. Bergen/Passaic, New Jersey
36. Boston, MA/NH
37. Charlotte/Gastonia/Rock Hill, NC/SC
38. Los Angeles/Long Beach, CA
39. Nashville, TN
40. Minneapolis/St.Paul, MN/WI
41. Newark, NJ
42. Chicago
43. Rochester, NY
44. Kansas City, MO/KS
45. Cincinnati, OH/KY/IN
46. Detroit
47. Philadelphia, PA/NJ
48. Greensboro/Winston/Salem/High Point, NC
49. Hartford, CT
50. Cleveland/Lorain/Elyria, OH
 

Atlanta Chamber of Commerce, (404) 586-8456, hgant@macoc.com

Bay Area Technology Alliance, mbjornestad@barta.org, www.barta.org

City of Las Vegas, (702) 229-6551, obd@ci.las-vegas.nv.us

Duffey Communications, (404) 266-2600, ext. 250, dgarner@duffey.com

Golden State Capital Network, jon@goldencapital.net, www.goldencapital.net

Manning Selvage & Lee PR, rthompso@mslpr.com

Metro Orlando Economic Development Commission, (407) 422-7159, kelvingj@business-orlando.org

PetersGroup, angela@petersgrouppr.com

STARTech, www.startech.org


Robert McGarvey lives in Sonoma County, California. He is Start-Ups' "Secrets" columnist and author of How To Dot.Com (Entrepreneur Press).