Silicon saguaros are starting to flower
Arizona’s business start-up ecosystem is gaining traction
Tyler Scott, Research Analyst
I wasn’t sure what to expect when moving to Phoenix and the Valley of the Sun a year ago. I knew that Scottsdale was a popular destination for bachelor and bachelorette parties and that Arizona State University had one of the largest undergraduate populations in the country. I knew that McDowell Mountain Park was well known for its world-class trail system and that The Phoenix Open was always packed with people that seemed to be having a great time. I certainly had an idea of how hot the summers were but still wasn’t prepared for it. I had visited the Grand Canyon in my youth and understood the natural beauty that Arizona had to offer. What I didn’t expect to find was a business start-up and entrepreneurial ecosystem that was gaining steam and ready to blossom.
I was surrounded by a vibrant start-up ecosystem as an undergraduate student at Stanford University, where companies like Instagram, Snapchat, and SoFi were taking shape around the same time. You could say that Stanford has many of the brightest students in the country or that venture capital financing options are easily available for this cohort. You may be right, but many other top academic institutions have similar contingents and haven’t been able to find that special sauce that elevates an ecosystem’s standards and sustains it. In the case of Stanford and the aforementioned companies, their collaborative communities supported and thrived on mutual admiration, built what they were passionate about, and answered questions about solving problems that have yet to be solved1.
My first interactions in the Valley of the Sun left me surprised and curious about its business landscape. At times it was difficult to keep up with the number of new restaurant concepts that I’d hear about and wanted to try. I eventually realized the creativity and entrepreneurial spirit was not only reserved for restaurants, it was also applicable to a number of industries and firms across the Valley. While Arizona is known nationally as a politically conservative state, teeming with retirees and Canadians hiding from blizzards, I have come to appreciate it as one of the last unapologetically Western states in the country.
This Western spirit can be summed up by my alma mater’s motto “Die Luft der Freiheit weht,” German for “the West is where the ‘wind of freedom blows.’” This sort of change is starting to take place here in Arizona. However, a stigma still exists where Arizona is a back-office hub for large tech companies that appreciate the cheap rents and tax breaks the state offers. Amazon leaving Arizona off its finalist shortlist for a second headquarters hasn’t helped that illusion, but it doesn’t seem to have any effect on Arizona’s entrepreneurial traction – and, if anything, provides a useful chip on our shoulders that any proper Westerner should have.
Earlier this year I attended some local community events and saw firsthand where this exciting new ecosystem is headed. The Phoenix Committee on Foreign Relations “State of the State” address took place at a classic Arizona resort, the Montelucia, where Arizona Governor Doug Ducey spoke about how Arizona has developed strong relationships with our North American neighbors. He explained that Arizona is committed to working across borders for free trade regardless of the rhetoric coming from Washington.
The following day I was at the Smart Funding Summit, hosted by Big Yam, part of Bob Parsons’ Yam Worldwide portfolio. The summit was a more intimate event where I met some of the Valley’s entrepreneurs one-on-one and learned firsthand how new avenues for financing could have an impact on Arizona’s startup ecosystem. Rep. David Schweikert, a self-proclaimed libertarian and blockchain fanatic, was particularly enthusiastic about change in politics and his warm embrace of blockchain was both refreshing and surprising.
The next day I took part in Phoenix Start-up Week’s Blockchain Day, where the enthusiasm was sky-high. Rep. Schweikert was there too, and local Rep. David Weininger, who made a call-to-action for blockchain developers and entrepreneurs to get involved in the community to work toward solving local and national issues. I came away impressed by the concepts and ideas that were presented, but more importantly, with a feeling that Arizona may have had reached a tipping point, and there will be more Tuft & Needle / Carvana / GoDaddy success stories to come.
Recently Arizona passed House Bill 2434, known colloquially as the “FinTech regulatory sandbox” bill. This legislation will allow startups, entrepreneurs, and established companies the ability to test and launch innovative products and services on a limited, temporary scale without incurring the regulatory costs that would otherwise have been imposed on these firms2. It is expected that further legislation such as this will be proposed to promote the entrepreneurial spirit that exists here in the Valley of the Sun.
As an investment professional looking for opportunities in venture and growth capital, I find it exciting to have a ground floor view of the maturation of Arizona’s business environment. I believe that soon many more prestigious Sand Hill Road venture capital firms will invest in our community, and hopefully venture capital firms of its own will be developed in Arizona to further define the wild west landscape.
1 Johnson, T. (2018, March 28). A look inside Silicon Valley’s startup culture at Stanford. Retrieved from The Stanford Daily: https://www.stanforddaily.com/2018/03/28/a-look-inside-silicon-valleys-startup-culture-at-stanford/
2 Brnovich, A. A. (2018, March). Arizona Becomes First State in U.S. to Offer Fintech Regulatory Sandbox. Retrieved from https://www.azag.gov/press-release/arizona-becomes-first-state-us-offer-fintech-regulatory-sandbox
Tyler Scott, Research Analyst
Tyler Scott creates technology tools that provide insight and clarity to Versant Capital Management’s investment and wealth management processes and systems.