While San Diego is known for biotechnology and wireless, the region isn’t seen as a software powerhouse, despite clusters of data analytics and cybersecurity software expertise.
(TNS) -- Seven years ago, EvoNexus was a startup for startups.
The fledgling tech incubator floated between a couple of mostly empty office buildings, where voices echoed through abandoned cubicles. Off in a corner, it provided a few desks, Internet access and mentoring to a handful of San Diego startups at no charge.
Today, the echoes are gone. Since it opened, EvoNexus has given 134 companies a jump-start in its three locations — downtown San Diego, University City and Irvine. These firms have raised $297 million in angel and venture capital equity funding.
Seventeen have been acquired, pushing the total “outcomes” for EvoNexus companies — money raised plus the amount paid by acquirers — to over $1 billion.
While there are about two dozen incubators, accelerators and co-working office spaces available to help San Diego startups, EvoNexus has grown into the big dog. As such, it is a key component in the region’s efforts to position itself as an alternative to the increasingly congested and expensive Silicon Valley for startup companies.
If you compare San Diego to Silicon Valley, “there are pieces missing here from the startup ecosystem that you need to put together,” said Steve Poizner, former California insurance commissioner and gubernatorial candidate who founded tech companies in Northern California. “This is where I think EvoNexus has really taken charge and is driving toward this critical mass that is required.”
Poizner moved to San Diego about a year ago when his latest venture, education software platform EmpoweredU, was acquired by Qualcomm. He is one of dozens of tech executives who volunteer at EvoNexus.
“Silicon Valley, where I started three companies, is a wonderful place,” he said. “Every amazing, brilliant entrepreneur on the planet wants to go to Silicon Valley. But it’s just completely saturated.”
Sky high salaries and office rents make it difficult for Bay Area startups, which must compete with Google and Facebook for talented engineers, said Poizner. Gridlock traffic and steep housing costs, where the median price of a Silicon Valley home tops $1 million, have resulted in one-third of Bay Area residents saying they are ready to leave in the next few years, according to recent poll by the Bay Area Council.
“It would be such a great thing for the state of California – and the country – if Southern California could create a viable alternative,” said Poizner. “The environment down here could be equal to or better in so many ways. That is the big picture part of EvoNexus that I find compelling.”
EvoNexus is the brainchild of Rory Moore, co-founder of Peregrine Semiconductor, and retired Vice Admiral Walter Davis. It has its roots in the San Diego Telecomm Council trade organization, which later became CommNexus.
With the 2008 financial collapse, Moore and Davis aimed to help startups navigate the crisis by creating a different type of incubator – one with no strings attached for companies selected.
Some national incubators demand an equity stake — as much as 6 percent ownership — in the companies they mentor. Co-working spaces charge membership fees for use of desks and conference rooms.
EvoNexus is free, with costs covered by the organization’s sponsors such as the Irvine Co., Qualcomm, ViaSat and dozens of others.
At first, the organization’s board of directors was skeptical that a free incubator could succeed over the long haul, said Moore. But the fact that EvoNexus helps companies at no charge turned out to be one of its strengths.
“One thing that has really made it work is the fact that we get terrific mentors, and we get terrific (executive) talent to help us select the companies,” said Davis. “And that all came about because we made it free.”
Past and current executives from Qualcomm, Provide Commerce, Ericsson, Receptors, HP, Interdigital, ResMed, Verizon, Cisco, ViaSat, ID Analytics, CareFusion, Illumina, Nokia, Broadcom and several other companies volunteer at EvoNexus.
“It’s pro bono, and that is actually brilliant,” said Poizner. “Good for Rory and the Admiral for figuring that part out, because that is what gets people like me to volunteer their time.”
Another key milestone for EvoNexus was getting the Irvine Co. — San Diego’s largest office building owner – to donate space starting in 2010.
Others landlords were willing to participate, but Moore held out for the long-term business plan of the Irvine Co., which doesn’t sell its office properties.
The Irvine Co. houses all three EvoNexus incubators, which total 40,400 square feet combined.
Doug Holte, president of the Irvine Co., said EvoNexus gave it an avenue to get involved in San Diego’s tech scene — not only with young companies but with the region’s successful entrepreneurs who volunteer at the incubator.
EvoNexus graduates have become tenants for the Irvine Co. Hotle estimates ex-EvoNexus firms employing about 300 workers lease space in the company’s buildings. But Holte sees a larger benefit. Independent research suggests coastal California’s economy will be driven by knowledge workers and “technology enabled disruptors.”
“EvoNexus is right in the middle of what is going to be one of California’s competitive advantages,” he said. “I know they have ambitions to be Southern California’s premier incubator. So I could imagine us having an alliance with EvoNexus in LA, Orange County and San Diego” in the future.
The incubator also has worked to tap the region’s universities to find companies, such as satellite imagery outfit Tomnod, security software firm Tortuga Logic, drug delivery device maker Crisi Medical Systems and Aria, which makes technology to help the visually impaired.
“You would hear of an occasional spin-out of UC San Diego but not at this scale,” said Moore. “These are Ph.Ds., post-docs, university-originated ventures that applied to EvoNexus. I am proud of this because no one has done that before.”
It’s not easy to get into EvoNexus. Only about one in 10 applicants are accepted. The incubator’s sweet spot: Companies that are far enough along in their technology development and business plan to show potential, but aren’t quite ready to seek funding from investors, said longtime volunteer Steve Hart, co-founder of satellite broadband provider ViaSat.
“You have to be well beyond the good idea stage to get in,” he said.
EcoATM is the biggest EvoNexus success to date, selling three years ago to publicly traded Outerwall for $350 million.
Mark Bowles, co-founder of ecoATM, has started six companies in his career — many of them in Silicon Valley. He said San Diego lacks Silicon Valley’s density of investors and entrepreneurs. So “random collisions” between startups and people who can help them with funding or business advice don’t happen as often here.
EvoNexus attempts to mimic the Bay Area’s startup ecosystem inside the incubator, said Bowles.
“Three or four times a week Rory and the Admiral would introduce you to some dignitary — it might be the chairman of LG, Mayor (Jerry) Sanders or Bill Walton,” said Bowles. “Only one in four matter to you. But that one is important.”
An introduction to former Mayor Sanders, for example, helped ecoATM navigate discussions with law enforcement over fears that the company’s recylcing kiosks would become a haven for stolen cellphones.
“On the tech side, they do a tremendous job, and they are doing it without a lot of dough,” said Mike Kreen, president of the San Diego Venture Group. “I bet they see 80 percent of the quality startups in town. With each cohort of companies that come through there, they get better at what they do.”
There are a couple of missing pieces for San Diego to become a viable alternative to Silicon Valley for tech startups. Venture capital is the biggest. The region lacks a large, $100 million-plus fund focused on early stage Southern California tech companies, said Moore.
“Frankly, part of what EvoNexus is looking to accomplish is to increase the ability of young Southern California companies to stay and grow in Southern California and not have to relocate to Northern California to raise money,” said Hotle of the Irvine Co.
EvoNexus and the San Diego Venture Group are working on the money problem. But it’s tricky, without easy solutions.
“I talk to venture capitalists in Silicon Valley all the time,” said Kreen. “They say they are sick of the valuations in Silicon Valley. They like the valuations in San Diego. They love that our engineers don’t jump around from job to job. But when I ask will you come down here and hunt, the answer is no. We have plenty of deal flow.”
Another missing piece: While San Diego is known for biotechnology and wireless, the region isn’t seen as a software powerhouse, despite clusters of data analytics and cybersecurity software expertise.
“We have a lot of good software people. We don’t have critical mass by any means, and we are not seen as one of the great places for software (engineers) to go” said Hart, the ViaSat co-founder.
EvoNexus is working to change that by emphasizing software startups at its downtown incubator. Twenty-seven percent of EvoNexus companies over the years have been software firms. If a few of these firms grow and have successful exits, it would help raise the region’s profile in software.
“There are major companies like Websense and Fair Issac where we are seeing some of their core talent start to leave and start companies,” said Moore. “We have three ventures right now that came out of Websense. That’s important. Teams leaving the mothership to start their own company.”
©2016 The San Diego Union-Tribune Distributed by Tribune Content Agency, LLC.