A high-tech mecca rises to rival Silicon Valley

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Josh James remembers it like yesterday. At a business event in Silicon Valley a decade ago, he struck up a conversation with a venture capitalist about Omniture, the web analytics company James co-founded in 1996. Today, Omniture is the quintessential start-up success story: After going public in 2006, the company was acquired by Adobe three years later for $1.8 billion. But a decade ago Omniture was just another tech company in Utah, evidently the least likely state a venture capitalist expected a public company to be.

“He said he wanted to come visit me and the team and asked, ‘Where are you guys at?’ When I answered Utah, he immediately turned around and walked away without saying another word,” James recalled.

John Pulsipher | Getty Images

An investor would be crazy to ignore Utah today, where the Silicon Slopes – a stretch of cities along the Rocky Mountains, from Ogden in the north to Provo in the south and Salt Lake City in between – has emerged this decade as a hotbed of tech entrepreneurship, plucky start-ups and impressive software companies worth at least $1 billion on paper.

Low taxes; cheap real estate; a pool of young engineering talent from the University of Utah, Utah State and Brigham Young; and a business-friendly environment have all converged to make Utah the top location for tech start-ups, right up there with founding teams in Boston and New York in the East or Seattle and Silicon Valley in the West.

The U.S. Chamber of Commerce recently ranked Utah No.1 in innovation and entrepreneurship, No. 2 in high-tech performance and No. 3 in economic performance in a study of all 50 states. The state also topped CNBC’s America’s Top States for Business list this year.

“It’s not surprising to see start-up formation in Utah,” said Ben Veghte, vice president of communications and marketing at the National Venture Capital Association. “There’s a natural progression that’s been happening over the last 10 to 15 years.”

The state, in other words, has a record of successful tech businesses. Among tech founders, investors and observers, the consensus is that the Beehive State’s Silicon Slopes are buzzing with potential.

It was Utah that gave birth to software companies Novell and WordPerfect in the late 1970s, followed in the 1990s by companies such as Ancestry.com, Omniture and Vivint Smart Home – first founded as APX Alarm Security Solutions in 1999. By the early 2000s a new crop of software companies would start up and grow big. Last year four such companies joined the unicorn club, including Domo, the business intelligence platform James founded in 2010.

Even established tech giants have moved to Utah. Adobe opened a 680,000-square-foot office campus in Lehi, between Salt Lake City and Provo, four years ago. Three years ago eBay opened a 241,000-square-foot facility in the suburbs of Salt Lake City and staffed it with 1,800 employees.

Venture capital funding, once sparse in Utah, has skyrocketed, from $299 million across 34 deals in 2013 to $732 million across 55 deals in 2015, according to the National Venture Capital Association. Most of that money goes to software companies in categories like sales, education technology, and smart home services, with the next highest portion of funding making its way to medical-device companies.

“It’s exploded in the last five years,” said Alex Dunn, president of Vivint, a Provo-based smart home technology service provider. “The amount of calls that I get from people I know, in Silicon Valley or Boston or New York, to be introduced to a company in Utah happens now every week.”

Vivint, which made $653 million in revenue last year and counts more than 1 million people as customers, raised $100 million in its first round of funding this past April. Contributing to the round were Solamere Capital, the firm co-founded by former presidential candidate Mitt Romney, as well as Facebook board member, PayPal co-founder and Hulk Hogan-lawsuit backer Peter Thiel.

“Utah has a long history of tech innovation across software, networking and internet infrastructure, but it’s probably in the last decade when all this started to take shape,” said Nick Efstratis, managing director of Epic Ventures, a Salt Lake City-based venture capital firm that has been doing deals in state for 16 years. Among its investments: Ancestry.com, InsideSales and AllianceHealth Networks. “Now Silicon Valley VCs look at this as a market where people know how to build big outcomes,” said Efstratis.

California is still king, however, with Silicon Valley and the San Francisco and Los Angeles metropolitan areas alone pulling in some $30 billion across more than 1,000 funding deals in 2015, according to data from the National Venture Capital Association. The venture capital markets in Boston and New York City also eclipse the size of the funding market in Utah.

“Obviously, it’s smaller than some of those really big markets,” said Sam Stoddard, co-founder of Provo-based SimpleCitizen. “But there’s just this entrepreneurial spirit in Utah. It was really, really easy setting up a company, because there was already this network of successful entrepreneurs who had been through this before.”

Weston Colton | Vivint Smart Home

That’s a point of pride for companies like Vivint and Omniture, who were operating for years without venture capital before taking funding or being acquired. In the Silicon Slopes, bigger companies operate for years, pulling in customers and revenues, before taking a dime of funding – or being recognized as a good candidate for venture money. For instance, research software company Qualtrics, one of the newest unicorn companies in Utah, was chugging along for a decade before taking $70 million in Series A funding in 2012.

New co-working spaces, such as Camp 4 in Provo, that have popped up over the last five years provide business support and cheap early office space for incubating that entrepreneurial spirit. And big companies, either homegrown giants like Vivint or other tech companies, with satellite offices in the state, now provide the career opportunities many people in the tech industry look for.

“I think the perception was, in order to really achieve a high level in your career, you have to go outside of Utah, and that is what has changed now,” Dunn said. “Now we’re able to get people from Boston and California and New York because now they have an opportunity to be involved in tech and reach the pinnacle of their professions.”

The cultural amenities aren’t half bad, either. Dunn said the region is ideal for people who love to camp, ski and mountain-bike and are interested in raising a family.

Local talent pool

The Mormon religion also plays a part in the state’s start-up success. The religion’s influence in the state has helped concentrate entrepreneurial talent, since graduates aren’t inclined to move far from where they have grown up. And while a culture that emphasizes family life over business priorities – say, being home for dinner every night – creates some conflict in the fast-paced world of tech, entrepreneurs and start-up boosters said the Mormon Church is a great proving ground for would-be tech founders.

“Our religion is very well known for its self-reliance and its focus on being self-reliant and providing for yourself when you can’t rely on other sources to help that,” said Jeff Brown, assistant director of the Rollins Center for Entrepreneurship and Technology at Brigham Young University. “We have this built into our DNA a little bit – this need to kind of push forward and push the envelope.”

Take SimpleCitizen’s Stoddard, who is Mormon and co-founded his company before graduating from Brigham Young University in 2015.

Still, start-ups in Utah have been flirting with Silicon Valley more and more. SimpleCitizen, which is trying to streamline the application process for obtaining a green card, is now spending the summer at Silicon Valley-based accelerator Y Combinator, although the company plans to stay put in Provo.

“Raising the capital’s obviously important, but at the end, it just so happens that Utah was a great place for the business,” he said.

“Utah has a long history of tech innovation across software, networking and internet infrastructure, but it’s probably in the last decade when all this started to take shape.” -Nick Efstratis, managing director, Epic Ventures

So big exits like Omniture’s have helped place Utah on the map, and knowing that the state is fertile ground for launching and growing a tech start-up has helped keep young entrepreneurs in the state. What’s more, Utah’s preeminence as a tech hub has received help from creative branding and state-sponsored economic measures.

The moniker Silicon Slopes grew out of a website and nonprofit of the same name formed in 2008 by Domo founder and CEO James to start promoting the state’s growing tech ecosystem. At the state level, current Gov. Gary Herbert, in office since 2009, has been active in pushing a tech-friendly agenda: Legislation passed last year allocated nearly $20 million to the Utah Science Technology and Research Governing Authority to support university research at Utah State and the University of Utah, as well as technology innovation.

“We’re in that virtuous cycle right now; we have momentum, and it’s just going to continue to grow,” said Troy D’Ambrosio, executive director of the Lassonde Entrepreneur Institute at the University of Utah, which is opening a $45 million dormitory and work space this fall for student-entrepreneurs.

For early pioneers like James, seeing the growth and excitement surrounding the Silicon Slopes vindicates the years Utah’s start-ups spent toiling in obscurity.

“We now have top-tier VCs coming to invest in the state, because they see the successes we have here,” he said. “You don’t have to be in Silicon Valley to build a successful business.”

– By Andrew Zaleski, special to CNBC.com