Part I: Growing the Best Damn Innovation Ecosystem on the Planet
Years 2014–2019: The Recent Rise of the San Diego Innovation Economy- Bootstrapping, Grinding & Creative Focus
INTRODUCTION:
This article is focused on the “recent” rise of San Diego, and Connect’s role since 2015.
The graph starts the story. How did San Diego go from a region that was a perennial $1B a year market, to 5x that in just five years? And equally important, we transitioned from a market that was primarily life sciences focused, to one strongly diversified across both the tech and life sciences spectrum.
And all with essentially no VC’s headquartered out of the region. This is that story.
Since 2020, San Diego is regularly the 5th largest venture region — behind only the mega markets of Silicon Valley, Boston, NY and LA.
BACK HISTORY: 1984–2014 (Short Version)
Connect was founded in 1984 by a small group of San Diego legends. From tech, life sciences, venture and academia. The organization was the first accelerator in the nation. More relevant perhaps: there is a good chance none of us would be here thriving in San Diego’s innovation economy if not for this handful of innovative leaders. We all stand on their shoulders.
1984: Connect was founded by regional tech and life science leaders including: Irwin Jacobs, Mary Walshok, Buzz Woolley, David Hale, Richard Atkinson.
If you’re curious about the start of Connect, and the very beginnings of the San Diego innovation ecosystem, I encourage you to read the book “Invention and Reinvention: The Evolution of San Diego’s Innovation Economy” which was authored by Mary Walshok, one of San Diego’s all-time champions.
FAST FORWARD
THE CURRENT STATE OF THE MARKET IN 2014
The local market was fledgling. There was a solid infrastructure with quality law firms, banks, universities, research institutions, etc. But there was very little capital available for startups. San Diego was known as a region that produced acquisitions — founders would bootstrap and sell their companies for double-digit millions. Outside of Life Sciences, there were very few Series A or Growth rounds.
And while the life sciences market was fairly well-established, with VCs coming in for board meetings, it was still difficult for first time founders.
The pain was tangible. Just ten years earlier, San Diego had been home to three large venture funds: Enterprise Partners ($600M), Mission Ventures ($250M), and Forward Ventures ($200M); along with Windward Ventures ($75M), Hamilton Ventures ($75M) and Shepherd Ventures ($60M). All six were done — none had made a new investment in ten years. No new funds had taken their place in the market. There was little to no resident capital, and no sign of any funds opening up shop.
There were also very few large corporates in the region — Qualcomm, Illumina and SDGE were the lone three Fortune 1000 companies in the region.
Supporting Characters: The Community of NonProfits
As a $1B market, the community was led by a relatively small group of people that all knew one another. The line was “if you know these 20 people, you’ve got 80% of the deal flow.” But of course, that’s because there wasn’t much deal flow.
There were four organizations that were central and relatively well-recognized in 2014:
- Biocom is still a well-established trade group that supports the biotech industry in San Diego and in the Bay Area. Biocom is well-regarded by the companies in the industry, and is extremely well-connected throughout the biotech community with both CEOs and investors. But Reality check 2014: Their business model is driven more by trade group metrics (their purchasing group in particular), than being a regional community support organization — at least for early stage companies.
- The SD Venture Group hosts a monthly panel at a local hotel. They typically draw between 150–250 guests per event — mostly service providers. They do well bringing VCs in to talk on panels, and host an annual Venture Summit gathering. But Reality check 2014: The group is good at gathering, but poorly financed, and has just 1.5 staff. The board knows very few VCs, and very few venture-backed CEOs. It’s viewed as old school.
- Connect is the historical regional leader. It has the largest operating budget, and is well-entrenched with the leading service provider organizations. The board is older, but well-established. Connect leans more towards life sciences than tech at the time. But Reality check 2014: some would say Connect had stagnated, and didn’t evolve. They don’t engage investors and venture-backed CEOs well. They are perceived as “old” by the younger generation, particularly the tech crowd.
- StartupSD is two years old now. The grassroots organization is disrupting Connect and SDVG — in a good way for the community. They have little budget, but in particular, they do a great job of gathering young professionals. But Reality check 2014: They do nothing in life sciences, have little financial resources, and are antagonistic with the established leaders at Connect. With little “gray hair” around the table, they are perhaps a tad green in their strategy to build an ecosystem.
THE RISE OF SAN DIEGO
Scrappy Reboot: The formation of StartupSD in 2013 was a wake up call to the market. Clearly, the younger entrepreneurs felt the existing market support wasn’t sufficient, and so they self-organized to create a new nonprofit. That was a market message in-and-of-itself.
San Diego StartupWeek was born. Startup crawls were led downtown. Speed mentoring sessions began. The group brought a different attitude and energy to the community. They were feisty. Demographically, they dominated the social media channel, and did a great job engaging the younger set in the region.
However, without a meaningful budget, and without a paid Director — they ran lean. Their content seemed to primarily gather young, first time entrepreneurs. But they were good at that. With that group now gathering with some regularity, it was even clearer that the key missing piece in the market was access to funding.
San Diego Venture Group:
In late 2014, I was recruited to lead the San Diego Venture Group (which would merge with Connect in 2019).
I remember specifically a set of comments from local leaders within my first two weeks:
- The head of the leading regional accelerator told me: “Mike, SDVG and Connect should just dissolve and die. They are just in the way.”
- I also heard more than once: “The entrepreneurs are whiners. Good companies can raise money;” as if there was no problem; and
- Also regularly repeated, the strategy of wishing: “If we could just get a fund (or two) to open an office here, all will be better.”
An internal assessment of SDVG (and the town at large) revealed a couple of key findings: less than five people in town had a VC rolodex of more than 10 VCs. And the venture-backed CEOs were not engaged anywhere.
Though SDVG was admittedly a little “tired,” it provided a platform. There was a large, well-connected board, and a brand to leverage. We continued the breakfast meetings as a way to gather a subset of the community, and provide a voice. But behind the scenes, we were pivoting — to proactively focus on bringing venture capital dollars to San Diego — knowing there were multiple objectives necessary to execute on.
VCs and Entrepreneurs
We knew we needed to build relationships with VCs. Leveraging my previous learnings running Venture Pipeline, the goal was to become a source of high-quality, vetted deal flow. We have good companies, better valuations, less competition.
I took trips to Silicon Valley. Regularly. I’d do 2–3 VC meetings on day one, spend the night, 2–3 meetings on day two, fly home. The majority of meetings were pleasant, but in reality, it was easy to see that most investors had little interest investing dollars into San Diego.
In fact, the head of the National Venture Capital Association told me point blank (nicely): “I don’t want to mislead you and waste your time. Unless it’s spectacular, it’s highly unlikely we will do anything in San Diego.” (Today that same firm has a unicorn investment in San Diego.)
From the start, our operating philosophy was always entrepreneurial. Like the companies we represent — we’re a startup. We still are. And in this particular instance — it was a numbers game, coupled with a timeline. We needed to generate interest, hit milestones along the way, and demonstrate traction. We were the proverbial marketplace deal.
We needed to talk to a lot of VCs. I visited over 100 VCs, face-to-face, over the first 12–18 months.
On the other side of the marketplace, we needed high-quality deal flow. We also needed to have sufficient variety, such that we could follow-up those VC meetings with quality introductions. That aspect was going on simultaneously back in San Diego in between meetings.
[Sidebar: it’s worthwhile to note: Every company we sent was never going to be funded on the first, second or third try. The key was to simply have “good companies.” Don’t send crap, don’t embarrass yourself, make a good impression.]
Cool Companies:
We re-invented the Cool Companies program, which was a gathering of 30 companies at a local law firm office. (Kudos to Dave Titus, SDVG and Mintz Levin for giving us a framework to work with.) At the time, Cool Companies were selected in a simple way: provide 25 words on “why you’re cool.” That was it.
In 2015, we somewhat sneakily re-engineered the program, and moved it to a neutral site. We told our board we were going to get 30 VCs to San Diego — for a private gathering with them. We beefed up the application process, read decks, and vetted companies. Most people thought we were crazy.
I spent months literally begging VCs to come to San Diego. I promised they would see good deals. I assured them it was possible to build a company in San Diego.
We got 30 VCs to come.
We didn’t have any money. We bartered with a local real estate broker who opened up the empty 8th floor of a downtown office. We brought in belly bar tables and beers. 30 CEOs each stood at a table, and we moved the VCs around in two minute rotations — speed dating style. It was equally lame and awesome at the same time.
One of the companies that showed up was Cloudbeds. I still laugh that we didn’t even have company names at the tables. Cloudbeds was #5. (They’re now a unicorn.)
Thirty VCs met thirty good companies that year.
The CEOs of the 210 Club
Simultaneously, we were gathering an important third leg to the stool. We needed to gather the venture-backed CEOs. Given there weren’t many venture-backed CEOs — we set the bar low — comically so by today’s standards. We created the “Two Ten Club” — where you had to have raised at least 2 million dollars, or have $1 million in trailing revenues, with zero assholes allowed. Two, one, zero. There were no fees or requirements — we just gathered the group and grew it over time.
I would tell VCs that our CEOs were scrappy. That our companies solved hard problems. (That wasn’t hyperbole.)
I met Oren Zaslansky (CEO of FlockFreight) in Vista that year. I’ll use the adjective “industrial” to describe his office, he used a different term. I remember Oren saying — “I’m not spending what little capital I have on space — we’re building a company.” And he proceeded to do that.
Oren got term sheets from multiple VCs that year. Each came with a caveat: move your company to Silicon Valley. That was the norm then in San Diego— if you wanted capital, it required moving north. Oren turned them all down, until he found one enabling him to continue building in San Diego. (FlockFreight is now a unicorn.)
There were three other CEOs that contributed mightily to San Diego’s venture rise:
- Doug Winter, CEO of Seismic. On his third startup, he built the company from the start with a view towards going public.
- Adam Harris, CEO of Cloudbeds. Adam had a big acquisition offer. It would have been life changing. Ultimately, he turned it down, and took on a growth round.
- Afif Khoury, CEO of Soci. Similar to Adam, Afif had a great acquisition offer. He too turned it down, and continues to build his company.
Those companies brought growth capital to San Diego. Jackson Square led Seismic, JMI jumped in behind them. Meanwhile, Peakspan recognized the the broader opportunity, and came in aggressively, leading five growth rounds in the span of two years.
And that’s when you could feel the transitional change. We no longer were a town that built companies to be acquired. It helped us in two key ways: (1) It changed the narrative of the story we were telling investors, and (2) it enabled us to create FOMO.
2016: Cool Companies Take II:
People assume the second annual Cool Co’s was easier than the first. I thought it would be too. Boy was I wrong. The feedback I got from VCs was “we just did San Diego last year. We saw it. Thank you. We want to go to other markets now.” I remember hearing about Toronto.
Back on the horse — more begging. Fresh faces. We put in the work, did all the meetings, and got 40 VCs to San Diego. It was hard work. But we did it. They saw good companies again.
2016: Connecting San Diego to Silicon Valley
Our thinking was always, “waiting and hoping for VCs to come south” is not a strategy. And like the scrappy entrepreneurs we love, our approach was… “the money’s up there — so let’s just go get it.” But we had to connect those dots back to the community. While metaphors are nice — we wanted something more tangible.
We noticed that many countries had offices in Silicon Valley. There was Enterprise Ireland, Czech Invest, Holland in the Valley, etc. So obviously we thought — why doesn’t San Diego have an office in San Francisco?
We presented the idea at our Venture Summit event in Fall 2016, with a goal to raise $200,000. We wanted a two-year lease. One hundred percent of the funds we raised went to the office. No G/A or overhead charges. We opened up the office in Jan 2017.
It doesn’t get more “community” than that. And we thank each of those individuals that helped make it happen.
Once again innovating — we became the first city to open an office in Silicon Valley. We went in strong. We took down a six person office, in the heart of San Francisco — grade A space inside the WeWork with a view.
We made the office available for all startups to use, 100% free of charge. I also used it personally as another fun poke-in-the-ribs, when I’d travel up to meet VCs. “Would you like to meet at our San Francisco office?” I would always ask. Comically, I don’t believe I ever held a single VC meeting there, but it did its job — it made an impression.
The most important accomplishment of that office was centered on two key elements: (1) it permeated the minds of San Diego’s startup community that capital was just a short flight away; and (2) they knew someone was championing their cause. (And .. of course, free space!!)
2017: Talent Issue
Next up was the talent issue. We heard this from two sides. From the VCs, we heard loud and clear they thought San Diego talent was subpar. It was frustrating. If I took a resume, and switched out the job history from Silicon Valley companies to San Diego companies — the perception of that person’s talent would decline by 40%. Same person. Just valued differently.
Simultaneously, our local universities were lamenting the flight of graduates.
I remember vividly being in a meeting with San Diego leaders, and people debating how we might stop engineers from jumping a plane to San Francisco upon graduation. It struck me, and I said it: “who the hell are we to tell some 20 year old graduate not to chase his/her dreams?” I got some stares and some glares. But there was also a second part: “Why not let them go up there, get trained up, and three years later, when they realize what they’re missing — let’s recruit them back.”
And so, an idea was born. An idea, of course, that no one else wanted to lead. So once again, we said .. WTF, we’ll do it.
We stuck our necks out again. But like all things, we thought we could have some fun with this too. It was Cait Kelly, Nicole Leandra, Ariel Ruben and myself. None of us had a lick of experience with HR or recruiting. Whatever, right? So .. we gathered some HR leaders, and pitched a crazy idea: Let’s take 40 companies, go to the heart of Silicon Valley, and recruit engineers.
We took 40 companies to Mountain View (my old hometown) — and 1300 engineers showed up. It still cracks me up that we pulled it off. The line was out the door.
But more than that — we tried to make an impression that was bigger than just that day’s venue. We launched a website: sandiegoisbetter.com. And we ran billboards on the 101, a mile from Sand Hill Road, and put cheeky messages up: “Have You Checked The Surf Report Today?” and things like “Flip Flops are the New Hoodie.”
We believe we were the first region to ever go to Silicon Valley to try and poach talent. Later, other regions followed. But to think three knuckleheads with zero experience pulled this off — don’t ever sell yourself short on what you can do.
2018: DO THE WORK & BUILD
The fiscal impact, the results of three years of hard work, was just starting to take hold.
Doing the Work: 2015 through 2018
It’s important to note in the midst of all these large efforts, over multiple years, our little team of three was still blocking and tackling.
Companies seeking to raise money were always there — we talked to them all. Unlike a VC that just says “no thanks,” we take the time to explain why they’re not ready and how to improve. And if you figure 99 percent of companies don’t raise venture — you can figure out how many conversations that is.
We continued to build Cool Co’s. Better companies, better distribution of technologies, more VCs. Venture Summit drew over 600 attendees. We created the Life Sci Luminaries dinner, and invited our friends at Biocom to participate. We created the Life Sci Catalyst awards, to recognize Biotech leaders under the age of 40. Again, we invited Biocom to play with us.
We couldn’t maintain the SanDiegoisBetter website — we had too much going on. Our friends at the EDC took the baton, and did a great job creating SanDiegoLifeChanging as a brand.
Two years prior, we helped our friends at StartupSanDiego recruit Mark Suster as a keynote — which drew the largest crowd in their history.
We worked hard to extend the olive branch. We worked with EvoNexus and the TechCoast Angels.
Rather than promote ourselves, we promoted the region. We worked hard to put our best companies in front. We worked with the local press to feature 12 startups, with the idea we could point back at them years later as success stories. Nervana was one such company…
We had been talking to leadership at Connect now for over a year. I wanted a merger to happen. I wanted less confusion in the market, less redundancy, and more fuel. In the process, I admittedly pissed a few people off. It likely added an extra 12 months to the process.
And that takes us to Phase II — years 2019 to the present. Continue on in Medium should you like…
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Some Community Notes
(For Those Wanting to Build a Community)
Posers
When we first got started, the landscape was littered with “posers.” They are a huge negative drag on a market. It was important to weed them out, not just in our group, but across the community. It was one of many reasons why communication and collaboration are so important.
The biggest drag were those that called themselves “venture” whatever. They call themselves angels sometimes too. But the truth was — they didn’t ever invest. Or at best, it was exceedingly rare or once in their past. They talk a good game, they want invites to everything, they take lots of meetings — but they don’t invest. A variation of these people are the ones that invest, and then attach themselves to the company as a requirement of their investment, and then they extract their investment back out through fees or consulting agreements.
They would show up at investor only gatherings. Not only did they create a net drag on the entrepreneur community, they did that as well with the investors.
We weeded them out.
The second category are the “mentors.” Certainly, most advisors and mentors are quality individuals, but there is a small subset looking for deal flow, so they can pitch themselves as board members or consultants. That’s not good mentoring.
We weeded them out too.
FWIW — these two groups still exist, especially online and on social media. They give advice all the time, because that is the one utensil they have in their drawer. Feel free to listen, read between the BS, digest any worthwhile nuggets, but don’t engage.
The Do-Ers.
There are a lot of people in the community that post. They write books. They show up at all the meetings. They talk about “the market.” But they don’t “move” the market forward. They want to be out in front of the wave. They’re fine people, they bring energy, they spread the word. But if you really want to make an impact across a community — you need people that DO. They’re often not prolific on social media, largely because they are too busy DOING.
Moving a market doesn’t happen from one person’s efforts. It doesn’t happen overnight. It happens because there are different individuals, organizations, and leaders simultaneously lifting up separate poles of the tent. Don’t overlook the doers — they are the ones who really truly understand what it takes. Help them achieve, put a hand on their backs and push. The others are just out in front telling you to “look here.”
Acknowledgements
It is important to note that we all stand on the shoulders of others.
In this case — SDVG provided a platform from which to build on. It gave me a soapbox on which to shout from. Dave Titus, a former VC and the first President of SDVG made that possible.
Three other individuals were pivotal to the success of the group: Cait Kelly (still with Connect); Nicole Leandra, and Ariel Ruben. We were just a handful, with big ideas and a plan.
The Village
While there were easily 20+ key service providers leaning in on the mission, two individuals brought their extensive rolodexes along with a consistent effort — sharing their network and making key introductions over multiple years. They didn’t view their relationships as proprietary, and it’s hard to explain how important that was to the build. Eric Otterson (Silicon Valley Bank) and Randy Socol (DLA Piper) deserve the region’s appreciation.
Brittany Meiling was a young reporter at the San Diego Business Journal. She waged a personal battle inside the organization to launch a “Startup Page” within publication. She broke the seal. A publication that was once almost entirely real estate and old business, is now 70% innovation focused.
A number of individuals, while mostly doing their own thing, contributed to the region’s success. While we cannot note them all, Neal Bloom was early and hands-on, touting the region’s successes, and being a voice for the region. And Rory Moore (along with his friend Admiral Walt David) took an organization that was fledging, pivoted it and created EvoNexus — the first true accelerator in the region. Rory busted his hump to help build quality companies in San Diego.
Challenges & Assets:
Every region has its strengths and its challenges. No matter what market you’re in, play to your strengths, and you address your challenges. The challenges never go away, they just evolve.
The SDVG Team:
Cait Kelly, Nicole Leandra, Ariel Ruben, Dave Titus
