How attractive is San Diego as a place to start a company compared with the Silicon Valley? Santa Barbara? Los Angeles?

On Thursday evening the “Sweat Equity” series of seminars sponsored by San Diego’s Software Industry Council (SDSIC) brought together a distinguished panel with a venture capitalist and successful entrepreneurs answering questions, drilling into their experiences, as well as exploring perceptions they’ve developed over several years doing business in San Diego. More than 50 interested attendees with the hope and aspiration of either starting their own company, or breaking away from the corporate world with a startup, provided an enthusiastic audience to support the discussion and Q&A.

Panel members included:

• James Adams, Moderator, Fortress Secure Payments
• Russ Mann, Entrepreneur, Covario
• Ted Alexander, Venture Capital, Mission Ventures
• Allen Drennan, Entrepreneur, WiredRed

The panel tried to answer the question, through their experience, of whether or not San Diego is a good place to start a business. Starting with the question “How start up friendly is San Diego?” the panel thought the city rates a “good.” The universities around San Diego are graduating high quality workers, with a small community spirit nurturing fresh ideas and enthusiasm.

However the panel agreed that San Diego has shortfalls in the amount of investment money available less than in the Silicon Valley. Ted (the VC) cited that “last year there was around $7~10 billion in venture capital committed in the Silicon Valley vs. $1~2 billion in Southern California.” However he also added that “if you are a talented individual you can overcome the challenges.”

On the question “Do San Diego-based legal firms provide adequate support for small companies?” the panelists were all generally positive. Russ Mann gives the San Diego legal community “two thumbs up,” but Allen Drennan cautioned that his only bad experiences with San Diego law offices were when he tried to save money with cheaper representation that his company ultimately suffered.

Ted reinforced the need for good legal representation, and closed the topic by adding “San Diego legal firms are busy, but if you are willing to pay they are as good as any in the country.”

Attracting Outside Talent to San Diego

The panel tackled the question “What is the quality of CTO-level game-changers in the San Diego area?” The general consensus of the panel and attendees was that San Diego lacks high powered CTOs, and start up companies generally must go out of the area to attract the talent they need to provide the vision and technical leadership need to get a tech-sector start up off the ground.

“I am much more bullish on CEOs than on CTOs (in the San Diego area)” pointed out Russ. “Risk-taking CTOs do not like Southern California and San Diego, preferring the east coast and Silicon Valley.”

The panel discussed the idea of industry clusters. Those grouping of similar companies that normally follow one successful company in a location, and highly qualified engineers and leaders “gravitate” towards the clusters. Unfortunately San Diego does not have any strong industry clusters at the level of an El Segundo (military/industrial), Silicon Valley, Boston, or similar clusters. This makes some highly qualified people somewhat reluctant to take the risk of moving to San Diego.

Those who do find San Diego a good area to work are at a point in their life where they are interested in a better lifestyle, and the potential of a higher quality of life (as possible in Southern California).

The same opinion passed through into the question of availability skilled technical developers, where the opinion of the panel was low, concerned with both local talent, as well as difficulty attracting high quality developers to the area.

Funding SD Startups

San Diego does not appear to be friendly for funding startup companies. Ted’s company, Mission Ventures, may be the only company that is located in, and focused on the San Diego market. Ted stated “it is very difficult to build a large company in San Diego.” He continued “the reality is not every startup should get VC funding, and angels may give you a better deal or solution.”

The low confidence in getting funding in San Diego continued into 2010, with Allen quoting a San Diego Business Journal article which indicated “there is very little investment money expected in San Diego” over the next year. All members of the panel added stories about VCs and companies they know who are aggressively going after potential investments in other parts of the country, with an emphasis on Silicon Valley – but not in San Diego.

Ted tried to lift the spirit of the panel by ending the topic with “of course the right idea will always find a way to get funded.”

Comparing San Diego with other California Cities

Having visited several areas in California over the past couple of years, including San Diego, Orange County, Los Angeles, Santa Barbara, and the Silicon Valley, the differences are very clear. Enthusiasm and aggressive threshold for innovation is most visible in Northern California. Returning to the idea of clustering, it is easy to meet clusters of innovators and visionaries by simply going to a “cluster watering hole” (bar) near the tech community, such as the “Fault Line” in Santa Clara. The people you meet are fearless, unconcerned with the economy or other external factors, and just want to talk about their ideas.

Santa Barbara has a very enthusiastic community, but tend to be more interested in the business side of their future rather than working out strategies on how their ideas could be realized, and find a way to change the world.

As a great place to live, it is impossible to beat Southern California. As a place to build a company, the Silicon Valley offers a pool of talent, better access to funding, well-defined technology clusters, and a buzz of excitement that is not easily located in other locations. On a personal note, I have been searching for the buzz in the OC, San Diego, Long Beach, and other areas of LA, but have to finally admit the buzz is much stronger in Northern California.

We can change that, but the process requires a major shift in the local city governments, financial community, and aging business leadership to re-engineer Southern California as a valid competitor to the Silicon Valley. With notable exceptions such as Qualcomm, Boeing, Northrup, and some bio-tech leaders, it is hard to argue the percentages.

Los Angeles and Southern California provide a great environment for manufacturing, logistics, entertainment, and other operations-oriented industries. But for today, the burden is on the south to provide an environment that will spawn the next Google, Cisco, HP, National Semiconductor, or Apple.

John Savageau, Long Beach

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