State of the Low Country: Tech Startups Thriving
May 09, 2018 06:45AM
By Makayla Gay
By Emily Stevenson
If a rising tide lifts all boats, then the sky's the limit for the “vessels” in Silicon Harbor. Charleston’s tech scene has exploded from a handful of companies to more than 250, and the city is gaining a nationwide reputation for the industry. But despite the many successes, there are still some hurdles to face before Charleston’s tech scene ranks with that of Silicon Valley, Boston, or even Austin.
When asked about the challenges still facing Charleston’s tech scene, John Osborne has a ready answer.
“More money,” he says.
Osborne is one of the partners of Good Growth Capital, a venture capital fund that focuses on early stage technology companies across the Southeast. The company is raising $20 million to try to address some of the lack of money flowing into the area.
“Right now, we’ve got a pretty healthy angel and early-stage scene,” Osborne says. “Adding a few more venture capital firms with 7-8 figures of capital to invest will take it to the next level.”
Unfortunately, funding for startups is likened to a chicken-and-egg scenario. Venture capital firms flock to places with an abundance of startups, but startups are slow to emerge and get off the ground without the funding.
“It just takes a volume of potentially fundable deals to grab the attention and for a [venture capital] firm to justify having an office in the market,” Osborne says.
Scott Sacane, founder and CEO of Catalytic Data Science, agrees. Although they are from the Northeast, Sacane and his partner discussed many up-and-coming areas to locate their fledgling company, including Boulder, Co., Salt Lake City, and others. They landed on Charleston due to the quality of life. But Catalytic, which develops software for the research and development departments in the life sciences industry, was funded by companies in California, New York City, and London.
“Charleston has all of the positive characteristics to continue to develop a startup ecosystem, but it’s still lacking in a very traditional core venture capital community that understands risk capital and the early phases of investing,” Sacane says. “They have a limited number of investors to contact locally, and then they’re going to have to go outside of Charleston for investment.”
One of the reasons investment capital has been slow to emerge is due to the risk factor of early stage tech companies.
“There’s a great angel investor network here, but it’s still very young,” says Krissa Watry, co-founder and CEO of Dynepic. “Tech is a little higher risk for some of the folks’ appetites.”
Watry is one of Charleston’s success stories. She began by creating connective “smart toys,” and presented them to the toy manufacturers, but was repeatedly told that they did not yet have a software platform to connect the toys to the Internet in a safe and secure manner. So Watry put her toys aside and focused on creating a platform. Now, her company is again in discussions with the top toy manufacturers, as well as many other industries, to sell both the platform and the toys.
Watry hopes that her success will help bring recognition - and much-needed capital - to the area.
“My goal is to help put Charleston on the map with our company,” she says.
The “exit” of startup companies to the mainstream and subsequent reentry - with money and influence - is critical to the growth the tech industry.
“When you have these companies that grow and exit, you have the founders and early team members that get some capital and reinvest it into their own new businesses or other startups in the area,” says Matthew Gough.
Gough is the founder and chief echovater at Echovate, a software company that helps other companies improve retention and employee success by measuring and understanding a person’s personality. He relocated from New York about three and a half year ago; Echovate’s product is now in the market, with paying customers and a team of 10 people. Although a lot of factors have gone into his product’s success, Gough emphasizes that capital is critical.
“Funding is a critical recipe for the whole thing,” he says. “With the addition of Good Growth Capital, that’s a positive step forward, but getting more institutional capital here would make a big difference.”
It’s no secret that Charleston is getting plenty of press, both as a tourist destination and a place to relocate. Cost of living and quality of life are top reasons cited by tech companies choosing to locate in the Lowcountry. But as more and more people decide to take the plunge and move to the area, the city’s aging infrastructure is being strained - a danger to the burgeoning tech industry.
“If you want to see emphasis on tech and high-paying jobs, then we have to focus on what the needs are of the 20- to 30-year-old tech folks who want to live that lifestyle here,” says Watry.
Stanfield Gray, CEO of DIG SOUTH, the region’s largest tech conference, says that Charleston has growing pains and challenges like any metro area that’s expanding. One critical piece of that puzzle is housing.
“We need to think about affordable housing, workplace housing,” he says. “Where is the talent going to live?”
In addition to availability, cost is a big factor in housing.
“There’s a perception that South Carolina is very affordable, whereas the cost of Charleston housing is not as affordable as it once was,” says Elizabeth Buske, vice president of the Charleston Digital Hub at Booz Allen Hamilton. “Companies have to keep up with that from their salaries, which adds to the cost of trying to start up a company.”
Transportation is another critical issue in preserving the quality of life that draws talent to the Lowcountry.
“Anyone in our city would agree, whatever industry you’re in, that the traffic issue is bad,” says Nina Magnesson, Catalyst for Citizenship and Social Innovation at Boomtown. “For as progressive a city as we are, our public transportation and our infrastructure are not keeping pace with us. Quality of life means being able to get where you want to go without traffic, congestion.”
Boomtown and other tech companies are working with CARTA and the City of Charleston to improve infrastructure. Magnesson says that one aspect is having walkable communities with lots of bike paths and pedestrian crossings to encourage citizens to ditch their cars. Still, public transportation remains the biggest problem. Talent coming from metro areas such as Seattle and New York City are used to, and expect, a reliable public transportation system.
The housing and transportation problems often go hand in hand. To find affordable but high-quality housing, employees often live a good distance away from their companies, requiring a car to get to work.
“People have to live so far away in order to live, but the commutes now suck,” says Watry. “I think that has to change.”
Ernest Andrade, director of the Charleston Digital Corridor, says that Charleston has done a good job of leveraging its assets: climate, lifestyle, coastal living, and history. Those factors have been a huge draw to tech-savvy millennials, who seek high-quality lifestyles in addition to stable jobs. But to make Charleston a true tech hub, there is still work to do.
“The one industry that’s super-sensitive to lifestyle is the tech industry,” says Andrade. “We have to do things that protect that lifestyle. We can’t support unchecked growth. These are important pieces of the fabric of the community that are attractive to these folks, so we have to make sure that stays in place.”
Providing and maintaining a high-quality lifestyle is one way to attract the young talent from across the country that populates the tech sector. But growing talent in Charleston and across the state is key to innovation—and a ready workforce. While tax and other incentives are a key driver in luring traditional manufacturing plants to the state, for the tech industry, talent trumps incentives.
“A high focus on the development of talent, the short-term view and the long-term view, is critically important,” says Andrade. “Gone are the days of the reactive economic development model. What do we want as a community? We have to ask that question. We need to strike a balance between what we have going, and growing the technology industry.”
One of the ways is to introduce STEM (Science, Technology, Engineering, and Math) curriculum early and often in the K-12 school systems. Existing technology firms often lament the lack of talent due to inadequate education.
“I’m not too thrilled with the South Carolina education system,” says Watry. “I have interns, and seeing how they’re educated in the K-12 level is mind-blowing. I’d like to see more emphasis on education.”
Watry agrees that the state needs far more focus on STEM. She also says that coding is a critical skill to learn at a young age, particularly if the city wants to maintain and grow its image as “Silicon Harbor.”
However, in addition, Charleston also needs a pipeline of ancillary talent to support the tech industry. Lawyers, accountants, and IT specialists who are familiar with the unique challenges of starting a tech company are often difficult to find.
“If you have a successful ecosystem, you need entrepreneurial and technical resources that they need to be successful,” says Joseph Hanna. “There’s no lack of people with big ideas. Access to talent continues to be an issue.”
Hanna is founder and CEO of ENGAGE, a software company that leverages advanced technologies like AI and predictive analytics to aggregate data about companies and their employees who are more likely to change jobs. Prior to starting his company, Hanna’s own background was in HR technology. Ironically, HR, particularly hiring, is the biggest challenge for tech companies.
“The ecosystem is maturing,” he says, “but we still need a lot of talent around the support system.”
No man is an island, particularly a man (or woman) trying to get a new company off the ground. Having a supportive, active tech community will be key for Charleston as the industry grows. The city is already doing a good job of fostering collaboration. Gough, who started Echovate, moved to the Lowcountry from New York about three and a half years ago for just that reason.
“One of the reasons I chose Charleston to live is that I felt like the community was rallying behind the startup ecosystem,” he says. “I thought it was important that the community was coming together with a unified vision to build out the tech sector in Charleston. That was something I wanted to be part of.”
Gough has been active with the Harbor Entrepreneur Center, locating his office at the Center’s Pacific Box and Crate site. John Osborne, director of the Center, says there are now more people versed in how to start a tech company.
“There’s much more support in terms of coaching and guiding people who are trying to build a technology company here,” he says. “For a long time it was sporadic, a handful of people who truly knew what they were doing.”
He cites the maturation of existing companies, as well as people from other parts of the country who have moved to Charleston to start their companies, as drivers in this trend.
Elizabeth Buske agrees.
“When Spark [now Booz Allen Hamilton] started, there were just a couple of bigger companies,” she says. “Now Charleston is being seen as a place to develop tech talent and a diversified product base. It’s great to have that community. The engineers can share thoughts and best practices across the companies.”
An outsider might assume the tech industry to be uber-competitive, but those within the industry know better.
“You can do cutting-edge work here without being cutthroat,” says Magnesson. “It’s a very collaborative, creative community.”
Magnesson describes Charleston as a great place for people who want to continue a career in technology without having to live in Silicon Valley.
“They can be here and enjoy a phenomenal quality of life without the hassle of dog-eat-dog and the rat race,” she adds.
“The community so far has been very open and transparent in sharing ideas and information and support,” he says. “It doesn’t feel closed, and it doesn’t feel like there are these little pockets where people are working in silos. The openness and connectedness is important.”
Still, despite being a collaborative community within the startup scene, Charleston lacks strong partnerships with existing tech companies. Having senior-level managers involved in mentoring entrepreneurs, as well as offering contracts to early-stage companies to test their products, is critical for those just beginning a business.
“To really go to the next level, we’ve got to get the existing corporations and institutions more involved in the emerging tech sector,” says Osborne. “It’s going to take more of those larger companies and institutions.”
Osborne cites giants such as Boeing, Mercedes, Volvo, MUSC, and Blackbaud as examples of “pillar businesses” that could help support fledgling tech companies.
“There are some big companies around Charleston, and we don’t have that symbiotic relationship between those big companies and startups,” says Hanna. “Usually, big companies that are local to you become your first customers and they have programs that help startups. We don’t have that just yet.”
Gray also says that corporate partnerships will be necessary to take the startup industry to the next level.
“I think there are tremendous opportunities to partner with companies like Michelin and BMW and Boeing and Volvo,” he says. “Startups need the resources and distribution capital that can be provided by a Fortune 500 company.”
Startups also need the experience and the depth of a city that’s been a tech hub for a longer period of time. Sacane, who hails from Connecticut, sees some crucial differences between Charleston and other tech areas such as Silicon Valley or Boston.
“Those communities, you can throw a baseball and hit someone who’s been part of a successful startup and has worked within a company that has traditionally funded and developed a product, gone to market, and succeeded through an IPO or acquisition,” he says. “Then they came back to their community as experienced entrepreneurs.”
He says there have been some successes in Charleston, but they are not as plentiful as in larger, more developed tech hubs. Sacane compares Charleston’s tech ecosystem to Austin’s, which also began slowly, then exploded.
“If you look at the history of Austin, it was very much a low-level simmer for a while, and then there were a number of high-profile successes, and the entrepreneurs came back and kicked the cycle over again,” he says. “It’s a pretty big success.”
It may take time, but Charleston has all the ingredients for a booming industry, including a natural proclivity for openness. The city’s famed hospitality extends further than its tourism industry, and those seeking to start a company should take advantage.
“Charleston is widely known for its hospitality and for its give-first mentality,” says Gray. “People are open and friendly and willing to tell you about their business. When you look around the city and call upon people and meet with them, understand that they really are here to help. They’re excited you’re part of the community.”
Although not as sexy or as easy to solve as other challenges facing the tech industry, one of the biggest factors the Charleston startup scene must overcome is time. New companies need time to mature and succeed, ultimately pouring capital and attention back into the industry.
“I feel like our startup ecosystem is in its early adolescent phase,” says Osborne. “We’re definitely not a newborn anymore. There’s stuff that’s happening, we’re starting to emerge. But we’re not a fully mature, baked-out ecosystem like Silicon Valley, or even Austin or Boulder.”
The fact that Charleston has hit its stride but not yet become oversaturated is a key selling point.
“The one thing that’s exciting is that we have not hit the peak in Charleston yet, in terms of the startup scene,” says Gough. “That’s important to note, because you can still come here and make a difference, build a great company, get the support you need, and you’re not getting lost in this big machine of, say, Silicon Valley or a larger metro area.”
Gray, whose company held its annual DIG SOUTH Conference in April, says that the industry is wide open for tech companies of all kinds.
“We have far more room for growth than some people may know,” he says. “At this point, we’ve got a long runway ahead of us.”
One of the keys is to continue marketing the Charleston technology brand, both inside and outside the community.
“In Charleston, we’re very aware of our footprint, but outside of Charleston it’s not widely known,” says Buske. “It’s fantastic, but how do we stand on the mountaintop and spread the news that we’re here? I have to tell people that we’re not the only software developer in town.”
In the meantime, Buske encourages entrepreneurs to stay focused on their mission and to not lose sight of why they began their company.
“There are tough times and great times, but if you lose sight of the mission, you’ve lost sight of your purpose, which can lead to a lot of negatives,” she says. “If you’ve got your people and your purpose, you’re going to do all right.”
Although the road for tech entrepreneurs is often a long and difficult one, location certainly has its perks.
“It’s easy to start a company,” says Gough. “It’s hard to execute and hard to finish. Be prepared to put in the hard work, and make sure you surround yourself with a community that’s going to be there in your wins and in your failures. And I think that’s Charleston.”