Indy Can Become A Tech Hub Without The New Amazon Headquarters

But there are a few bugs in the program that gets the city there.

January 2018Add a comment

It’s rarely obvious in the moment that a tipping point has arrived. Did Indy become a technology city when Salesforce acquired ExactTarget for $2.5 billion in 2013, minting dozens of new millionaires and eventually planting its name atop our tallest skyscraper in April 2017? Or did it cross the threshold one month later, when the information-technology powerhouse Infosys chose Indianapolis for its U.S. headquarters and promised 2,000 jobs? Or perhaps the city became a technology hub when the Rise of the Rest startup competition came to town this past fall? The road show organized by AOL cofounder Steve Case to champion tech companies outside Silicon Valley sold out every event, attracted a record number of entries, and tapped more finalists here than in any other city on its tour.

Maybe what matters more than when Indy became a tech city is the fact that it has happened. Sure, the city owes debts to pharmaceuticals, manufacturing, and shopping malls. And our downtown edifices pay tribute to other industries that helped build the state capital—Bankers Life Fieldhouse recalls Steve Hilbert’s insurance conglomerate, and Lucas Oil Stadium can be seen as an homage to our motorsports heritage. But Indy’s greatest source of economic growth and employment going forward is tech. Over the last decade, the city has scored more than $7 billion in acquisitions and IPOs (mostly marketing-software companies), and has added thousands of jobs in the industry. City technology boosters, including TechPoint CEO Mike Langellier, say Indy has an opportunity to lead the pack among a “third wave” of technology cities, following San Francisco and Seattle in the first wave and cities like Austin and Denver in the second.

Behind all that optimism, however, is a host of challenges: a looming shortage of coding and other tech talent as Indianapolis remains a net exporter of its most promising college graduates; a stubborn shortage of funding for startups to launch and grow; and a narrow range of digital-marketing businesses currently succeeding here.

There’s broad agreement among the city’s tech leaders about each of these challenges, as well as efforts to remedy them. There also are signs Indianapolis is setting aside its aw-shucks mentality, as business and government leaders here express quiet confidence in a bid for Amazon’s new headquarters. Winning that sweepstakes—the Powerball of economic development—would certainly put Indianapolis in a different league. But playing the lottery isn’t exactly a strategy for success. So, how will the Hoosier capital attract talent and investment? Where does Indy find its next Salesforce? And what will be its tech-industry identity? The algorithm that will determine the city’s future has begun to emerge.

 

Of all the problems facing the city in its quest to grow its tech scene, talent recruitment may be the most daunting. Indy’s progress as a tech city has helped persuade the easy recruits to relocate here: the 30-somethings who left Indiana for bigger cities after college and have since grown tired of traffic and overpriced housing. But according to Kristian Andersen, a partner at the local venture-capital studio High Alpha and a guy who relocated here himself, it’s going to take a lot more than that when the city is up against places like Portland. “Keeping your fingers crossed that somebody has a mother-in-law that lives in Indy probably isn’t going to be sufficient,” he says.

Indeed, more than persuading native Hoosiers to stick around and picking off a few mid-career boomerangs, Indy must become a net importer and developer of untapped local talent. One important source is residents who once worked in manufacturing and are now unemployed or underemployed, says Angela Smith Jones, Indy’s deputy mayor for economic development. The city’s workforce-development arm, EmployIndy, recruits and trains workers to join the city’s growing tech companies. A four-year degree often is not required. “This is an opportunity for us to reach out into parts of the community that may historically have been disenfranchised or overlooked,” Smith Jones says. “And it’s an opportunity for tech companies to get strong talent who are already residents.”

For its part, TechPoint is recruiting promising college students from across the country for its “Xtern” program. About 150 internship spots are up for grabs at 55 local tech companies in the fifth year of the program, and more than 1,500 students from 42 states and 95 universities applied. “That’s a massive talent pipeline—I’ve not seen anything like it in the country,” says Langellier, the TechPoint CEO. And it’s a win-win for the city, which gets to sell itself alongside the tech companies. A survey of the interns shows 33 percent had no real impression of Indy as they started the program, but by the end, 95 percent were fans of the city.

The Xtern program builds on the legacy of the Orr Fellowship, a two-year program launched in 2001 to keep top college graduates in Indianapolis with full-time jobs at host companies, many in the tech space. Companies are getting in on the recruitment act, too, in partnership with Indiana universities. Salesforce, for instance, recruits heavily here for its Futureforce program, which offers interns and new hires 56 hours of paid time off for volunteering, access to top executives, and networking opportunities. Kronos, which makes workforce-management software, hires large groups of grads right out of Indiana schools for a 12-week training program designed to keep exceptional tech talent in state.

TechPoint also is working to address a striking lack of funding supporting Indy companies. Given the $69.1 billion of venture capital invested in the United States in 2016 and the 2 percent of the population Indiana represents, the Hoosier State’s share of the pie should be about $1.4 billion—far more than the $77 million that fueled local companies in 2016. It’s a pathetically low haul by any reckoning. Indiana is the 17th-largest state economy, but 27th in the amount of venture capital invested. The 18th-largest economy, Colorado, attracted almost nine times as much as this state did. Every state that borders Indiana outperformed it in investment.

Last year, TechPoint successfully sold the state legislature and Governor Eric Holcomb on the allocation of $250 million for the Next Level Indiana Fund, which is authorized to invest in venture-capital firms. Other players trying to jump-start investment include Elevate Ventures, Allos Ventures, and Chicago-based Hyde Park Venture Partners, which added an Indianapolis office in 2015. But High Alpha, where Andersen is a partner along with former ExactTarget CEO Scott Dorsey, sees a silver lining in the tepid market for Indiana venture-capital investment. Because of it, they’re able to launch and scale up companies at valuations that are modest by Silicon Valley standards. “Honestly, I hope we can keep this a secret a little bit longer,” Andersen says.

While a fledgling tech scene had been growing in Indy for decades before ExactTarget emerged, that company deserves most of the credit for the city’s current reputation as a hub. It’s a homegrown success story that has only one equal in local history, a little pharmacy launched in 1876 by the chemist and Civil War veteran Eli Lilly. What made ExactTarget’s sale so extraordinary is that it ushered in a double-win for Indianapolis. First, it created windfalls of more than $1 million each for as many as 100 locals, which cascaded into a bonanza of funding for new tech companies. And second, the buyer fell in love with the city and its workforce. Salesforce is currently making space for more than 2,200 employees in Salesforce Tower, its largest cluster outside of San Francisco. “Had you told me 25 years ago that this would be the last city I would ever live in, I might have been really discouraged,” says Chris Baggott, a Pennsylvania native who cofounded ExactTarget and now runs the startup food-delivery specialist ClusterTruck. “The reality is that this is paradise. Great cost of living, positive government, low taxes, everything you’d want.”

But where does the next Salesforce come from? There are three avenues to expansion for the Indianapolis tech scene: homegrown startups, relocations, and existing companies in other industries that are adapting to be tech-enabled. It’s hard to say at this point which will provide the next big growth spurt. Tech companies that started in Indianapolis have provided most of the fuel to date, including call-center software specialist Interactive Intelligence (sold in 2016 for $1.4 billion), consumer-reviews-driven Angie’s List (sold last year for more than $500 million), marketing platform Aprimo (sold in 2010 for $525 million), and ExactTarget. A small army of younger local companies have scaled up in their footsteps, adding jobs and expanding aggressively, including healthcare software company HC1.com (which has raised about $40 million), IT-infrastructure provider Scale Computing (about $60 million), and the behavioral-marketing software business SmarterHQ (about $40 million).

In the meantime, companies with strong Hoosier roots in other industries—including Cummins, Eli Lilly, Rolls-Royce, and Roche—are increasingly adding jobs requiring tech skills as digital disruption spreads. Some are even launching tech-innovation teams. In early 2017, Cummins assigned 200 people to a new Digital Accelerator. The team, which is focused on data-driven solutions to make its engines safer, more productive, and easier to track in real time, wasted no time in launching its first new offering, a fleet-management startup called Zed managed by former Cummins employees. Rolls-Royce has long partnered with Purdue University on the development of new technology for its jet engines. Other big companies, including Republic Airways, have outsourced tech innovation to Broad Ripple’s DeveloperTown, which now gets 85 percent of its revenue from big companies aiming to modernize their businesses before a startup has a chance to put them on their heels, Indianapolis Business Journal reported. But opportunities remain for Indianapolis to land tech jobs housed within incumbent companies. Anthem chose Atlanta for its “Innovation Studio” in 2016, and Eli Lilly opted for San Diego for its biotech-focused Lilly Life Science Studio last year.

A third source of growth will be companies moving to Indy or opening large operations here. Poster children of this group include IT-consulting firm Appirio, which moved its headquarters from San Francisco to Indy in 2015; Boston-based Kronos, the workforce-management software maker, which opened a major operation here in 2012; and the Berlin-based marketing powerhouse Emarsys, which now has its North American headquarters in Indianapolis. These companies import an international workforce and customer base, putting the city on the map for more influential people. They also raise the average wage and diversity of tech jobs in the state—creating a critical mass of opportunities that gives Indianapolis a better shot at keeping talented and restless tech workers from decamping for the coasts.

“Companies are running into the hard reality that they can’t scale in those first- and second-wave cities,” Langellier says. “It’s unsustainable because of cost and congestion pressures. If you’re trying to run a 500-person tech company in San Francisco, for example, it’s going to cost you about $55 million just in salaries and rents. To run that same company in Indy would cost you about $33 million.”

 

Unsexy as it is, the current specialty of Indianapolis tech—digital-marketing software—is likely to hold strong. “That’s in Indy’s DNA,” says Jared Council, a former reporter for IBJ who covered the tech beat. “That’s what the city knows, that’s what the talent pool understands, and they now have a global reputation.” But if history is any guide, a strong specialty shouldn’t stand in the way of entrepreneurs and companies eager to break the mold. Seattle’s rise was fueled by the likes of IBM and Microsoft in the late 1980s, neither of which would have presaged a city known today as much for digital retail (Amazon) as for computer hardware and software. And Silicon Valley’s name itself references a bygone technology niche—semiconductors that are now commodities mostly made in China.

One promising company that’s adding a twist to Indy’s familiar digital-marketing formula is Sigstr, a High Alpha–seeded company that places custom banner ads in employee email signatures for more than 300 customers, including United Way and California Closets. The company, founded in 2015 by Exact-Target alum Dan Hanrahan, raised $5 million last summer alone. That puts the homegrown offering well ahead in the financing race with San Francisco–based competitor SenderGen, which launched two years earlier.

On the other hand, plenty of Indy entrepreneurs are venturing away from digital marketing entirely, broadening the city’s tech focus to encompass all kinds of cloud-based software. After selling his managed-IT firm Apparatus in 2015, Aman Brar launched the first text-based corporate recruitment platform, Canvas, which allows firms to more easily screen through initial rounds of job candidates. The inspiration: dating apps that ensure some degree of quality control before committing to an initial phone call or in-person rendezvous.

And Megan Glover’s 120WaterAudit—which won the Rise of the Rest startup competition—manages water-testing kits for municipal water utilities, government agencies, and schools. Glover founded the company in May 2016 to be a direct-to-consumer seller of testing kits, but pivoted to focus on institutional clients, who were prolific early buyers. By the end of 2016, the firm was on track to raise almost $2 million, says Glover, who worked at Indy-based software firm Compendium before its sale to Oracle in 2013. Glover seems confident Indianapolis will become a tech “epicenter”—with the talent and capital to support her firm, despite its place far outside the city’s current niche. “We have the community to make that happen,” she says. “We have the universities and the talent flowing through those universities.”

The tech-scene swagger certainly has grown since ExactTarget sold and Salesforce started its expansion, but landing Amazon’s second headquarters will take more than confidence. According to Council, Indy’s bid seems like “a bit of a long shot.” He notes that about 10 other up-and-coming cities could make similar claims of progress in the tech sector. But Indy does have selling points: an award-winning and convenient airport, its location within easy driving distance of most of the country, and its position as a major hub for FedEx, UPS, and the USPS. It isn’t clear that the city has the transit infrastructure and workforce Amazon has requested, although the company wasn’t clear about which attributes it values most, so it’s also possible the city has the room for growth they want.

Such a high-profile win would cement Indy’s reputation as a tech city. But more often, reputation is a lagging effect. Sometimes, you only see the tipping point in retrospect. “We didn’t know that ExactTarget was a $2.5 billion company in 2001,” Baggott says. “And Salesforce didn’t know they’d be Salesforce, either. I don’t think we have to sell Indy that much.”

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