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Startup Community Hits Its Stride, But Obstacles Could Be Ahead

San Diego’s startup economy, chock-full of fresh leadership and closely watched by local and national press, gained lots of momentum last year. But if community leaders aren’t careful, 2017 could see parts of the ecosystem crumble.

Momentum

Looking back on the year, the startup community (largely made up of entrepreneur-focused associations, investors, and the startups themselves) has boomed in numbers.

Organizations meant to support entrepreneurs and help new companies grow came out of the woodwork in 2016, including the official formation of Startup San Diego, the Downtown Collaboratory, and numerous incubators spun out of universities and research institutes.

This is partly due to financial opportunity, said Greg McKee, president of startup-focused nonprofit CONNECT.

“People see that startups and innovative companies are where the opportunities are,” McKee said.

A good example of this flock to serve startups is the recent rise of coworking. The city was home to only a handful of these shared office spaces a few years back; today, San Diego has about 35 on the map (with many more poised to open their doors in the coming months). These facilities are popular for entrepreneurs because they offer temporary space where you can share amenities with other fledgling startups.

When you add entrepreneur-focused associations, incubators, and accelerators to the mix, the number of startup-fo

“The big winners in technology will be the startups making sense of data — data collection and data analytics.”

— Greg McKee, president of CONNECT

“The caliber of companies started in San Diego will take a big leap forward, including several in the artificial intelligence and machine learning space.”

— Anonymous venture capitalist in San Diego

“San Diego’s startup community will be shaped and accelerated by its relationship with Tijuana more than any other area — including The Bay and Los Angeles.”

— Anonymous local leader in the investment community

“2017 will be a banner year for merger and acquisition transactions in San Diego.”

— Anonymous venture capitalist in San Diego

“There will be a big exit for a San Diego software startup.”

— Brant Cooper, author of “The Lean Entrepreneur” and co-founder of startup strategy firm Moves the Needle

The Power Pack

Fresh faces have spurred change to San Diego’s startup community, and are partly responsible for a noisy 2016.

“New blood is rising up, and I think that’s sometimes required for change to happen,” said Brant Cooper, a longtime startup community leader in San Diego. “And I’m not just talking about young people. Being ‘old school’ does not depend on age; it’s an attitude.”

Michael Krenn

Some of those fresh faces include Mike Krenn, who was appointed president of San Diego Venture Group in the summer of 2014, and made 2016 a year of action, launching several ambitious initiatives to attract capital to San Diego startups.

Then there’s Ashok Kamal, the 37-year-old executive director of Tech Coast Angels in San Diego who’s working to keep the angel investing community nimble and active.

Austin Neudecker, Tim Ryan and other leaders of Startup San Diego added some structure to the organization in 2016, officially becoming a nonprofit and corralling sponsors and volunteers to fuel their next major event, Startup Week 2017.

Speaking of Startup Week, in 2016 the event attracted record-breaking attendance, with 3,000 people showing up for the entrepreneur-focused activities.

Big Tech Moves In

Large tech corporations are starting to take note of the racket down in San Diego, Cooper said.

“You’re starting to see a trend of large technology companies opening branch offices in San Diego, and that’s positive for the startup community,” Cooper said.

Companies including Google, FitBit, GoPro, and most recently app maker Evernote have set up regional hubs in San Diego. Cooper said their presence attracts more tech talent to the region, and boosts the overall technology brand of the city.

Survival Test

The startup world is at the crest of boom-time. But it may be time to add action to the cheerleading and the noise, buckling down on organizational efficiency.

“We’re nine years out from 2007, and we’re at the latter end of an economic cycle,” McKee said. “A lot of people are excited about tech, excited about startups, and many people who made money in tech started investing.”

But we’re likely heading for a downturn, McKee said.

“I know many VCs who stopped deploying money about a year ago, and they’re smart to be slowing down,” McKee said. “I think the next couple of years could be tough. We’ll probably hit a down cycle, and a correction will take place. Parts of the ecosystem that are overbuilt will collapse.”

McKee said the first ones to suffer the downturn will be organizations that don’t offer enough value, like coworking spaces that only offer real estate and not services.

“We’ve got a coworking bubble in San Diego; the market is overheating,” McKee said. “Innovation has never been about physical office space — it’s about ideas, technology, and connections to people.”

McKee said the local startup community needs to figure out how to add value and be effective with fewer resources.

“Just like any business, we need to do a better job with less stuff,” McKee said. “Bringing capital from outside is the number one thing we can do. We have an abundance of space, tech, and talent. We don’t have an abundance of capital.”

In other words: fingers crossed that Krenn’s initiatives pay off in 2017.

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