Inside Birmingham's Bid to Become The Southern Silicon Valley
August 12, 2018
Yoga balls rolled gently in the corner of the wide back office I’m in. Here, staff in hoodies clacked away on Macbooks covered in slogan decals. Mini fridges filled with free refreshments are stacked in the corner and college pennants and flags hang from the wall in the chill out areas. Occasionally they’ll hold yogas classes here. In the open plan main hall, staff wearing company brand cerulean blue t-shirts (to match the logo) and blue jeans sit in front of multiple monitors. Their full attention is directed to the live streaming videos in front of them, where students from across the globe are taking their exams under their watchful eye. The operators note any sudden movements or shifty side-eyes as a cause for concern, possibly cheating, possibly nothing.
At the same time, an artificial intelligence system quietly analyzes the students faces for biometric signs of lying, also creating a notated log file. Just a usual scene in the valley, right… except we’re over 2,300 miles away, deep in Birmingham, Alabama. I’m at the head office of ProctorU, an online proctoring startup, founded in 2009. If you Dorthoy’d them to the valley, no one would slow enough to blink. “There’s a lot of up and coming things happening here with technology,” said co-founder Matthew Jaeh, who moved here from Los Angeles in 2011. “I wouldn't say it will be your next Silicon Valley, but it could be your next Austin.” What makes it so palatable to Jaeh is the low cost of living, the natural greenery, and that it's well-connected to the Eastern states. “Originally, I was like, why would I want to go there? But when I came here, I saw how beautiful it was, how inviting,” he said.
It’s no secret that Silicon Valley has been looking east, with a number of entrepreneurs shying away from the high rents and salaries involved in working in the Bay Area. The quality of life might be great in the bay, but home ownership is a struggle, even for those earning six figures; the median house price recently hit $1.2 million. In recent years, new tech hubs have sprouted up across America, including Austin, Seattle, and Boulder. Even these are becoming increasingly pricey. That’s where Birmingham, Alabama’s largest city, sees an opportunity.
In recent years its been home for a number of large companies; Icebox cold brew coffee which sold to Royal Cup in 2017, and same day delivery service Shipt, bought for $550 million by Target last year. It’s also fertile ground for new talent and allows venture capitalists early access to burgeoning startups. For example, Alabama-based Tennibot, a robotic tennis ball collector, won a CES 2018 Innovation Award earlier this year. And its home for Regions Financial Corporation bank (ranked 312 on the Fortune 500 list) and Books-A-Million.
“You have to have a consistent process for identifying opportunities,” said Devon Laney, president, and CEO of the Innovation Depot, a sprawling 140,000-square-feet building in a former Sears warehouse covering a number of city blocks in downtown Birmingham. Sure, that’s the golden goose for most wannabe startup hubs, but Laney’s trying to establish this from the ground up. “We understand its organic, but there has to be a process for underlying support so we can have a pipeline of good companies. Our job is to grow our companies to scale and for that, we identify things they need like workforce. If they can't find the workforce they are going to go somewhere else.”
As it stands, the Innovation Depot’s the hub of local tech development, housing over 100 startups, a startup incubator, a wet lab (for biology projects), a cafe which lets you pay with your fingerprint, a coworking space, and more. It’s existed in some form since the mid-eighties but hasn't really had the oomph factor till the last couple of years. In 2017, companies housed there created 1,064 local jobs, $155 million in gross sales with $1.66 billion in regional impact over five years.
What Laney’s building is multi-pronged; coding classes and bootcamps for locals and schoolchildren, working with local businesses to suggest they use local startups for their needs and funding promising startups in the Velocity accelerator hosted in the Innovation Depot. “But just as important is stepping up and saying, before we automatically default to the vendor in Seattle, why don't we wait to see if there's somebody here locally, that we can give a portion of that business too,” he said. Laney facilitates these conversations and the reason he gets traction is that the Depot is a nonprofit. Sure, they take a 6% cut of companies in their accelerator (they also give the startups $50,000 each) but the overarching message is that of economic development in general for the city, not for grabbing every last penny. Its attracted a diverse array of talent, currently around 20% of startups it hosts are run by women, compared to around 16% in the Valley. “It’s surprising, but we do our best to make people welcome, and maybe that's why?” Laney said. “The majority of my staff is female and that's intentional.”
But saying you want to be a hotbed of innovation and actually making that true are two different things. The city is honest enough to note that will be a challenge; the charming Mayor Randall Woodfin said that he’s not sure what a city for the future will look like – but noted that no city has figured this out yet. “Coding and digital literacy is going to be super important in the years to come, and we want to make sure that we're saturating our kids with opportunities to connect and to engage with this,” he said, emphasizing the growth in local training opportunities. Keeping the tech pipeline flowing goes two ways, and he’s been consulting on plans for a potential direct flight from San Francisco to Birmingham. “People have an antiquated view of Birmingham and we have to change that,” he said. “We’re familiar with all the awesome stuff that’s going on, but the average person on the street probably has no idea.”
36-year-old Woodfin is the youngest mayor the city has ever had, and multiple people I spoke to viewed his appointment as a positive sign of change in the city. “We want to give people who are outside of Birmingham, and outside of Alabama, a compelling reason to come down,” he said. “To set ourselves apart, we are really focusing on that inclusivity, and we have an opportunity not just for the traditional lenses, not just race and gender but also for LGBTQ, ageism, veterans and those with disabilities.”
The city is putting their wallet behind their words; in July 2018 they hosted a city-wide innovation week, that featured numerous events and panels designed to showcase them at their best, culminating in Sloss Tech, a tech conference, as a warm-up act to their Sloss Fest music festival.
But for all the hype, the majority of companies here are still in their nascency. Take coworking space The Forge, which opened atop the trendy Pizitz food hall In September 2017. Their space is bright and airy, with exposed beams and brickwork reminiscent of Brooklyn warehouse lofts and hipster havens, the everyday trappings of startups. Founder Kim Lee encourages local entrepreneurs, especially women, by hosting a number of events targeted at building skills and networking.
I visited to attend a FundHERS panel, an event designed to educate women founders on how to raise money for their idea. Their space was packed, and the well-scented audience rapt as Tiffanie Robinson from JumpFund, an angel investor network with a $5 million fund, hosted a venture 101 talk. Some of the companies in attendance were early stage, some were looking to raise their next round, and some were run by women who confused their online businesses as startups. T-shirts with company logos were commonplace; I remember the huge smile on the lady who proudly sported a Wyndy tee, the app-based babysitting startup that matches parents with college students. During the Q & A part of the event, Mazy Holiday, founder of the iStand smart cane acknowledged she’s looking to raise $1 million in her next round. Yes, that’s a hangnail for a Silicon Valley VC, but not every company needs to be on a series B to validate its premise.
The low cost of living makes Birmingham an ideal place for startups, who get a longer runway than they would in the Valley. “That’s a competitive advantage,” Laney said. “I love San Francisco but I’ve had companies move out here from there who say if they raise $3 million that’s a nine-month runway in San Francisco, here that’s a two-year runway.. and the internet is just as good!”
To attract talent, Birmingham’s also making inroads in the smart city scene. In 2018 they were awarded the smart cities readiness grant and will be using it to create new infrastructure, better analytic data tools and work on economic development projects. “From the university perspective, we see the city being the test lab where all the faculty and students get to work in real life challenges,” said Paula Alvarez Pino, an Innovation Week panelist and the program director of the smart cities research center at the University of Alabama. “At the same time, that community gets to benefit from the technical and the expertise from the faculty.” The University has also run a smart cities masters program since 2014.“One of our objectives with a master's program is we want their thesis project to be one project that has an impact in the community so it can be as useful for everyone as it can,” said Pino.
“The smart cities thing is going to help us,” said Rick Davis, the Senior Vice President for economic development at the Birmingham Business Alliance. “It all goes back to who’s getting involved. You take this innovation ecosystem and you start to shine a very bright light on it, and let people know that it's there.”
The brightness is necessary; not everyone views Birmingham in a positive light and the city has a legacy of poverty and crime to outgrow. It’s currently ranked the 10th most dangerous city in the US by recent FBI data, and 29.4% of residents live in poverty according to census data. Nonetheless, or perhaps, in spite of these challenges, the place has a lot of potential, and is drawing a large amount of talent to the region. This year, the Highland Bar and Grill restaurant run by Frank and Pardis Stitt won the coveted James Beard award, the downtown revitalization push is just beginning, and then there’s the trendy new food halls, coworking spaces and the attraction of Regions Field baseball stadium. And don’t forget Railroad park, which might eventually become a version of New York’s Highline park.
For mother and daughter duo, Kerry Schrader and Ashlee Ammons, Birmingham is a diamond in the rough, a place that has changed their lives. It’s where they launched Mixtroz, an event networking startup, and started building their contact network. Those connections have led to their appearance on the West Texas Investors Club reality show hosted by Mike McConaughey (Matthew McConaughey’s bro) and Wayne Gilliam, an invitation to the Aspen Institute and a $100,000 prize from Steve Case’s Rise of the Rest fund.
Over dinner, Ammons explained how much better the startup scene was than her hometown of Nashville. “I couldn't have done [what I have] there,” she said. “And I’m on the board for the Nashville Entrepreneur Center!” For the last year, the duo has lived a fifty-fifty existence, driving between both cities a couple days a week. This changes now; they’ve placed their house on the market and are moving to Birmingham full time. “We are realists, we know it could all end,” she said. “But if that happens, we’ve had a good run.” Mixtroz is one of the city’s many promising startups; others include Fleet.io, a web-based fleet management system and Planet Fundraiser, a cashback app that lets people support schools and nonprofits every time they shop.
Later that week, at a pitch demo event at the Velocity Accelerator I watch some up and coming hopefuls try out for their dreams. I found enthusiasm, but also a lot of naivety and lack of experience - people trying so hard to be like ‘the Valley’ that the gap between them becomes extremely painful. The business ideas varied from nutrient dense health bars to a digital license plate company, plus a trainspotter-esque blockchain fan that wants to create a nonprofit “to do something on the chain, I don’t know what. But there’s lots of money in there!”
Two women pitched a fitness startup – their USP is paying a monthly fee to attend workout classes at multiple boutique studios. “I’m not sure who would use that,” commented one audience member. When asked about the similarities between their concept and fitness class subscription service ClassPass (the last valuation was $400 million) the duo looked blank. To be fair, this wasn't a polished pitch night, it was more of sharing concepts with your peers' event, but the lack of basic preparation or market understanding was a glaring red flag. Some ideas were cute, such as a science-themed cocktail bar, but others were pure personal promotion, a one-person company masquerading as a startup.
There was something refreshing about the rawness on show here, an honesty that’s lacking in many of my meetings these days, but the overall lack of sophistication and ability to sell put a damper on this. “I still don’t understand what you do,” said a frustrated audience member after a company stumbled (for the second time) to explain if their business was in events or influencers. My answer: inconclusive. Emmanuel Umoh’s digital license plate was the clear winner; not only did he have a prototype, but his use cases - such as changing the text on your plate to'stolen' if you get jacked, and automatically updating your tax number, seemed applicable and exciting and very, very scalable.
Amid this mish-mash of ideas, I couldn't help but notice the gender breakdown on the room; according to my rough calculations, around 40% of people here were women, and 50% were African American or Asian. That’s huge and far better than the Valley. It’s proof that things can change, and the less entrenched they are, the more leeway there is to start out right. Sure, there's a rube-like quality to some of the companies, and the trio of 21-year-old venture capitalists I met with their ‘small undisclosed fund’ seemed like they’re playing at Shark Tank, but that doesn't mean that they won't get off the ground.
“We learned time management at boarding school,” their 21-year-old managing partner Courtney Daniel told me with 100% seriousness. Daniel admitted they’re new to the venture field (really angel, if you think about it), but said her team is smart, motivated, and are doing as much research as they can. “I’d rather learn as we go, than wait till we’re 35 and do it then!” she said. “We’re long-term thinkers.”
Overall, that’s a pretty good summation of Alabama’s tech scene. They’re not quite there yet, they know it, but dang it, they’re going to work hard and if you just give them a little time, patience, and support, they pinky promise swear they’ll come up with something rather special. I believe it.
Source: "Inside Birmingham's Bid To Become The Southern Silicon Valley" Forbes (August 12, 2018) Zara Stone