| Title | FOCUS ON SANTA BARBARA Quality Over Quantity on the Central Coast |
| Date: | 7/1/2000 |
| Author: | Phillip W. Browne |
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| Source: | Zone Communications |
Located 90 miles north of Los Angeles, Santa Barbara has historically been known for its beauty, tourism and sleepy, stress-free lifestyle. Each year, millions of people visit the hamlet to escape the breakneck speed of city life, sip margaritas and eat cioppino at one of the town's numerous beachside cafes.
Now, the same revitalizing force that draws frazzled visitors is giving rise to a thriving technology cluster-and new local economy-that has adopted the cool yet driven professionalism of the area's hospitality industry.
While other cities talk startup numbers, Santa Barbara brags class.
"We have the potential here in Santa Barbara to be as influential as (Silicon) Valley, but I think we will establish a different reputation," said Dennis Cagan, chairman and CEO of the Santa Barbara Technology Incubator, a recently established financier of local tech firms.
"Our reputation in the technology sector will be like that of tourism. We will be elite, hugely classy and high tech. We won't be as big, we wonąt have the quantity, but we will have very, very high quality," Cagan said.
Primarily outgrowths of Southern California's aerospace industry, a few dozen electronics and a handful of biotechnology firms have since the 1960s called the region home. But in the last five years the area's high-tech ranks have swelled to more than 600 firms. Today Santa Barbara is home to heavy-hitters such as Software.com, ValueClick, NuSil Technologies and Commission Junction, plus startups including Push Inc., ServiceObjects, Education Planet and Ants.com.
That sort of growth shows signs of becoming self-sustaining, as locals and graduates of nearby colleges-including the University of California at Santa Barbara-set up shop in town.
Case in point: Westmont College graduates Phillip Harnsberger, 22, and Jared Williams, 21. The homegrown pair are currently seeking $2 million to launch QuizCore.com, a site for college students that incorporates the most common college texts into an online study guide, complete with online flash cards and quizzes.
"There are the same resources here, investors, programmers, marketers, that you'll find anywhere else," said QuizCore president Harnsberger. "And Santa Barbara is my hometown. I love it here."
So does Lex Sisney, CEO and co-founder of Commission Junction, a business-to-business e-commerce firm that connects online retailers with content sites. Sisney and his partner founded the firm in 1998 in Minneapolis, where he had secured seed capital. In search of a programming team, he stumbled on Active Internet Marketing in Goleta, just outside Santa Barbara. After laying eyes on the Central Coast, Sisney never turned back, absorbing the Goleta firm into Commission Junction and moving headquarters to Santa Barbara.
"The pool of tech resources and the geographic location and the lifestyle did it for me," Sisney said.
The company now occupies a swank, two-story office building in central Santa Barbara and employs 130 people. Powered by a $40 million infusion in its second funding round, $25 million of which came from Idealab Capital Partners, the company now has more than 1,000 online merchants and more than 250,000 affiliate content sites.
"This has been a lot of fun. It started as an idea on a napkin two years ago and I never imagined we'd end up moving across the country," Sisney said.
Much of the local tech industry was born out of aerospace, UCSB's computer science and entrepreneurial academic programs, and tech talent moving in from out of town. Many well-heeled retirees have also moved into the area, and more than a few have invested in technology.
That trend led to the establishment of Cagan's Santa Barbara Technology Incubator, a group of 30 local investors who have about 36 deals in the oven, Cagan said.
"I liked the idea of not traveling, and (of) local companies coming to me. I liked the idea of doing business with local buddies," said Cagan, a Los Angeles transplant. "There's way more of a community atmosphere here. You canąt go to lunch or dinner without running into a colleague or competitor, and we all have a great time together."
The downside: Real estate is tight because of the area's low- to no-growth policies. Also, much of the area's talent has been absorbed.
"One of the big problems is the shortage of available labor. We've had a hard time looking for a CFO and management team," said Mark Mastman, director of Internet Planner, a project management firm and e-business enabler. "Then there's the city (government), which is paranoid about high growth."
Joel Kaye, head of the commercial division at Prudential California Realty in Santa Barbara, said office space is saturated citywide. Still, with some digging, companies can find space ranging from between $1.25 and $3.00 per square foot, with an average of about $2 per square foot.
"The technology companies have put a strain on housing and apartments, too," Kaye said. "Unlike Los Angeles or San Jose, it's not that easy to live outside of town and work here unless you want to commute more than an hour."
Despite those concerns, the growing tech presence in the region gave rise to the first Central Coast Venture Forum four years ago. More than 400 bankers, VCs and entrepreneurs attended this year's event, held in late May at the Four Seasons Biltmore Hotel in Santa Barbara.
About one third of the attendees were venture capitalists and investment bankers, many of which flew in from Silicon Valley for the event‹a sign that Santa Barbara has something going. Most of the companies that made presentations were based in Santa Barbara or the neighboring town of Carpinteria, representing sectors as varied as health care, business services, software, entertainment and wireless technologies.
One of those presenting was Ants.com, a project outsourcing Internet company that has acquired tens of thousands of members. Founded in September 1999 with $650,000 in seed money, primarily from the region's ubiquitous Bertlesmann Ventures, the company now has 27 employees and counting. The firm pitched the crowd of financiers for as much as $23 million in funding.
"This is exciting because we're starting to win. A lot of companies got a head start on us and we caught up in the blink of an eye. It validated our model and business plan," said Ants.com founder Jason Carmel.
Part of the success of attracting talent is the allure of the Central Coast, said Mark Hatch, Ants.com vice president of marketing and business development.
"My philosophy is live where you want and work where you live," Hatch said. "Locals and people who have moved here have found everything they ever wanted and more in Santa Barbara."
Where else can you wear Hawaiian shirts to work, go surfing at lunch and drive anywhere in town in five minutes?
"Many of our employees ride their bikes to work," said Geoff Grow, CEO of ServiceObjects.com, which develops Web applications and helps businesses build online strategies. "We have a very low turnover rate. I mean, they can go paragliding after work. What more can you ask for?" .
