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Growing the Future
Author: Eric Gold, Alaska Airlines Magazine
Posted: September 30, 2013


Portland resident Mat Ellis says he didn’t expect that his work with cloud computing would result in the launch of a new company.

Originally from London, the longtime entrepreneur moved to Portland with his wife in 2010 to be near her family. Soon, he began consulting with companies where his friends worked on how to migrate to cloud computing—the shift from using company-owned computers and servers to renting computer resources from a third party.

“Instead of buying a server, you can buy a service,” says Ellis of cloud computing. “You don’t have to worry about whether you’ve got too many or too few computers.”

To help out his friends, Ellis wrote a software program for free that analyzed and reported on costs associated with the cloud services from providers such as Amazon.com. He soon realized he had stumbled onto a business opportunity when demand for his program increased, and he ended up turning his reporting software into a company, launching Cloudability in 2011. With the help of Portland’s cluster of resources to aid startups and entrepreneurs, Ellis has been able to build Cloudability into a successful and growing operation.

Today, it employs a staff of 22 and has hundreds of corporate customers. It has raised nearly $9 million in investment capital from 40 investors located in the Pacific Northwest, Canada, Germany, New Zealand and the United Kingdom.

Entrepreneurial Ecosystem

Cloudability is just one of the many startups that have benefited from an entire ecosystem of Portland area incubators, accelerators and other programs that are helping entrepreneurs develop and launch their startups. This growth in new companies is helping Oregon’s largest city build a strong reputation as one of the nation’s centers for entrepreneurs.

While accelerators and incubators are sometimes interchangeable, there are general differences between the two types of programs. Accelerators tend to focus on companies that are more developed. They often invest money and take an equity stake. The accelerators work with the firms for a relatively short time and help them develop quickly. Incubators tend not to invest in the new companies they are fostering, and usually allow the early-stage startups more time to develop their business plans, management teams and products. Ellis points to the region’s pioneering spirit as part of the reason for the unique collaborative ethos in Portland.

“I think this is why you have so many programs in Portland, and why they’re thriving here,” Ellis says. “Portland’s always been very good at networking.”

One early break for Cloudability was the firm’s acceptance into the Portland Incubator Experiment (PIE). Led by the large Portland advertising firm Wieden+Kennedy (W+K), which is also a Cloudability investor, the program offers three forms of assistance to startup companies. First, there’s the tangible help: office space and free mentoring. Second, PIE requires entrepreneurs to practice their corporate pitches dozens of times, which helps refine their business models and clarifies what their companies are about. Third, there’s the opportunity to develop a support network of business experts.

PIE welcomed its third class of startups in July 2013. Director Rick Turoczy and his team chose an elite group of seven companies this summer from 440 applicants. While the number of companies admitted to the program stays about the same, the number of applicants continues to grow as the program gains in popularity.

Turoczy says his team is looking for coachable founders, interesting and scalable product ideas, and talented teams with the right skills to build companies and resolve the inevitable problems. Unlike most incubators, PIE takes up to 6 percent of the common stock of each startup in exchange for $20,000 and the chance to participate in its program. For companies with established valuations or open funding rounds, PIE receives an equitable percentage of common stock in exchange for the benefits of the program and the $20,000 seed money. The companies go through a rigorous threemonth program with access to the organization’s pool of nearly 200 mentors, including attorneys, accountants, product and technology experts, and W+K’s own branding gurus.

After three months, the companies can stay rent-free in PIE’s space in W+K’s Pearl District headquarters for another six to nine months. To date, Turoczy says, PIE companies have raised more than $100 million in venture capital and created 400 jobs. PIE’s largest success so far is mobile-marketingtechnology company Urban Airship, which employs 170 people and counting. Fast-growing Urban Airship developed technology that helps companies deliver customized news, information and alerts through smartphone applications. Turoczy says part of the PIE process is to “make the entrepreneurs uncomfortable for three months. It can be very easy to avoid things that need to be done in favor of things they’d much rather be doing.”

A new player in the accelerator field is sports apparel-and-equipment behemoth Nike, which this year launched Nike+ Accelerator. The program is primarily aimed at helping to develop technologies related to digitally measuring athletic activity.

On the public-sector side, the Portland State University Business Accelerator helps medical, biotechnology and clean-technology startups that need specialized facilities. And the city’s Portland Development Commission has launched Startup: PDX Challenge, the first of a series of contests aimed at encouraging startups to set up shop in an eastside Portland neighborhood known as Produce Row. The commission also invests in the Portland Seed Fund, which helps develop local startups.

The fund has raised $3 million so far and has invested $1.35 million in 36 companies, 25 of which have brought an additional $23 million in outside capital to the city. Meanwhile investor-driven models such as Upstart Labs and Amplify combine mentoring expertise with capital infusion to help companies succeed.

The rest of the country is also taking notice of Portland’s nascent entrepreneurial ecosystem. The Brookings Institution, a Washington, D.C.–based think tank, rated the city ninth out of the 100 largest American metropolitan areas with the strongest economic recovery from the recession. In June 2012, The Atlantic magazine’s Cities website ranked Portland fourth on its list of leading metropolitan areas for high technology. Another strong sign of entrepreneurial vigor is that venture-capital investment in local startups more than tripled between 2005 and 2011, to $81.4 million. Overall, according to a report from investment tracking firm CB Insights, venture-capital investment in Oregon in the first quarter of 2013 reached $146 million.

“Greater Portland’s economic strategy is all about growing our own,” says Sean Robbins, CEO of the public-private economic-development partnership Greater Portland Inc. He notes that some of the Puget Sound area’s major employers (Amazon, Microsoft and Starbucks, for example) were once tiny startups.

“We know our economic future isn’t going to be defined by big-budget recruitment strategies,” Robbins says. “It’s going to come from nurturing the incredible spirit of innovation we have in this region and helping today’s startups become tomorrow’s success stories.”

Accelerating Success

Nike’s decision to embrace the startups in its backyard has been a major boost for the local entrepreneurial scene. Nike+ Accelerator, which is located in Portland’s historic Pearl District, is working in partnership with veteran incubator Techstars, which has had 237 companies go through its 23 programs during the past six-and-a-half years.

Led by managing director Dylan Boyd, the former vice president of growth at Portland startup Urban Airship, the 85-day Nike+ Accelerator program includes guidance on pitching an idea to investors, developing a product and connecting with customers. In June the accelerator graduated its first class of 10 companies that were headquartered in such places as Hong Kong, New York and Portland.

“It’s up and down and complete chaos and madness and awesome all at the same time,” an excited Boyd says of the Nike+ Accelerator experience.

The accelerator focuses on what Nike calls digital sport, or how technology can enhance the athletic experience. Nike’s FuelBand bracelet, for instance, tracks users’ movements with electronic sensors and awards points based on the activity. The companies being guided by the accelerator use digital data to quantify and improve performance, and give users new ways to use the information about their workouts. Though many of the startups set up shop in their home cities after the program, a few have made Portland their new headquarters.

One example is Totem. The June program graduate has developed an application that pulls together a user’s photos, location data, social media posts and other information to create a unified story about his or her outdoor adventures. Another recent graduate is Chroma.io. The company’s first concept, JumpBots!, is a video game in which a player’s movements are translated into the movements of a fighting robot avatar. Users earn points during the video game and can spend the points they earn from exercising with their Nike+ FuelBand on improvements to their robot avatar, giving them a fun way to compete with their friends through exercise.

Each company met with 10 mentors each day for the first week. By Friday, Boyd says, “Everyone looked exhausted.” He told them to take the weekend off and, “Don’t code. Don’t hustle. Go walk around Portland. Process the 50 meetings you just had.”

The program culminated in a pair of demonstrations in San Francisco and before an audience of nearly 800 people at Nike’s main campus in Beaverton, just west of Portland.

Nike is experienced with developing new ideas, and even has innovation labs within the company where its own employees develop new products. The company is also well known for its extensive talent connections that range from LeBron James to Serena Williams.

Still, Boyd says, Nike has found that there is value for the apparel leader in sponsoring entrepreneurs outside the company who have no direct ties to the famous brand. “Stepping outside the walls of Nike opens up a whole other thought process,” Boyd says.

Medical Breakthroughs

Portland is also home to a number of bioscience startups. Entrepreneurs are working on developing new technologies, medical devices and even new pharmaceutical breakthroughs.

Angela Jackson, who runs the Portland Seed Fund with business partner Jim Huston, is also director of the Portland State University Business Accelerator. In 2010, the university partnered with Oregon Health & Science University and the Portland Development Commission to spend $1.5 million to build special facilities required by bioscience and clean technology companies. Jackson says her team at the accelerator picks companies for their potential to create jobs, attract federal grants and venture capital, and grow revenues as they develop a product. The program takes no equity stake in the startups, but companies do pay rent.

The accelerator currently is working with more than 30 companies that in total employ more than 200 people. It holds panels, workshops and other programs that offer entrepreneurs information on raising money, developing their ideas and growing a company.

Still, Jackson cautions that building new companies is not easy. She says the startups are bound to change as the ideas they were started with begin to change.

“They will evolve and morph into far better ideas over time,” Jackson says. “We look for people who want to not just embrace that change, but also anticipate it. And that’s not everybody.”

One of the accelerator’s most promising startups is DesignMedix Inc., developer of a new malaria vaccine. At a 2006 accelerator seminar, Sandra Shotwell and Lynnor Stevenson were both looking to invest in companies with potential. Stevenson has extensive startup experience and Shotwell is an expert in technology transfer—the practice of bringing university research to market. The two had worked as consultants at the Malaria Vaccine Initiative, which was aimed at eradicating malaria—a disease that in 2010, alone, killed 660,000 people around the world.

At the seminar, they met Portland State University chemistry professor David Peyton who had modified chloroquine, a traditional malaria treatment to which the disease was gaining resistance. Leaving intact the aspect of the chloroquine that kills malaria, Peyton altered the medication’s molecular structure to help eliminate the growing resistance to the vaccine. Peyton’s process also appeared to allow for the rapid design and synthesis of new medications that would still have the properties of the original medications but would potentially avoid resistance issues.

Shotwell and Stevenson realized the potential of Peyton’s discovery and the three founded DesignMedix Inc. The new company has won small business grants and raised private investment capital and is testing the new vaccine on the blood of malaria patients. Shotwell says the parasites that cause malaria become resistant to the medication after 10 exposures in the lab. Testing has shown that DesignMedix’s vaccine works through more than 70 exposure rounds.

DesignMedix’s method of altering existing medications could apply to other illnesses as well, including certain forms of cancer. The company’s development strategy involves a partnership with a pharmaceutical firm that could mass-produce their medications. “We want to make sure the project gets into good hands and moves forward,” Shotwell says.

Building Community

While developing such companies is important, Portland officials also want to make sure these firms lay down roots and remain in the community. That is one of the jobs of the Portland Development Commission, a public organization that, byoffering various creative incentives, is helping the city’s varied group of startups to take hold in the metropolitan area.

The commission created its Startup Challenge to attract young companies to the Produce Row industrial neighborhood on the city’s Eastside where the agency is attempting to spur development. It invited landlords in the area to apply for remodeling funds in exchange for a year’s free rent for startups. The commission picked one space, which the new companies have dubbed “Startup Row.” The startups also get a $10,000 grant, and the program takes no equity. In July, the six winning startups moved into the space PDC selected.

The goal, says the commission’s business and industry manager Chris Harder, is to hold an annual challenge in different parts of the city to spread economic development throughout Portland. Next year, he says, the competition will focus on women and entrepreneurs of color.

One of this year’s PDC startups is OnTheGo Platforms, the creator of a new software-development kit (SDK) for smart glasses—wearable devices equipped with smartphonelike computing power. The first application of OnTheGo Platform’s product is a program called Ghost Runner. CEO Ryan Fink came up with the idea for his showcase application while running his usual route in Portland.

“I decided it’d be awesome if I could see myself, compared to the time before, and find where I slow down and speed up,” he says. Ghost Runner conjures an image of an avatar that is visible off to the side of the viewing area for the wearer of the smart glasses.

The image is based on the wearer’s past performance, so the person wearing the glasses can gauge whether he or she is falling behind or keeping up with the past pace by looking at his or her image on the glasses. Fink has partnered with Vuzix, a maker of military heads-up displays, to manufacture the glasses.

Ghost Runner helped sell the company’s idea, but OnTheGo is focused on creating the platform for other developers’ applications. OnTheGo plans a beta release of the SDK in January 2014 and a new showcase application with a major brand by the fall of next year. Fink says athletics apps will lead to the widespread adoption of smart glasses. “I see it introducing the postsmartphone era,” he says.

Yet another new Portland incubator that is creating plenty of buzz is TiE Pearl, an organization created by the partnership of the Oregon branch of The Indus Entrepreneur (TiE), a global investor and mentor network, and the Portland digital agency Isite Design. The incubator offers startups

working space within the Isite headquarters, where they receive mentoring, angelfunding connections and networking opportunities. TiE was founded in Silicon Valley in 1992 and now has chapters all over the world. This is TiE’s second Portland-area incubator. A catalyst for the partnership between TiE and Isite was the startup GlobeSherpa, whose mobile ticketing application has just been adopted bythe region’s TriMet public transportation system. Both TiE Oregon and Isite were early investors in the company.

GlobeSherpa CEO Nat Parker was a graduate student at Portland State University when he called TriMet—the bus, light rail and commuter rail service for the Greater Portland area—to ask if the agency had a plan to sell tickets through smartphones. They didn’t, Parker recalls, but quickly embraced his idea.

GlobeSherpa launched in 2010, and to date has raised $2.3 million, employs 15 people, and is branching out beyond transit tickets to events and other mobile payments. Parker says the company has raised 95 percent of its funding money from Portland investors.

Gene Ehrbar, Isite director of mobile solutions, recalls how Parker’s company was first a tenant, then a client and also helped develop the incubator concept that is now powered by the mentoring expertise of both Isite and TiE Oregon.

Ehrbar says there has been a sea change in the liquidity of Portland’s startup scene in the last few years. “You’re really looking at hometown pride,” he says, “where people get successful and they come back and reinvest in the community.”

Sharing Expertise

Using a somewhat different model than the traditionally structured incubator, Upstart Labs’ team of 13 members has expertise in design, development, finance, marketing and more. They work very closely with startups and offer workspace as they advise. When Upstart Labs does invest, the amount is a bit larger than some other programs—in the $100,000 range.

“We believe in this model of trying to hedge our risk by putting our team of experienced people alongside the startups,” says partner Jenn Lynch. “We think our secret sauce is our team, and the value they bring, which we think is at least as strong as just straight capital.”

Lynch says a founder’s qualities are key to a startup’s selection. “I’ll take vision 10 times out of 10 over execution,” Lynch says. “Because we can teach execution.”

The first company to emerge fromPortland’s Upstart is advertising veteran Chris Teso’s Chirpify. The startup turns social media comments and hashtags into commands that can do a number of things, including buy a product, enter a contest or subscribe to a newsletter.

For instance, when a member tweets “buy” with the unique hashtag for a particular campaign, Chirpify uses stored credit card data to execute the purchase. Nonmembers who use the tag get a message inviting them to join. Customers such as Adidas, MasterCard and the Portland Trail Blazers are using Chirpify on Facebook, Twitter and Instagram.

Chirpify has been funded by a number of firms, including Upstart Labs and the Seattle venture firm Voyager Capital. In July, the startup closed a $6 million Series A round with a Boston venture firm.

Teso says he fell in love with Portland when he moved from Boston in 2007. “The craft that everyone shows in each of their industries is unmatched,” he says of the City of Roses, “from making furniture to startups. That’s the kind of environment I want to be in.”

The Amplify incubator uses a model that is similar to Upstart Labs. Started by Jon Maroney and three partners, Amplify focuses on startups with products that combine hardware and software. It works with the startups for 12 to 18 months and may eventually make an investment. Amplify takes common shares, Maroney says, not preferred stock, “so we are in the same boat as the entrepreneur.”

One Amplify company is Safi Water Works, which is also part of Produce Row. Maroney recruited CEO Amy Smith to help an engineer from CH2M Hill who had invented a water-purification system inspired by his work in Kampala, Uganda.

The company uses ultraviolet light to kill waterborne parasites and purify water. The technology requires no electricity, and instead uses human or solar power. Safi, Smith says, makes it possible to create the potable water that millions of people lack.

“More people in the world own cellphones than have access to clean water and sanitation,” she says.

Safi is preparing to field-test the product in preparation for pilot programs in countries such as Uganda, Haiti and Indonesia. At the same time, it’s looking for funding in Portland and in California, where the chief technology officer is based.

Portland’s thriving entrepreneurial scene is winning the attention of investors from Silicon Valley to New York and beyond. Jackson of the Portland Seed Fund says the city is among the places poised to be an entrepreneurship hotbed into the future. “I think this is the place to build a 21st century company,” Jackson says. Gone are the days, she maintains, when it might cost $5 million or $10 million just to prove to investors that a startup’s idea is viable. “[Today] you can do that for $25,000, or even less in many cases. That opens up all kinds of opportunities for smaller communities,” she says.

PIE’s Rick Turoczy, a tireless champion of Portland startups through his website, www.siliconflorist.com, says there is plenty of validation for Portland’s being a leading location for entrepreneurs.

“It’s not just rose-colored glasses or sheer reckless optimism,” Turoczy says. He points to Aruba Networks’ announcement in May that it was acquiring the local software firm Meridian and CenturyLink’s decision in June to buy AppFog—which has developed technology to help programmers deploy applications to the computing cloud—as promising signs of a sustainable and maturing startup scene in Portland.

Such successes help create a healthy business cycle as entrepreneurs are drawn to Portland to invest in new startups or start their own companies and, in the process, help grow the local economy.

 

“Entrepreneurs,” Turoczy says, “don’t want to be part of a big company. That’s not what excites them. They want to start another small company.”