Does Sacramento have what it takes to become another Silicon Valley?
Moreover, does it want to?
Answers to both questions should be yes, according to area research analysts and a new market report by national investment management firm JLL.
JLL’s report, “Cracking the Hardest Code: Where to Find Tech Talent,” identifies Sacramento as one of several “hidden gem” startup-friendly cities that could give the powerful Silicon Valley a run for its money, so to speak. California’s capital is considered a prime source of tech talent thanks to the presence of science-grounded colleges like University of California at Davis and California State University at Sacramento.
It’s also more affordable than the Bay Area, the report notes. This has jobs working in two-way fashion, according to JLL Director of Local Markets Julia Georgules. At the moment, about 120,000 workers employed in the Silicon Valley are migrating to the one-time “Cow Town” region, willing to endure 120-mile commutes to keep six-figure jobs but live where overall cost of living is about 20 percent less.
As an example, JLL cites Sacramento’s pool of 11,500 computer programmers, who have an annual median salary of $84,350. Meanwhile, the San Francisco-Oakland and San Jose-Sunnyvale-Santa Clara markets, with about 50,000 programmers combined, pay significantly more, at about $107,000 each.
Housing prices differ on opposite sides of the Altamont. According to the California Association of Realtors, housing costs about $228 per square foot in the Sacramento region, compared to the $531 per square foot average in the Bay Area.
The disparity is convincing about 20,000 people a year to pull up stakes from the Silicon Valley and replant themselves in Sacramento, according to the Census Bureau. It’s also a reason why online home sale sites Realtor.com and Zillow identified Sacramento as one of the nation’s hottest real estate markets in 2017.
“Given Sacramento's lower cost of living relative to the Bay Area and the lower salary costs for employers, Bay Area companies looking to expand into new locations could give Sacramento a long look,” Georgules says.
Train them here, keep them here
One of JLL’s key factors when determining a “hidden gem” is the availability of talent for companies to draw from. During his tenure in the first half of this decade, former Sacramento Mayor Kevin Johnson noted repeatedly that the region had plenty of qualified, technology-savvy people. The problem was keeping them here after graduation from college. Many left for the Bay Area because of its high-tech history, according to Johnson’s former chief information officer, Abhi Nemani.
Johnson and Nemani helped establish the Mayor’s Office for Innovation and Entrepreneurship (MOFIE), which manages a $10 million Innovation and Growth Fund designated for one-time grants to startups and nonprofits. The goal is to develop the new firms locally in the hope that they will stay and potentially become tomorrow’s large employers, according to Nemani.
“Folks don’t look at Sacramento as an innovation city like San Francisco or Austin,” Nemani told Comstock's this January. “While there is a lot of innovative stuff going on here, not a lot of people know about it.”
In November 2016, after combing through 143 applicants, MOFIE awarded $970,000 in grants to 15 tech-based Sacramento area startups. Mayor Darrell Steinberg has since expanded the fund for additional winners each year. The award process for a new round of grants is underway.
Worth the risk
Tyler Smith was almost one of the homegrown entrepreneurs who left. Smith says he had established a very successful real estate business – he was one of Realtor magazine’s “30 Under 30” in 2011 – but eventually wanted to follow his dream of starting a paperless, online real estate transaction service.
“Equipped with tons of talent and venture capital, the most obvious place for my tech startup was Silicon Valley,” he said. “However, the cost of starting a company in the Bay Area was (and still is) astronomical and I certainly didn’t have a conveniently located garage like Steve Jobs ... I decided I would take a risk on Sacramento, and it turned out to be one of the best decisions I would ever make.”
The company, SkySlope, now offers a suite of mobile, cloud and paperless transaction processing solutions to more than one-fourth of the top 100 brokerages in the U.S., including almost half of the top 25 brokerages.
Smith says when he started, he wasn’t sure if computer techs and engineers even existed in Sacramento. He rested easier when he learned about the area’s major tech campuses, including Apple, Intel, Hewlett-Packard Enterprise and Aerojet Rocketdyne. He also discovered there was more available talent than he could have hoped for.
“We’ve had no problems acquiring quality employees,” Smith notes. “The talent pool may not be as wide here, but we’re not competing with the saturation of startups the Bay Area faces, either.”
Sheri Atwood, CEO of SupportPay, can relate. She first opened her software app company in the Bay Area in 2011 because it seemed like the logical place for the developer of a child support payment platform. But she found that she couldn’t compete with the larger companies when it came to hiring employees. “I considered several other places,” she says. “But the level of talent that was immediately available here told me it would be far easier to grow my business than staying in Santa Clara.”
The welcoming attitude of Sacramento’s government officials and its Greater Sacramento Area Economic Council didn’t hurt, either. The city granted SupportPay a $100,000 subsidy in exchange for the business moving to Sacramento, which it did last year, and creating 10 new full-time jobs within two years. Atwood’s business was also located in The Cannery, the business office park and tech campus in East Sacramento.
“This is the best thing that could have happened to this company,” she remarks.
Even with jobs, it’s location, location…
The concentration of tech jobs in a city or region – as opposed to the number of companies hiring – also plays a part in determining how likely it is to become another tech hub like the Silicon Valley, according to Georgules. The fact that the Sacramento market has a State Employment Development Department-estimated 21,000 technical jobs, many located in Roseville, Folsom and Rancho Cordova, speaks to its likelihood of surviving ups and downs the way a certain South Bay Area has over the years.
“If there’s already a community of specific occupations in place, future job creation will likely be easier and the location should stay strong regardless of the economic cycle,” she says.