.Back to Silicon Beach

GTCover1435With a new wave of startups, the future of Santa Cruz tech looks more promising than ever

Atop downtown Santa Cruz’s ornate E.C. Rittenhouse building—with its frieze of wreaths and rams’ heads, and bronze gryphon guardians—the steel skeleton of what will be tomorrow’s tech fortress takes shape. Within the once vacant walls of the building’s fourth and top floor, Looker, a big data startup, is building its new home.

“It’s a beautiful space,” says Looker’s CEO, Frank Bien. “Even one of the designers that we have that is actually from San Francisco, and has done a lot of the tech spaces in San Francisco, came down and said it is probably one of the nicest spaces they have ever worked with.”

Since GT last spoke with Looker in March, the company has grown from around 40 employees to more than 60, and plans to employ 90 to 100 by the end of the year. Looker has also expanded its customer base substantially, and currently boasts more than 100 clients worldwide. After increasing its office space three times since it moved into the jointly owned headquarters of Cruzio and Ecology Action in downtown Santa Cruz, Bien and his colleagues realized it was time to seek out new digs.

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“We’re out of space here. There’s no more to be had, which is why we’re going over to the Ritt,” says Bien.

Amid an explosion of global companies working in the big data realm, Looker is one of the fastest-growing in its field. Bien attributes the company’s success to the differentiated way it deals with data, and the actual demonstrated value he and his team are able to provide their clients in a short amount of time.

“Everyone has been saying that we want to collect all this data and we want to do something with it, but the something was always the big question,” he says. “What we’re finding is that people are actually making use of the data to make better decisions in the companies that we’re working with. This is marketing data, sales data or finance data—things like that,” says Bien.

Many tech companies that grew up in Santa Cruz in the past, like Netflix, eventually chose to move over the hill as they expanded, but Bien says that Looker is here to stay. Not only has the company taken a number of Santa Cruz techies off of Highway 17, but some of Looker’s employees are reverse-commuters, making their way from Silicon Valley to Santa Cruz each day.

“I think what Santa Cruz offers that’s really interesting to people is this great work environment. It’s a great place to live and a great place to be,” says Bien. “There are lots of things to do that are outside of Silicon Valley, and we are able to leverage that.”

Looker has also taken advantage of the tech talent coming from universities like UCSC and Stanford, and has formalized an internship program to recruit recent graduates.

“We love bringing people in early, and getting top talent out of these schools,” says Bien.

Construction is currently under way to refurbish the Ritt’s top floor, and after Bien and his ever-expanding team move into the space this fall, Looker will be, like big data itself, out of view and over the heads of the general public.

With Bien’s prediction that Looker will nearly double in size by the end of the year, the startup may also decide to take the Ritt’s third floor in the coming months, but Looker is happy to share, and Bien says he would welcome other businesses to the building.

“We would love to not be alone,” he says. “It would be great to have some other tech companies over there.”

IncubatIng Ideas

Looker is just one in a constellation of emerging startups in the county that have marked a recent resurgence in the local technology sector. Although Santa Cruz has seen the tide of the tech industry ebb and flow, the latest surge is one that Central Coast Angels member and PredPol CEO Larry Samuels believes will sustain itself far longer than the tech waves of the past.

“I think the missing ingredient was funding, and having some really strong, fast-growing companies here that were viable players,” says Samuels. “That now exists, and that didn’t exist before, and that’s a huge difference.”

PredPol also specializes in reading the oracle bones of big data, but in an entirely different way than start- ups focused on the private sector, such as Looker. Like something from a Philip K. Dick short story, PredPol (short for Predictive Policing) uses the what, where and when of crime data to predict and prevent crime before it ever takes place.

The algorithms that PredPol employs come out of the work of researchers at UCLA, Santa Clara University, and crime analysts from Los Angeles and Santa Cruz police departments, like Second District County Supervisor Zach Friend.

During the height of the recession, the SCPD faced a 20 percent reduction in staff and a 30 percent increase in calls compared to the year 2000. Friend, who served as a spokesperson and crime analyst for the SCPD at that time, chanced upon a news article featuring the research of Dr. Jeff Brantingham at UCLA and Dr. George Mohler at SCU, which used computer models that predict seismic activity to analyze crime, and was struck with an epiphany.

“I asked them [the professors] whether they would be willing to let us try their model operationally, and they said ‘absolutely,’ and so we spent six months building it into an operational model,” says Friend.

“Once it came out and we started to see a reduction in crime, it became a national news story very quickly, and the national news story led to literally hundreds of agencies contacting the Santa Cruz Police and asking us how they could get ‘it.’ Well, it wasn’t an it. There was nothing to get. It was a multi, multi-step complex process,” he says.

Seeing the potential for reducing crime outside Santa Cruz’s borders, Friend suggested that the professors expand their model for use in other police departments, whether it was offered for free or as a commercial product, and with that, a Santa Cruz-based startup was born.

To this day, Friend still receives calls and emails forwarded to him by SCPD from agencies asking him how the program works, but Friend is in no way compensated by PredPol, despite the fact that he sometimes acts as the company’s de facto spokesperson.

Since its inception, PredPol has grown at a rapid rate, and gained customers both domestic and abroad, with clients in cities like Seattle and London. PredPol’s current steward, Samuels, foresees that the company will continue to flourish, and although it may establish satellite offices elsewhere, PredPol’s headquarters will remain in Santa Cruz indefinitely.

Stand in the Place Where You Live

As a 30-year resident of the county, Samuels hopes that the tech resurgence will not only provide more revenue for local businesses, but also keep residents from commuting to Silicon Valley, so they can become more active members of their families and communities.

“People that give three hours of their life to drive over the hill each day pay a significant price, and it’s not just the time. What happens is that you divide your life,” says Samuels. “There’s a bifurcation of life that happens. You have a social life where you work, but you also have one where you live, and that contestation means that inevitably something gives, and somebody loses, and its generally you.”

Samuels stresses that the recent resurgence in the local tech field is real, and is exemplified by the number of other dynamic emerging startups like PayStand, which provides more affordable alternatives to traditional online payment gateways like PayPal.

PayStand was co-founded by Scott Campbell and Jeremy Almond just more than a year ago. While working in e-commerce for many years in the early 2000s, Almond saw that the retailers he worked with lost 3 percent of their online transaction profits to credit card companies. These companies could charge these exorbitant fees because retailers had no other alternatives.

“The businesses actually got less efficient and more expensive,” says Almond. “If you could picture all of these small retailers, 3 percent is a re- ally big part of their margins. It could be jobs. It could be better products. It’s a really expensive piece, and the reality was there wasn’t a second option.”

A few years ago, Almond became fascinated with the concept of digital currency. He saw the potential for using digital currencies like Bitcoin to create a more fair and cost-efficient marketplace that operates outside of the credit card system or any central authority, which keeps more of the profits of online transactions in the pockets of retailers.

“We really are the first com- pany to sort of bridge card network processing. So, a company can come to us and pay with Visa and Mas- terCard, but they can also use these newer payment methods, and they can save a lot of money, and we think that that’s ultimately the future,” says Almond. “We think that digital currency payments could be the next Internet of the world. It’s probably one of the biggest technology break-throughs in the last twenty years.”

Almond points out that the credit card systems are built on pre-Internet technologies established in the 1950s, and are probably not the best avenues for doing business online.

“That’s actually why we have a mag-stripe,” says Almond. “It’s like the old tape decks we used to have way back when. We don’t think about that, but if all of our money is flowing through a system that was built before the Internet, it’s probably not very efficient with the Internet.”

PayStand has raised more than $2 million in seed funding to date from venture capitalist firms like Central Coast Angels, and others over the hill such as Streamline Ventures.

“To me that was really important,” says Almond. “It was important to be a Santa Cruz company that has top-tier, Grade A people from over the hill that have built phenomenal companies, but also have some local presence as well.”

PayStand currently employs a staff of about 15 engineers and customer service agents, and hopes to increase by a factor of 10 in the next two years.

“In 12 months’ time, we went from sort of idea on a napkin to a fully built-out product to a point where we launched it to customers and showed that we were proving value to a place where we now have hundreds of paying customers,” says Almond. “Now our task is, if the fundamental concept is sound, is to grow it.”

Beyond growing and sustaining a successful company, Almond and the team at PayStand have a lofti- er long-term goal: creating a fairer financial infrastructure so that other businesses have lower operating costs, and can subsequently offer higher-quality jobs and products.

“That really connects well to the bigger picture going on in Santa Cruz, which is creating more jobs, and creating a higher-growth, knowledge economy,” says Almond. “I’m passionate about it in our own company, but I’m passionate about it in general. I love seeing entrepre- neurship fostered. It’s dramatically changed the trajectory of my own life, so seeing that in other people is an amazing thing.”

Radical Thinking

PayStand is not the only local startup trying to revolutionize an outdated and cumbersome activity. Toby Corey and Wayne Tsuchitani, who have worked together in various tech companies since 1991, such as USWeb and Intend Change, have once again joined forces to form Tuul: a startup with the ambition of transforming the way that customer service is done across the board.

“It’s hard to find someone who hasn’t had a bad customer service experience,” says Corey.

During a recent stint as chief revenue officer at SolarCity, a company that provides solar panels to homeowners, Corey took notice of the labored interactions between the business process and its customers.

“There’s just lots of different touch points, and the communications systems that they’re using today is what’s been around for several decades. It’s just phone calls. No one is really responding to email, and then they’re trying to hunt you down via phone, so it’s not really efficient,” says Corey. “So Wayne and I sat down and started thinking about not only this issue for the solar industry, but just in general the way customer service is provisioned today.”

Corey and Tsuchitani thought about what the modern, mobile economy looks like, and looked to recent success of taxicab alternatives like Uber, which has streamlined the way people get around.

“We started thinking, ‘Why can’t customer service be the same way?’” says Corey.

With their combined brain power, Tsuchitani and Corey began to find order in the chaos of the current, anachronistic customer service prac- tices. Since phone calls and emails had proven to be inefficient medi- ums for businesses to interact with customers, the two thought about the actual way that most people in the modern world communicate.

“This new notion of short-form communication has really become pervasive, in that, everyone knows how to text,” says Corey.
After they devised the means to which they would standardize cus- tomer service for the world, the pair began to develop their end product.

“We started thinking about how many relationships you have with service providers and the list starts to get pretty big,” says Corey. “You probably have a doctor, a dentist, a utility bill, a cable bill, you have some Visa cards or American Express. Maybe you get your car serviced, your tires rotated, you get your car smogged, and so the number quickly gets in the high teens into the twenties and thirties.”

Keeping in mind that most people would not want a separate mobile application for each service provider, the two are in the process of devising one app to rule them all.

“I pull up the app, and all the service providers I do business with are all right there,” says Corey.

The app will be customizable for each service provider’s individual needs, and will, at the same time, feature a way to analyze the types of service calls coming in, so that businesses can identify trends and patterns and further improve the way they do business.

“The real magic to the product is automating workflow in the form of Tuul bots,” says Corey. “Basically these are little workflow components that can dramatically automate this entire process.”

Tuul’s end product will come packaged with a number of individual “bots” that deal with everything from scheduling appointments, to making payments, to rating a customer’s experience. The app would also allow for other developers to create new bots as needs arise.

As for the significance of the startup’s name, Tuul, the reserved, but well-spoken Tsuchitani explains.

“Basically the way that we looked at it, tools have fundamentally changed mankind. It’s what set us apart from the animals. The evolution of the tool has really helped mankind leap forward, if you will, but it’s also created a lot of complexities. So we’re creating a tool that can simplify the complexities as well as increase productivity for people.”

Although still in the throes of development, Tuul hopes to launch a beta model of their product in late fall, a second beta at the onset of 2015, and a full launch in spring of next year.

Although Tuul is attempting to solve a dizzying problem that has gone untouched for decades, they are well-backed by investors, who are actually lining up to get in on the ground floor of the startup—so much that Corey and Tsuchitani were able to pick and choose their investors in a strategic fashion.

“That was probably the biggest surprise to date,” says Corey. “Wayne and I have raised lots of money, both private and public, and that’s always the most challenging thing to do as an entrepreneur, and this was the exact opposite. Wayne and I initially had planned to self-fund the development through the first beta phase, and then get some requisite traction, and then go out and raise around. A few venture capital firms found out that we were doing something and our phones started ringing.”

Tuul accepted a total of $2.4 million in seed funding from local investors, some of the usual suspects over the hill, and globally from investors based in Shanghai, as well as strategic players with ties to utility companies, among others.

“We wanted access to different kinds of markets and different kinds of companies so we chose investors based on that as well,” says Tsuchitani.

If Tuul’s founders do manage to overthrow the customer service sec- tor and meet with global success, the duo still plans on keeping their HQ in Santa Cruz well into the future.

“I hate to use the word forever,” says Corey, “but I honestly envision the company being headquartered here throughout its entire life.”

Building a Nest

While the city of Santa Cruz has become the home of a multitude of startups, in South County, Jacob Martinez has taken his concept of the Digital NEST and made it into a reality. When it officially opens its doors at the end of October, at its temporary location on Aspen Way in Watsonville, the Digital NEST will be a cool, communal space where youth (ages 12-24) will be able to utilize computers and software that they may not normally have access to, in order to develop their tech skills and learn to become young entrepreneurs.

“A big focus of the NEST is entrepreneurship,” says Martinez.

Martinez has raised about $72,000 dollars so far, with a $25,000 grant from the Community Foundation, but he still hopes to receive additional funding from the community to equip the Digital NEST with state-of-the-art technology.

“I am telling people that I don’t want you to consider the money you give to the Digital NEST as a donation. This is an investment. This is an investment in the community. This is an investment in the youth, and eventually your businesses are going to reap the benefits of this investment,” says Martinez.

Although based in Watsonville, Martinez sees the Digital NEST serving as a model that can be replicated in adjoining communities, which he hopes will become a regional solution to workforce development.

“We want to really create startups in the community so that youth don’t have to leave Watsonville or the county and can stay local and create their own opportunities,” says Martinez.

UCSC has also begun to focus on the local tech scene with events like the weekend-long hackathon, where students are given the oppor- tunity to band together and create mobile apps that they then pitch to tech professionals, and the Center for Entrepreneurship, or C4E, which matches students and recent grads with internships and jobs in Santa Cruz County and elsewhere. The C4E is led by Professor of Environmental Studies, Brent Haddad.

“For me, a wonderful revelation was finding out how active the local tech scene is,” says Haddad. “That really got me to refocus when I saw that we had venture capitalists, tech developers, startup experts, and an organized community who wanted to build the tech sector right here along the Central Coast, and who were just banging on the door of UC Santa Cruz, and I was more than happy to throw the door open as best as I could.”

The C4E is co-sponsored by the Santa Cruz Economic Development Department, which also partnered with the university to support the first annual hackathon last spring. The department’s executive director, Bonnie Lipscomb, is well known in the local tech community as a supporter and promoter of tech in the city.

“We have collaborated with every entity that has an active group for the last few years,” says Lipscomb. “From being a lead sponsor of Event Santa Cruz, for TechRaising, and for New Tech MeetUp.”

Community Foundations

Although the bloom of technology-related businesses in Santa Cruz County may be attributed to a variety of factors, it comes largely in part from the efforts of the local tech community itself: angel investors like Bud Colligan, who keeps a vigilant watch on the economic vitality of the county—in science and technology or elsewhere—and the three pillars of the local tech scene: Santa Cruz Tech Beat, an online digest that celebrated its one year anniversary in July, Santa Cruz New Tech Meetup, and TechRaising.

Local marketing and social media consultant, and co-founder of TechRaising, Andrew Mueller, credits the recent flourishing of local tech businesses to the more open dialogue between the tech community and those in local government like Lipscomb, UCSC’s continuing efforts to strengthen its ties with Santa Cruz-based businesses, increased interest from venture capitalists, and his friends and colleagues, who regularly volunteer their time to bolster tech growth in the county.

“It’s rewarding, but it’s a lot of work,” says Mueller.

For those Santa Cruz County residents who have commuted over the hill for years, the recent tech resurgence provides a possibility that they can gain more than just a well-paying local job and the three hours they lose on the drive day in and day out.

“One of the greatest things that this will do is it will give a lot of peo- ple their lives back,” says Samuels.



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