Tech leaders don’t think Indy needs to become next Silicon Valley

Panelists at the IBJ's Technology Power Breakfast included (from left) Tyler Foxworthy, Mike Langellier and Dewand Neely. (IBJ photo)

Jeff Ready, CEO of Indianapolis-based Scale Computing, is an expert in at least three notable areas.

He and his staff at Scale are experts in computer networks and edge computing—which, simply put, means computer processing made faster by taking place near the data source. Scale’s 2,000-plus customers in 30 countries are proof of that.

Having started, expanded and sold multiple businesses, he’s also an expert at scaling up companies.

But arguably most notable is his ability to raise capital.

He raised money in California in the 1990s and early 2000s when nobody knew who the Rose-Hulman Institute of Technology graduate was.

He moved back home in 2005 to be closer to family. Two years later, he started Scale, doing his first deals out of a Burger King on State Road 37. Despite conventional wisdom—and some hesitancy on his own part—he decided to put the company close to home.

Scale now has raised nearly $100 million in capital, including a whopping $34.8 million in late 2018.

Indiana long has been in the lower ranks nationally in raising venture and growth capital. Despite garnering $358 million last year—a 260% increase from 2018—the state lags major tech cities like San Francisco, which raised $11.2 billion last year, New York, which raised $4.3 billion, Boston, which raised $2.8 billion.

That’s why I asked Ready the first question—one that has dogged this region for years—at Thursday’s IBJ Technology Power Breakfast. (The virtual event was streamed live and can be viewed here in its entirety.)

Is the region finally getting the respect it deserves from venture capitalists?

“Not yet, I think is the short answer,” Ready deadpanned. “However, it has come a long way from where it was.

“I went to raise my first round of venture capital with a company here in Indianapolis back in 1997, and there was no real ecosystem here. Today, we have a pretty robust ecosystem of capital for early stage investments, angel investments to smaller seed and Series A rounds. The difficulty still comes with later stage venture capital,” he added.

Scale Computing, Ready pointed out, often has ranked among the top raisers of venture capital in Indiana, and at times has been No. 1.

“But my competitors in my industry have raised four and five times as much capital on the coast. There is some distance to go,” he said.

Ready added that he has “a personal mission to try to correct this problem.”

Of course, the capital markets locally and nationally have taken a gut punch from the pandemic this year.

“We did see decreases in dollar amounts invested,” due to COVID-19, said Mike Langellier, CEO of the statewide tech advocacy group TechPoint.

However, he noted, the number of deals actually went up.

“In [the second quarter] of 2019, there were 15 investments,” Langellier said. “In Q2 of this year, there were 21. I was pleased to see the volume increase over 2019, which was a strong year.”

Langellier noted that there definitely has been an increase in the amount of capital flowing into this market from other regions in recent years, which he flagged as a sign of the growing local tech ecosystem.

“In Q2 of this year we had investors investing into Indiana companies from 16 other states,” Langellier said. “So we are seeing interest from other states. Lessonly was a notable one with their recent $15 million round [of fundraising]. Those investments for Lessonly, for instance, came from New York, Boston and Paris. Vibenomics was another one where an investor from Atlanta led that [funding round].”

Langellier said the magnitude of the growth in some tech hotspots is now playing into the hands of cities like Indianapolis.

“Places like the Bay Area are just coming to the place where it’s unsustainable from a quality of life, from a business cost and housing cost standpoint,” Langellier said.

Langellier noted that it costs $21 million a year more “in just rent and wages” to run a 500-person company in San Francisco than it does to run the same company in Indianapolis.

Langellier credited local venture capital firms including Allos Ventures, High Alpha Capital and Elevate Ventures for helping draw more out-of-state money into the market, but added that he hopes to see more venture capital firms rise up here.

“I like the direction we’re going, and there’s certainly more we can do,” Langellier said.

When asked if Indianapolis could aspire to the level of San Francisco or New York, Tyler Foxworthy, CEO of Vertex Intelligence, a locally based data science company, flatly said “no.”

But he doesn’t think that should be the goal.

“We don’t need to be San Francisco and we don’t need to be New York to have a phenomenal quality of life and a vibrant technology ecosystem,” said Foxworthy, a Hoosier native. “I don’t think having exact parities with those other economies should necessarily be the aspiration.”

While not in the market for capital in the way that startups and scaleups are, Sherry Aaholm, vice president and chief information officer of Columbus-based engine maker Cummins Inc., said she thinks big Hoosier companies also have a role to play in growing the local capital ecosystem.

She pointed out that Cummins, a global publicly traded company, has been active with startups, recently launching a firm with local venture studio High Alpha.

In 2018, Cummins brought the idea for a new company to High Alpha, and the result was Anvl, a cloud-based software firm that delivers safety solutions to reduce and prevent injuries for maintenance workers.

“One of the advantages this market plays for us is that we have a close relationship with some of the venture capitalists and startups here,” Aaholm said. “We can capitalize on the skillsets and spread further the technology needs I have to partner in on something that isn’t necessarily specific to our industry but can actually help us in adjacency.

“The relationship we have with High Alpha is awesome, because it not only helps them spread their wings further outside the state of Indiana; it helps solve a problem for Cummins, too. So it helps us grow as a company across the world.”

Ariel Crawley, who heads community engagement for locally based Women in Tech and spent eight years working for Ivy Tech Community College, said attracting more venture capital will require players from many sectors—including education.

Crawley, who won the Mira Award for Tech Educator of the Year in 2019, said it’s important for educational institutions to teach students not just the technical skills needed to succeed but skills that have less often been taught in the classroom, such as how to raise venture capital.

She pointed out that Ivy Tech works closely with organizations such as Be Nimble Ventures, a social enterprise that accelerates diversity and inclusion initiatives in technology, to give students skills not only to join the workforce but to start their own company if they decide to pursue that route.

“Education can play as big a role as any other partner we’re looking at,” Crawley said.

Dewand Neely, chief operating officer of local coding school Eleven Fifty Academy, said educational institutions must go beyond merely training students to fill jobs.

“Preparing our students for the real world and what’s out there next in a career in tech includes talking about startups and venture capital and not just your traditional IT roles,” Neely said.

“What we try to do … is to partner closely with the folks like TechPoint and the smaller startups and figure out ways to help them when they need to scale or when they need talent, making sure that talent is readily available, easily accessible and affordable to make sure they can get off the ground. The closer we can stay together on that journey, it’s a win-win for both sides.”

The panelists also addressed how tech companies can address diversity and social justice issues, as well as ways the coronavirus pandemic is affecting tech businesses.