Tempe Is The Startup Capital of Arizona

A Quick Analysis on the Tempe Startup Scene

I wrote this post in January of 2020 but never published it on my personal blog. Here it is.

As many articles point to, one of the keys to having a great startup ecosystem is density. Phoenix, as a whole, doesn’t have it. Greater Phoenix clocks in at 14,599 square miles for the whole valley. For comparison, this is 290 times greater than San Francisco's, clocking in at 46.87 square miles. The Phoenix city leaders know this and have been pushing what is being called The Warehouse District. Just two blocks south of Chase Field lays WebPTGalvanize, and what many think is the future of the Phoenix startup scene. This is the Warehouse District. 

With Galvanize opening in 2017, it allowed hundreds of tech startups to move into downtown and start to create that density. A year later, The Larry opened up to be the first higher-scale dining option in the area. The Greater Phoenix Economic Council (GPEC) and the Arizona Commerce Authority (ACA) also use the warehouse district as a place to show VCs the best Phoenix has to offer. 

Despite everyone's best efforts, I think they will fall short for three reasons:

  1. The stakeholders in making the warehouse district the spot for AZ startup seem to be being pushed by big money, big companies, and the government….not the founders themselves. 

  2. Buildings don’t create startup communities. People do. Specifically, founders and investors. The location is cool, but it does the easier job. The harder job is to create more viable founders and get them funded. The warehouse district is not focused on either of these elements.

  3. The warehouse district is too far from the ASU and GCU talent pool. SF has Stanford and Berkeley. Boston has Harvard and MIT. We have ASU and GCU, but are making cross-pollination really hard.

While the government is pouring its resources into the district, I think another part of the valley will start to thrive as the startup empire instead. 

I am putting my money on Tempe 

I think Tempe is set up beautifully to become the startup hub and the true innovation corridor of Greater Phoenix. To start, let’s take a look at Tempe by the numbers.

Tempe is 40.22 square miles, which is much more comparable to SF’s 46.87. But I actually want to drill in much deeper than that. For the amount of startup activity happening in Arizona, 40 sq is still way too vast. I think the magic is going to happen at and around Arizona State University. Based on my calculations, there is a 4.2 square mile radius around ASU and its surrounding territory. This is a good starting point to create a mini SF in Tempe. For comparison's sake, let me break out some maps.

Tempe on a Greater Phoenix Map

You might be wondering, what is it about this specific area…this specific 4.2 miles…that makes it so special? Great question. Here’s a list of resources that I feel are important for a true startup scene to thrive (that this geography has).

Arizona State University 

Venture Devils

At ASU, they have millions in equity-free capital that they deploy to top startups every year through a program called Venture DevilsAirGarage got started on this money. So did FountainMixpanel started before all of this. So our most active investing “firm” (Venture Devils), led by Tracy Lea, is located in this area.

ASU also hosts a pitch competition that competes with Rice’s business plan competition called ASU Innovation Open. This is a nationally ranked pitch competition with startups flying in from Harvard, Standford, and some from ASU as well. $300,000+ in grant free funding was provided.

Luminosity Lab 

Michael Crow, the President of ASU, tasked former ASU student body president Mark Naufel to run a lab for the brightest technologists at ASU called The Luminosity Lab. They work on secretive university projects and also create companies as well. This is a great collection of talent in one room.

Novus Innovation Corridor

ASU is spearheading the development of its 6th innovation zone in the valley, the Novus Innovation Corridor. There isn’t too much info on this yet but I know it’s going to be big. It’s a project direct by Michael Crow himself.

Notable companies based in these 4.2 square miles

Coworking spaces

In this 4.2 square mile area, there is an Industrious and a WeWork. For scaling companies, there is no lack of office space options with Novus opening for smaller businesses, all the way up to Marina Heights for enterprise-size companies as big as State Farm.

So what is Tempe missing?

Tempe has the infrastructure. We have a good start of tech companies, we have friends and family funding through ASU. We have office space. We have higher-ups pushing innovation (Michael Crow). What is missing to make this the tech hub we all want? Well, I think there are a few things. Note, everything I’m going to mention can be applied to all of Phoenix, but I want to focus just on Tempe right now.

Tempe is missing seed capital

What happens is that students or community members win 3k-20k through Venture Devils and they are ready for more, but they have no access to Bay Area capital, nor do they even have any connections to SF investors. Venture Devils is amazing for idea development and getting started, but there’s a point when a founder needs more. They need the next step, the bridge into the big leagues. We currently do not have a bridge. There is not a clear step to get the most promising Tempe startups into the hands of SF investors to fund them (but stay rooted in Tempe).

Since we don’t have this, most startups do one of three things. They move to SF, they stagnate and never really do much but are still operating, or they die. A few may figure it out, but not most. 

Tempe is missing mentors who’ve been there

Although there is a decent density of startups in Tempe, most didn't start in the valley. So there isn't an element of giving back to the community from founders who have found unicorn success. The reason? We don’t have many founders who have found massive success yet. I’m talking about a $500M exit or higher. We have TONS of people giving advice to founders who have $1B ambitions, but the mentors literally cannot give the advice to get startups here on that track.

A few can. Ernest Garcia III can, who started Carvana. Ryan Johnson might be able to, who was on the founding team of Opendoor and CEO of Culdesac. Greg Scoresby, who’s the founder of Campus Logic, can as well. I’m sure there are a few more, but we don’t have tons of people with the necessary knowledge giving back. Truth is, we don’t have many people with the knowledge in the first place. 

What’s the Future of Tempe?

There are a lot of things we could work on to make Tempe a hub. As Paul Graham would say, we just need hackers and rich people. Usually, rich people who invest come from startup exits themself. Since we don’t have many of those, there is this chicken and egg problem. Investors are waiting for good founders before they invest. Founders cant grow without investment. Personally, I’m sick of it. I’m taking matters into my own hands with Seedscout, which I will go into in another post.

All I know is that the momentum of Tempe is intoxicating. Buildings are going up faster than I can count, tech executives are announcing that they’re moving here weekly, and I seem to meet a new founder working on something cool nearly daily. I am excited to spend the next portion of my life building Tempe into a startup scene that allows the best founders to do their thing without needing to move anywhere else to do it. And if you’re looking for a new place to call home after the pandemic, I strongly suggest that you #movetotempe. Until then, we’ll be busy building.