This is part of our Inno on the Road Series, where we explore and showcase a neighboring ecosystem. Inno on the Road: Hampton Roads, which will feature a couple new stories a month and an event in May, is presented by BDO.
Anyone looking to launch and scale a startup in this country can arguably shop around. Beyond Silicon Valley, the list is getting longer of places that have, in the past decade or so, begun to make a name for themselves as burgeoning tech hubs.
Hampton Roads, the region in Southeastern Virginia straddling the James River, is vying to be on that list.
Hampton Roads has long relied on the defense, shipbuilding and tourism industries to stay afloat. In the past half decade a number of factors have converged – a cultural shift toward risk-taking, a push from academic institutions to encourage entrepreneurship, an effort to tap more investment capital, and increased cooperation among competing localities – to transform Hampton Roads into a startup hub competing with the rest of Virginia and the East Coast.
The economic recession of 2008 hit Hampton Roads particularly hard. The region lost 38,400 civilian jobs between 2007 and 2010, according to an Old Dominion University report. The losses were compounded by a slowdown of Department of Defense spending in a region that relies heavily on jobs that support the DOD. Only in 2017 did the number of civilian jobs recover from its 2007 peak.
"it became obvious that a growing entrepreneurial ecosystem that supported the growth of startups and early stage companies was critical.”
By many accounts, the startup ecosystem in Hampton Roads started to take shape when 757 Angels, an angel investment network, emerged onto the scene. The group was launched in in 2015 when a group of local business and community leaders found that the region lacked proper capital to support new entrepreneurial ventures, said Monique Adams, 757 Angels’ executive director. The group was particularly motivated by research suggesting that businesses under five years old contribute significantly more to job creation than older companies.
“So it became obvious that a growing entrepreneurial ecosystem that supported the growth of startups and early stage companies was critical,” Adams said.
The network of more than 120 investors has raised $60 million since its founding, which has led to the creation of more than 450 jobs with an average annual income of $77,000, Adams said. That’s compared to a regional average of about $49,000, according to a Norfolk government report. 757 Angels also led to the creation of 757 Accelerate, a 12-week program designed to give new ventures the mentorship and resources necessary to take off.
One example of a startup that sprouted in the past few years and took advantage of the region’s emerging resources is Ario. The company develops an augmented reality app for industrial use cases. The service is meant to make it easier for clients working remotely to share spatial information. The company received funding from 757 Angels early on and also went through the 757 Accelerate program.
Nate Fender, chief operating officer and co-founder of Ario, said that the company enjoys a great deal of benefits from being based in Hampton Roads. For one thing, there’s heavy presence of blue collar jobs that can make use of Ario’s industrial-focused AR features. Proximity to a lot of DOD operations also helps, Fender said.
Fender also noted the unique nature of the mentorship a startup can be exposed to in Hampton Roads. Whereas in a more traditional tech hub like Silicon Valley a lot of the mentorship opportunities are centered around building technological knowledge, Fender said a startup founder in Hampton Roads has access to a more well-rounded community.
“Here you have an interestingly diverse subset of folks that can mentor you in different ways. Some might have enterprise sales experience, some might have … real estate experience or insurance experience. There’s a pretty good spread,” Fender said.
Fender added that Ario owes some of its success to connections with Old Dominion University that it forged early on. The company now has its own private office in a co-working space, but for most of 2018 it was renting a small space in ODU’s Innovation Center. Fender said the company just needed a place to work and didn’t anticipate the opportunities that Ario’s presence there would open up.
“A major ingredient of an innovative ecosystem is the presence of at least one major research-based university."
“We moved in not even really being aware of the other resources. We were just like, ‘This is an office,’” Fender said. “But what we found was that [the Innovation Center] had community managers and other people that work there, and they were extremely proactive in networking and introducing people to us that could be either mentors or potential clients.”
ODU is another presence in Hampton Roads whose work in the last half decade has helped transform the region into a burgeoning startup hub. The obvious contribution a university of 24,000 students can provide is a steady talent pipeline. But the school has played an active role in the region’s entrepreneurial ecosystem through programs and initiatives that stretch beyond the interests of its own students.
“A major ingredient of an innovative ecosystem is the presence of at least one major research-based university,” said Nancy Grden, the founding executive director of ODU’s Strome Entrepreneurial Center. The Strome center is a hub for workshops, meetups, speakers and other resources that serve the ODU community.
But Grden said that ODU is a “natural convener” of discussions among stakeholders on how to support regional entrepreneurship. Earlier this year, ODU President John Broderick established ODU’s Economic Development Catalyst Task Force, which Grden co-chairs alongside former Landmark Communications CEO Dubby Wynne. Apart from finding ways to build a high-powered talent pipeline, Grden says the task force is also focused on commercializing unexecuted ideas in the region.
“So the whole idea here is by setting up this task force, heavily populated by community leaders along with ODU, we can actually begin to talk about some specific things that we can make,” she said. “I always use the term ‘one plus one equals three’: How can we take assets that we have and really leverage them.”
Grden happens to also be the chair of 757 Angels. Cooperation among different stakeholders in the region is a recurring theme in how Hampton Roads’ startup ecosystem has taken off. But that coming together hasn’t come without its challenges.
"We have water between cities and bridges, and you would think sometimes that's a huge moat with an alligator in it or something."
Many noted that Hampton Roads comprises more than a dozen cities and counties that haven’t always played nice. The joint efforts among them to promote new businesses are largely recent developments.
“In the past, the economic development authorities – they're highly competitive. You know, Virginia Beach, versus Norfolk, versus Newport News, Versus Suffolk, versus Hampton, versus Portsmouth, versus Williamsburg or whatnot,” said Fender. “And you know it's over tax revenue, but the reality is is someone might live in Virginia Beach and work in Norfolk or vice versa.”
Last month, a public effort to rebrand the region as “The 757” was announced by the Hampton Roads Chamber and the Virginia Peninsula Chamber of Commerce. The makeover has been widely lauded as a way to view the region as a coalesced metropolitan area as opposed to a cluster of disparate cities. 757 is the telephone area code that covers Southeastern Virginia. Many used the name informally before the concerted effort – it’s where 757 Angels draws its name from.
“This is the pretty fragmented region in a lot of ways, historically. You know, we have water between cities and bridges, and you would think sometimes that's a huge moat with an alligator in it or something,” said Tina McRae.
McRae is a principal at Kaleo Legal, a law firm with offices in Virginia Beach and Richmond that represents many small businesses between the two areas. Kaleo is also involved 757 Accelerate, often presenting to advising the cohorts going through the program.
“Thinking of it really as a whole region with all of the efforts going across the various cities instead of a bunch of separate little pieces, I think, only will enhance, the ability of this area to attract people, because it feels larger and more diverse,” McRae said.
A new name is one thing, but some founders say they’re still wanting for ways to connect with members of the startup community.
“I'd like to see some more structured opportunities for entrepreneurs to meet each other, for entrepreneurs to meet investors, for entrepreneurs to meet folks in the community who might help them in different ways,” said Jeff Conroy, the founder and CEO of Embody, a biotech company that’s developing implants to advance the recovery of tendon and ligament injuries.
Embody, founded in 2015, also received early-stage funding from 757 Angels and has grown rapidly since it came onto the scene. It’s been granted contracts worth more than $14 million from the Defense Advanced Research Projects Agency (DARPA) and is ramping up, after five years of development, to release its first commercial products later this year.
“People like myself are seeking out other CEOs and we're trying to organize ourselves in peer groups, even on a small scale to try to share perspectives, challenges and solutions.” Conroy said. “We want to be reminded that there are folks who are on the same path even close by.”
“I’ve been kind of kicking this around with people trying to figure out how to get people to come out of the woodwork that already are working on something quietly. That you just don't know about,” said Fender, of Ario, echoing Conroy’s sentiment.
As the ecosystem continues to mature, Fender said another area with room for growth is the presence of different kinds of funding. Ario to date has raised $3.8 million, according to Crunchbase. It got $1 million of its seed funding from 757 Angels and earned $20,000 from the 757 Accelerate program. The rest has come from elsewhere, like Richmond-based venture capital company NRV and a Small Business Innovation Research grant from the Air Force.
“Angels are super resourceful and really great place to start. But the question will be, after you've already done the angel thing, what do you do next?” said Fender.
Some noted that this is a need that more corporate involvement can solve. It’s already happening in some regard. Portsmouth-based TowneBank, for example, is a major sponsor of 757 Accelerate. Ferguson, a Newport News-based plumbing and HVAC equipment maker is also a sponsor.
“We definitely have some companies that have really stepped up and been important to this ecosystem, but we need more companies to become interested and involved. The dollars those companies put into the efforts to build a business is important,” McRae said. “But it also means their workforce. It’s with that dollars become interested in those businesses and a lot of people can become investors, too.”
ODU’s Nancy Grden also says that corporations have a chance to fill in the funding gap as emerging companies seek bigger and different kinds of investment.
“We are looking to some of our larger corporate partners here in the region to play a bigger role in the innovation economy. And that's everything from being venture arms themselves, to actually creating pathways for smaller companies who need to be part of their supply chain, to innovators who maybe can be partners to do product development, to channels for hiring tech talent to internships.” Grden said.
Adams, of 757 Angels, said she hopes to get other regional science and technology-focused fixtures, like the NASA Langley Research Center and Jefferson Lab, involved in commercialization.
“There is a long game, right? It takes seven to 10 years to really build ecosystems.”
Adams laid out other ways stakeholders like here are planning to fill in the gaps. 757 Angels is exploring ways to syndicate fundraising efforts in order to help founders fill more and diversify more rounds. And the group has also received a $240,000 grant from the Virginia government to research the kind of programming would most benefit companies in their earliest stages, as well as how to increase access to VC funding.
“Funding has been fairly anemic in our region,” Adams said. “The lion's share of VC funding has gone to Northern Virginia, and this research that we're going to begin this year will study how to facilitate more VC investment in the area.”
Still, these are gaps are only being identified because of the progress that the entrepreneurial ecosystem in the Hampton Roads, or the 757, has made in the past half decade.
“There is a long game, right? It takes seven to 10 years to really build ecosystems,” Adams said. “So we're just now in adolescence. But we have really accomplished a lot in a very short period of time.”
