Utah: An Illustrious Tech Metropolis (in progress)

TL:DR – the Beehive State is Booming.

Mar 09, 2022

Welcome to issue #4 of Indiscrete Musings

I write about the world of Cloud Computing and Venture Capital and will most likely fall off the path from time to time. You can expect a bi-weekly to monthly update on specific sectors with Cloud Computing or uncuffed thoughts on the somewhat opaque world that is Venture Capital. I’ll be mostly wrong and sometimes right.

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There have been plenty of mainstream headlines and articles written about the decay of larger coastal cities that usually attract young career-driven individuals in recent years, read: San Francisco and New York in large part due to Covid-19 and the associated after-effects that we’re still living with today. I, for one, am a larger proponent of these cities and do believe that the value prop of moving to a larger city still holds true despite the popular narrative. This post is not about the decay of said cities, but rather an examination of one state, in particular, that has boomed during the Covid era and its roots – within tech – started decades prior. This state is the Beehive State: Utah.

A Historical Retrospective of Utah Technology

The Birth of the Internet

In 1968, the nation’s best computer scientists and members of the U.S. government gathered inside the Rust Lodge atop the Alta Ski Resort in Utah to discuss the feasibility of creating a communication protocol that could survive a catastrophic nation-state attack. Little did they know, they would set about changing the world.

The Department of Defense’s Advanced Research Projects Agency (DARPA) and its Information Processing Techniques Office (IPTO) were funding computer projects and looking for a way to network computers together – to exchange communication. IPTO director, Robert Taylor, and program manager Larry Roberts invented a new concept called packet-switching as a form of transferring bits from one computer to another. As the packet-switching protocol solidified, they set out looking for the top universities in the field to research the feasibility.

Meanwhile, the University of Utah (“U”) was becoming well known for its engineering/computer science programs with notable alumni including graphics legend Ivan Sutherland (who also led the IPTO at one time), graduate student John Warnock (who later founded Adobe), and Steve Carr, to name just a few. It was partly because of the U’s growing reputation for graphics that it became one of the first four nodes for ARPANET.

The architecture for the ARPANET utilized an internet message processor (IMP) at each of the four institutions and on Oct. 29, 1969, when UCLA and Stanford were the only ones connected—UCLA student Charles Kline was supposed to send the first message over the network with the word “login.” He got the “l” and the “o” through successfully before the computers crashed. It was half a message, but they were the first pair of letters to be transmitted long distances between two networked computers. The University of Utah was added as the fourth node in December 1969 using a DEC PDP-10 computer and the TENEX operating system. By 1981, there were 213 nodes connected to ARPANET. In 1990, ARPANET was retired, and most university computers migrated to a newer network. But those first four nodes will be remembered for being the launching point of a new technological revolution.

The GPU Revolution

After the ARPANET, the University of Utah quickly fevered a reputation for its Graphics Processing Units (GPUs) program which was a key technology for both personal and enterprise computing. GPUs are used for a wide range of applications, including graphics and video rendering. GPUs were originally designed to accelerate the rendering of 3D graphics. Over time, they became more flexible and programmable allowing graphics programmers to create more engrossing visual effects and realistic scenes with advanced lighting and shadowing techniques.

The strength of the program and dense cluster of talent gave way to groundbreaking companies that paved the path forward for technology, entertainment, and media. Robert Rivlin from the Algorithmic Image, summed up this vibrancy succinctly:

“Almost every influential person in the modern computer-graphics community either passed through the University of Utah or came into contact with it in some way.”

Years later, the state of Utah was known for being the home of market-leading enterprise companies such as Evans & Sutherland, WordPerfect, and Novell who laid the foundations for thriving technology enterprises both in the state of Utah and domestically.

Early Pioneers

Following the success of Evans & Sutherland, Novell, and WordPerfect – a new wave of founders saw Utah’s legitimacy as a viable environment to create a technology company. Amid the exuberance of the late nineties empowered by the .com era, four companies were founded that further propelled technology, innovation, invention within the state: Ancestry.com, Omniture, Digicert, and Fusion.io.

Ancestry.com was founded in 1997 by two Brigham Young University graduates, Paul Brent Allen and Dan Taggart. Ancestry.com would later pioneer the direct-to-consumer genealogical DNA testing industry. In August of 2020, the Blackstone Group announced plans to acquire the Company for $4.7 billion.
Omniture was founded in 1996 by another pair of Brigham Young graduates, Josh James and John Pestana. Omniture was an online marketing and web analytics company. Omniture was also known to be one of the early pioneers of software-as-a-service (SaaS). In 2009, Adobe Systems acquired Omniture for $1.8 billion and the product suite was rolled into Adobe’s Marketing Cloud and is well-known to be one of the most profitable business units with the Adobe suite.
Digicert was founded in 2002 by Ken Bretschneider. Digicert quickly became the marquee certificate authority (CA) provider. Digicert provides the backbone public key infrastructure and validation required for issuing digital certificates or TLS/SSL certificates that are found on any HTTP request. Digicert currently employs over 1,100+ employees.
Fusion.io was founded in 2005 originally as Canvas Technologie by Rick White and David Flynn. Fusion.io produced and manufactured products using flash memory technology which was found in databases, virtualization, and data centers that facilitated the advent of cloud computing. In 2011, Fusion.io filed for an initial public offering valuing the company at ~$1.4 billion.

The “Slopes”

For the longest time, perhaps in the pre-Covid era, if you were a young and ambitious technologist, you had to move to Silicon Valley in order to be taken seriously. Given where we stand today as a hyperconnected society and the advent of the Internet (thanks, ARPANET), it’s plausible to think that the notion of Silicon Valley is a mindset and can be replicated in other geographies – all though, not entirely the same – and can live in the cloud (e.g., the internet). Marc Andreeson believes the recipe for creating the “next” Silicon Valley has to include the following

Build a big, beautiful, fully equipped technology park;
Mix in R&D labs and university centers;
Provide incentives to attract scientists, firms, and users;
Interconnect the industry through consortia and specialized suppliers;
Protect intellectual property and tech transfer; and
Establish a favorable business environment and regulations.

Utah’s tech community known as Silicon Slopes encapsulates the above “ingredients” which capture the mindset of building a vibrant community. The state is widely known for some of its university hubs such as Brigham Young University, University of Utah, Westminster, Webster State, and Southern Utah. All of which have produced and attracted builders who have stayed within the state, examples include: Divvy, Qualtrics, and Domo. Utah as a whole is able to attract new business helped by the state’s zeal for low corporate taxes and little in the way of unproductive regulation. As far as talent goes, the state continues to attract talent outside of the state given its low-cost structure (compared to larger metros), affordable housing, friendly tax wages, and proximity to the mountains and outdoors. To point out the stark difference in housing costs, refer to my friend John Koelliker’s tweet below.

John Koelliker @JohnKoelliker

The difference between “hot homes” in the heart of the Bay Area and the heart of Utah. Bay Area—$4.5M (less than 3k sq ft) Utah—$700k (over 3k sq ft)

Additionally, between 2010 and 2020, Utah’s population grew faster than that of any other state and Salt Lake City has the lowest jobless rate among all big cities at 2.8% compared with a national rate of 5.2%1 in part due to the rise of Silicon Slopes. The exodus of larger cities during the Covid era continues to play a crucial role in the growth of the state.

In recent years, the Utah start-up scene has blossomed and has seen larger companies prosper such as Vivent, Domo, Qualtrics, Divvy (Acq. by Bill for $2.5B), Weave (IPO), MX, Owlet (IPO), Podium, and Pluralsight. In 2021 alone, the total deal count for VC-funded companies hit 165 for a total aggregate deal value of ~$3.4B2. On the early stage front, here are a few notable start-ups that are vying the eyes of global investors: Liveview Technologies, Via, BookClub, Aumni, Nursa, Superconductive, Route, Hivewire, Rivet, Taxbit, and Canopy to name a few.

The exit environment looks equally healthy, from 2020-2021 Utah backed companies had exits that totaled $50B3 respectivly spread across companies such as Galileo (Acq. SoFi), Divvy (Acq. Bill), Qualtrics (IPO), Instructure, Simplus, Vivint, Pluralsight, Saltstack, and more. With a record amount of funding and a prosperous exit environment, the state looks poised to continue its momentum.

Analogous Patterns

Silicon Valley first got its roots several decades ago on the back of the semiconductor industry, primarily pioneered by William Shockley with the advent of Shockley Semiconductor Laboratory. Shockley was known for his genius, winning a Nobel Prize in physics in 1956 and essentially creating the transistor, much of which we still use today. Sadly, Shockley was also known for being a highly publicized eugenicist and often unpredictable leader. In the summer of 1957, eight of Shockley’s young Ph.D. researchers rose up in revolt against Shockley and the Company, these rebels were known as the “Traitorous Eight” all of whom were fed up with the heavy-handed leadership of Shockley and in an act of defiance – irregular for the times– set forth on creating a better company that prioritized building revolutionary products and delighting customers rather than the pleasing egos. Financed by the invention “Adventure Capital” led by Arthur Rock, this company became known as Fairchild Semiconductor. These eight men were Julius Blank, Victor Grinich, Jean Hoerni, Gene Kleiner (founder of Kleiner Perkins), Jay Last, Gordon Moore (co-founder of Intel and Moore’s law), Robert Noyce (co-founder of Intel), and Sheldon Roberts. The “Traitorous Eight'' uncovered the magic of the valley for years to come. And as history would have it, these eight engineers would have history-making careers that still affect Silicon Valley and the tech ecosystem at large.

As illustrated above, SV and Utah are similar in their upbringing – both regions were able to attract ambitious builders, both benefited from strong R&D and university centers, and lastly, both have and continue to provide favorable business environments. As more and more high growth companies lay roots here in the state, you’re starting to see talent leave larger companies to create their own version of Fairchild (minus the dramatic state of upheavals the eight endured) which in turn creates an environment where there are (1) more founders, (2) more talent, and (3) more funders. I am extremely bullish on the prospects of the state and believe that in the years to come, the state will prosper in its own right especially factoring in its roots within technology. Utah will never be Silicon Valley, New York will never be Silicon Valley, India will never be Silicon Valley which is exactly the point. In its own right, Utah has fostered its own dense tech cluster which will look widely different from others yet similar to others. Technology isn’t a zero-sum game, just because one company gets funded doesn’t preclude another from getting funded, because one customer uses one product doesn’t preclude them from using another. Technology ecosystems and clusters aren’t zero-sum, in a world with free distribution and zero-marginal costs, the will to create and build is easier than ever. I’m bullish on Utah and I’m bullish on the world at large.

Indiscrete Musings