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Reduced regulations and an improving talent pipeline make Arizona's state capital a hospitable environment for entrepreneurs.
There's more than just desert sand and scorching heat in Arizona's state capital. Phoenix is finally getting its due as a haven for entrepreneurs.
Not only did the Valley of the Sun land at No. 11 on Inc.'s list of Surge Cities, an index that measures the U.S. metro areas with the most economic momentum, it's also the location of Inc.'s annual conference honoring the businesses that landed on the Inc. 5000, a ranking of the fastest-growing private companies in the U.S.
Here are five reasons why Phoenix is an increasingly hospitable environment for entrepreneurs.
1. Reduced regulations
In the last two years, the state has passed several laws with the specific goal of attracting financial and real estate technology startups.
In 2018, Arizona became the first state in the U.S. to adopt a regulatory fintech sandbox--that is a legal framework through which startups may test their products for up to two years and serve as many as 10,000 customers before they must apply for a formal license, according to a release from Arizona's Attorney General Mark Brnovich. Historically it has taken startups several months and tens of thousands of dollars in legal expenses, fees, and compliance costs to get a formal license, according to the same press release.
Additionally, in March of this year, Arizona Governor Doug Ducey signed legislation that created a similar regulatory sandbox for property technology companies. Then in April, he signed legislation aimed at making it easier for people with out-of-state occupational licenses to work in Arizona. The new law--which only applies to people who have been licensed for at least one year and are in good standing--requires Arizona's licensing boards and commissions to recognize out-of-state licenses during the formal licensing process so new residents can get to work faster.
"Arizona's economy is booming, and the people that are coming out here are just looking for an opportunity to carve their own path," Ducey said in April at a news conference about the latter bill's signing. "Too often our government has acted as an adversary, not an ally, for people that want to work."
Phoenix is already starting to see positive results from the new laws. In June, real estate startup Opendoor asked between 200 and 300 staff members across the country to relocate to its Phoenix headquarters, according to Bloomberg. Opendoor, which was most recently valued at $3.8 billion, helps customers buy and sell their homes online. What's more, six companies have joined the fintech sandbox as of this May, according to a press release from the Attorney General.
2. Improving talent pipeline
Schools like Arizona State and the University of Arizona, which is just two hours away in Tucson, offer robust employment pools for area startups. Arizona State University, for its part, has been ranked the most innovative school in the U.S. every year since 2016 by U.S. News and World Report.
The talent pipeline further extends from thriving local companies and out-of-state businesses that have opened satellite offices in Phoenix. Between 2014 and 2016, the number of Phoenix-area companies with revenue of at least $1 million grew 6.2 percent to 1,211 businesses, according to a July report by online lending marketplace LendingTree.
Companies with outposts there include: American Express, Allstate, State Farm, and USAA. Infosys, a global consulting and digital services firm, opened a Phoenix-area technology and innovation center in September.
Mid-career tech professionals are still harder to find in Phoenix than other U.S. startup hubs, says Diana Vowels, the general manager of Galvanize, one of the largest coding schools in the U.S. which opened an office in Phoenix in 2017. "Although tech talent is improving, the talent is not yet as prolific as some of the other markets like Denver, San Francisco, or New York," Vowels says. "We are still catching up in terms of quality and abundance."
3. A community of support
Phoenix-area founders like Jamie Baxter say they can arrange a meeting with nearly any local businessperson. As the co-founder of Qwick, a staffing service that connects hospitality workers with food and beverage shifts in real-time, he was moving beyond the seed funding stage earlier this year and had questions about raising venture capital. He cold-emailed Greg Scoresby, the founder of financial aid startup CampusLogic--which has $72 million in venture funding--in the hopes that he could share some insight into the process. They met over breakfast the following week, Baxter says.
Mark Hanchett, the founder of electric vehicle startup Atlis Motor Vehicles, agrees that Phoenix business owners are only too willing to help fellow entrepreneurs. "We are a young startup community, which means there is a lot of opportunities to help others who are going through the same growing pains," says Hanchett. "Building the community is a group effort, not just a single company's effort."
4. Low cost of living
Compared to coastal entrepreneurial hubs, Phoenix's cost of living is low. Phoenix's median home value is $244,600 and the median residential rent price is $1,500, according to the real estate database Zillow. Meanwhile, San Francisco's median home value is $1.3 million and the median residential rent is $4,580, according to Zillow.
That's helped area startups better compete, says Hanchett, who notes that lower costs have helped his company best a few competitors over the years. Specifically, he says he has used cheaper housing prices as a way to entice prospective employees to relocate to Phoenix over expensive cities like Seattle or San Francisco.
"We've been able to leverage the lower cost of living when competing with startups out of state that are in a similar space to us," says Hanchett. "Phoenix also still has that small-town feeling, which is nice."
5. Increased funding access for some
For those looking to cut costs but not ties to Silicon Valley, a direct flight from Phoenix to San Francisco is only two hours. That can be helpful for those seeking out-of-state funding, which is often still a necessity for founders in Phoenix.
The city has raised $661 million in VC funding so far this year, according to data and research company Pitchbook. That's already more than its tally in 2015--when VC funding totaled $290 million--but it lags behind last year's total of $809 million. By contrast, California-based businesses have lassoed $48.9 billion in VC funding so far this year, says Pitchbook.
Baxter argues that there is funding in Phoenix, but the perception that it's lacking has hurt the city's reputation. He was able to raise $1.3 million in eight weeks last December for Qwick, 70 percent of which came from in-state funding, he notes. "You can raise capital here, you just have to believe you can do it and work at it," Baxter says.
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