Schafer: Minnesota loses when tech firms head west

Zach Supalla hasn't always found it easy to explain why the high-­potential little company he founded, Spark Labs, just quit Minneapolis for San Francisco. It's easy to accidentally sound like an elitist jerk.

The decision to head west, concurrent with the closing of the company's first venture-capital financing, has the Twin Cities entrepreneurial community sighing. Spark is in a hot market, "the Internet of things," and had enough real achievements that it became easy to get excited here about its potential.

Now it's San Francisco-based. While disappointing to a cheerleader for the Twin Cities area, it's hard to argue against Supalla's reasoning.

The rent may be more than double Minneapolis rates, but relocating into San Francisco's vibrant network of investors, advisers, like-minded entrepreneurs and potential customers just increased Spark's odds of long-term success.

It's worth noting that Spark is far from the first company to head west. One of the recent ones was called Zencoder, a producer of cloud-based software for publishing video files. After its 2011 move, it found additional funding and later was acquired for $30 million.

Zencoder co-founder and CEO Jon Dahl said that when he got there he soon learned that his landlord had himself been a successful entrepreneur of cloud-based technologies. The landlord promptly became an adviser.

"That is the kind of thing that is much more likely to happen there," Dahl said. "It's actually a pretty helpful place. Everybody there got help on their way, and generally they are willing to help out the new people."

It works mostly on the basis of personal relationships, not LinkedIn or Facebook. What Dahl described was coffee meetings followed by lunch meetings and what the technology community invariably calls "meet ups," informal gatherings organized around topics or interests.

It's common in the Bay Area for an entrepreneur to get introduced to another entrepreneur who introduces him or her to investors who introduce him or her to a blogger who suggests a potential customer. That doesn't happen as easily in Minneapolis. Or nearly anywhere else.

Supalla certainly knew about technology start-up communities when he was leaving graduate school at Northwestern University. He and his wife had been considering New York City, as she sought a career in retail. However, New York is one awfully expensive place to live, and he explained, "There was no way for us to get by on her salary while I started a company."

It was Target Corp. in sen­sibly priced Minneapolis, coming through with a good job offer for his wife, that caused Spark Labs to get its start here. After going through an accelerator program and completing a successful crowdfunding campaign on Kickstarter, the next step for Supalla was raising the money to build a staff. That meant going to Silicon Valley.

The name Silicon Valley, beginning more than 40 years ago, has meant the computer and information technology industry of the Santa Clara Valley south of San Francisco. But more recently Silicon Valley has spilled into San Francisco itself, with hundreds of technology-oriented young companies in the city.

But in conversations about investing in Spark, he said, "all of a sudden they would turn into something else. They would be about business development deals, or potential customers. I met other entrepreneurs, and people who might acquire us someday. It was all happening because people were coming to San Francisco to have the same kind I conversations I was.

"The thought occurred to me that as soon as we were done raising this money, I'm not going to be flying to San Francisco every week anymore," he said, "And I'm going to miss out on these ­conversations."

Supalla said his new West Coast investors, including Lion Wells Capital and O'Reilly AlphaTech Ventures, didn't insist upon relocation, only advised it. With fewer than a dozen employees, now was the time to move. Supalla this week was working out of borrowed space at another San Francisco company, and when we talked he was shopping for furniture.

What's most interesting about conversations with entrepreneurs is that the move to San Francisco was largely about what they needed, as the entrepreneur and CEO. They are the biggest bene­ficiaries of a rich network. If it's only about hiring smart people to write software or work with customers, then there's no reason to leave the Twin Cities area.

It's one reason why the news in this corner of the Twin Cities area economy has been mostly good this year, including an expansion here of an ambitious software company based in San Francisco called Anaplan.

Its new office in the North Loop area of Minneapolis has about 20 people, and it could be double that by the end of next year.

"Minneapolis has got great talent, anchored by some big industries," said Amelia Generalis, Anaplan's head of talent in San Francisco. "A strong technical community as well. And the work ethic is second to none."

While the Anaplan payroll in Minneapolis likely swamps the Spark Labs payroll in San Francisco through the end of next year, even those great jobs won't offset the impact of having the likes of Supalla and Dahl leave town. What the Twin Cities need is for guys like them to stay and build a company that gets acquired, then put their time and capital back into the industry here.

And help the next 10 entrepreneurs like themselves.