In the tech industry, it is quite common for participants in any region of the country to think and hope that their city is going to be the next Silicon Valley. While some areas have seen nascent tech scenes or some early hype from investors, many are just not quite there yet or missing elements that are needed to replicate the success of the Bay Area.
But not Phoenix. Phoenix has already arrived…and I don’t just mean the Suns basketball team.
The Town Wasn’t Always like This
When I first arrived in Phoenix about 15 years ago, the city was growing, but its focus was different than other cities that are more established. Most cities in America are often known for a particular industry (e.g., cars from Detroit), but Phoenix’s specialty was always growth…period. At the time the main industry moving that growth was residential real estate, as building and construction costs were much cheaper out west. When the recession and the housing crisis of 2009 hit, however, this came to a stop. Much like other western cities (think Las Vegas), Phoenix suddenly had a glut of inventory that was either empty or there were housing subdivisions that went incomplete. It was devastating to the area, but it caused a ripple effect that would ultimately benefit the local tech scene to come – things got inexpensive.
The Seed Was Planted Early
By the Mid-Teens, both labor and land got cheap, which set the stage perfectly for established and new tech companies to set up their offices in the area. But before the influx came, Intel saw the promise of Phoenix long before others did. The company established a large office in Chandler 20 years ago and it sent a message that the area was open to tech businesses. The ecosystem then grew around Intel, with SanDisk following suit with their own office and more recently a high-tech manufacturing sector taking shape – as self-driving and electric car companies such as Waymo and Lucid Motors have set up large offices or in the case of Lucid Motors, built out a state of the art manufacturing facility in the Phoenix area. As well, there are lots of smaller startups establishing themselves here every day along with several incubators, but there are more reasons why the area is now a draw for tech founders.
Checking The Boxes
Besides the early bet on Phoenix from companies like Intel, there are several factors why the area has become the Silicon Valley of the West:
- Plenty of sun and good weather – Just like in Palo Alto, tech people like good weather, and except for summer months, the temperature is quite moderate. With it being sunny most of the year, solar power has become the go-to energy source of the city, which has only become more important with the recent energy crises happening globally.
- Infrastructure – Even well after the ’09 recession, there is still plenty of cheap land available for small companies to grow and for larger companies to open big offices. The city also has a clean street layout, which is good for autonomous driving (e.g., the growing electric vehicle industry).
- Good higher education – With Arizona State University in Tempe (just east of downtown) and the University of Arizona nearby in Tucson, the city can boast respected education centers that form a huge, local talent pool. This is critical, as it is hard for cities to have their own Silicon Valley without this – or if they do, they sometimes suffer from “brain drain.”
- Business Friendly – Arizona is very business friendly, and it understands the growing importance of the tech industry to the state. The Governor is a businessman himself, as prior he was the founder of Cold Stone Creamery, which partly explains why the state recently gave tax incentives to Taiwanese semiconductor maker TSMC to build a giant plant in the area. It is estimated that it will bring 2,500 jobs to build it and ultimately will employ 500 high paying tech employees.
- Funding – For startups in the city, the amount of funding going to them is starting to pick up as well. According to az tech beat, the region set a record in 2018 by reaching$800 million in venture capital split across 133 deals, while $723 million funded 114 deals. While not quite at Silicon Valley levels of funding, it is important because lack of VC interest is a major factor that prevents many cities from growing their respective tech scenes.
- Affordability – For now the city and the surrounding areas still have a low cost of living, making it a nice place to live and for people to have a career. With the large amount of land still available, more people keep moving here and into single family homes.
Overall, Phoenix checks all of the boxes that officially make it a hot tech town. It was also a reason people came during the pandemic last year.
COVID And What Comes Next
When the pandemic hit, it hit hard, but it also resulted in new growth. By the end of 2020, 60,000 people alone moved from California, which only continued the tech sector growth. For some it was the desire to move to a state with lower taxes and cost of living and for businesses, it wasn’t much different. According to The Greater Phoenix Economic Council, 45 companies moved to the Valley in 2020 and currently more than 270 companies globally are considering an expansion of operations or relocation to the Phoenix area.
Though the Phoenix tech scene has grown enormously in a short period of time, there is still room for new milestones to be reached. Whether it is the first homegrown company to become a unicorn, a major M&A move for a local startup by a FAANG company or the next Tesla-sized company to relocate its headquarters, the sun is shining brighter in Phoenix.