Unicorns, Upscaling and the State of Massachusetts Technology

There are a few interrelated themes that have gotten a lot of play in technology press over the past few months. First is that per

Fortune, we’re in the age of unicorns, pre-IPO companies with at least $1 Billion valuation. This is quickly followed by the converse questioning of “are there too many unicorns?" and are we in a pre-bubble environment, with Bill Gurley and others stating many people are happily working away at companies that might not survive.Although we see a heavy number of Silicon Valley representatives on the unicorn list (as expected), there are many technology unicorns here on the east coast (MongoDB, AppNexus, Actifio, MediaMath) along with rumored candidates like Rapid7, Dataminr and DataGravity.It does seem many of the market’s unicorn candidates are waiting longer to go IPO, buoyed by their valuation status. The interest in these companies is so high its being reported that fund managers are adding these companies to their portfolios far ahead of IPO in order to get in on the expected private share bonanza they are missing in the traditional IPO period.Against this backdrop, and with our HQ here in Massachusetts, the conversation that took place at the Massachusetts Technology Leadership Council in mid-March was of special interest. In addition to discussing the highlights of the 2015 MassTLC State of Technology Report, there were a variety of panels covering everything from the state of women in technology to how innovative Massachusetts cities are creating an environment for entrepreneurship to flourish. Out of this half-day event, a few key data points stood out:

• Massachusetts has become the nation’s most concentrated technology sector. (1)
• Massachusetts has the second highest average technology salary nation-wide. (2)
• We have over 20 industry incubators and 20 university incubators. (3)
• There were 722 technology investments in MA companies from 2011-2014. (4)

Sounds great, right? Now, let’s take a look at what happened from 2010-2014.

• 587 mergers and acquisitions of Massachusetts companies (vs. 196 M&A by Massachusetts companies) (5)
• 9 IPOs vs. 138 total nationally over same period per PWC, giving MA only 6.5% of the technology IPOs (6)

The picture is fairly clear – Massachusetts is a great place to start a company, a great place to work in technology and a great place to potentially get snapped up by buyers; however it may not the best place to grow the next “landmark/unicorn/bellwether” technology company.There were two major focus areas highlighted on the panels that – if addressed correctly – can help the state foster the right growth environment, keeping companies in the state and adding even more tech jobs in the process.An Environment Conducive to UpscalingDianne Hessen, CEO of StartUp Institute, discussed how moving from 50 to 350 employees is a significant challenge locally and how it impacted the growth of her former company Communispace. She suggested there is a real need for more established conduits to global markets, as well as a need to have local tech stalwarts provide more direct mentorship and network access to local entrepreneurs to help drive connections that can lead to valuation increase. That valuation increase will in turn attract the later round funding that will keep companies growing vs. aiming for a near-term liquidity event. As we see with recent rumored tech later stage IPOs, series B and C liquidity is driving technology unicorns to stay private in hopes of bigger overall returns. Massachusetts companies need to hit performance and headcount levels to attract that investment.The Network EffectThe mayor’s panel highlighted how each town represented was tapping into various regional elements, be it local university research centers, being a test bed for companies to beta their products or partnering with local transportation departments to access untapped labor pools. However by the representative mayors’ own admissions, these are “localized” programs with linear focus on their specific towns or maybe one or two adjoining towns. Somerville Mayor Joseph Curtatone stressed how at a state level there is push back on housing starts, rail system expansion and a lack of ties from the overall education plan to economic expansion efforts. The entire panel called for more clarity on the state’s overall long term economic plan and how that would tie to innovation investments. There is an opportunity to intertwine these community-based connections for more regionalized innovation programs, which would tap more deeply into the institutional and university-based incubators to foster cross pollination of companies, resources and talent.MassTLC marks the state at close to 50% of the way towards its 2020 Challenge of creating 100,000 new tech jobs; the seeds of this growth goal are present. Expanding our networks, access to later stage funding and ability to tap into an underutilized labor pool across regions will catalyze Massachusetts technology growth. Massachusetts techies: what will your role be in this growth?Derek LyonsVice President, Technology Business Development East Coast

1. Sources: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages. 2015 MassTLC State of Technology Report, pg 9
2. Sources: 2014 Computing Technology Industry Association Cyberstates: State-by-State Analysis of the U.S. Tech Industry report. 2015 MassTLC State of Technology Report, pg 9
3. Sources: 2015 MassTLC State of Technology Report, pg 9
4. Sources: PWC, 2015 MassTLC State of Technology Report, pg 9
5. Source: 2015 MassTLC State of Technology Report, pg 9
6. Source: 2015 MassTLC State of Technology Report, pg 9

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