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The rise of the rest: Startups look beyond Silicon Valley

Ed Jaehne, second from left, chief strategy officer of KEYW Corp., on a cybersecurity panel
Ed Jaehne, second from left, chief strategy officer of KEYW Corp., on a cybersecurity panel - Steve Ruark
AOL Co-Founder Steve Case has a great perspective on the country's vast and varied startup universe. Now Chairman of Startup America and CEO of Revolution, a venture capital fund based in Washington, D.C., Case wrote a February blog post for the Wall Street Journal describing what he's dubbed the "rise of the rest."
 
"I'm convinced that we’re beginning to see a regional 'rise of the rest' as cities like Washington D.C., Denver, Chicago, Atlanta, Raleigh, Cleveland, Detroit and many others experience unprecedented growth in startups," wrote Case.
 
Case is the unofficial pied piper for this "rise of the rest." He recently crisscrossed the country in search of investments for Revolution outside of established tech hubs like Silicon Valley and Boston. But he's not alone in recognizing it.
 
Forbes magazine recently ranked Greater Baltimore No. 4 on its list of “new tech hot spots." Washington, D.C., metropolitan area got the top spot, followed by Riverside-San Bernadino, Calif., and San Antonio-New Braunfels, Texas.” In Greater Baltimore, jobs in science, technology, engineering and mathematics grew nearly 18 percent between 2001 and 2012. A new report from the Brookings Institution shows that science, technology, engineering and math jobs account for nearly one-quarter of all job openings in Greater Baltimore. 
 
Silicon Valley set the template of academic institutions and companies feeding off of each other to create a first-rate ecosystem for tech startups and innovation. Now it's being replicated in all sorts of places with all sorts of specialized technologies, with a boost from government subsidies and successful entrepreneurs returning to their roots and helping catalyze local networks of investors and advisors.
 
It’s tough for any city to compete with the weather and scenery in California. But Baltimore still attracts the right talent to fuel innovation, says Murray Taylor, co-founder and president of Hunt Valley gaming company Digital Steamworks.
 
"Baltimore's kind of quirky," says Taylor. "It's kind of like Austin in a way. A lot of creative people are attracted to the city. People like funky things."
 
We take a look at how four cities — Baltimore, Tampa, Cleveland and Pittsburgh — have created job opportunities and attracted talent in their respective niches.
 
Baltimore: Attacking Cyber Threats "Baltimore's kind of quirky. A lot of creative people are attracted to the city. People like funky things." - Murray Taylor, Digital Steamworks
 
Baltimore is emerging as a cybersecurity hub, holding its own against better-known competitors Silicon Valley, San Francisco and Boston.
 
Some of the spending and job growth in cybersecurity are coming from big health care and financial companies and the federal government. But cybersecurity incubators and a new tax credit passed this year are encouraging investment in startups.
 
Maryland has 19,413 cybersecurity job postings, of which 13,393 were in Baltimore, according to a report issued earlier this year by the Baltimore Cyber Technology and Innovation Center. Silicon Valley had 17,570 job openings in cybersecurity; San Francisco, 13,710; and Boston, 11,683.
 
Sponsored by The Abell Foundation, the center analyzed 340,000 cybersecurity jobs posted on job boards, corporate websites and public listings nationwide during the month of October.
 
“There are not enough people to fill all the positions that exist today” in cyberscurity, says Ed Jaehne, chief strategy officer of KEYW Corp., a cybersecurity company in Hanover, whose largest customer is the U.S. intelligence community.
 
The state expects the job growth to continue with its recent passage of the Cybersecurity Investment Incentive Tax Credit, a $3 million fund to encourage investment in cybersecurity startups. Starting Jan. 1, private investors may receive a 33 percent refundable tax credit for investing in qualified seed- and early-stage cybersecurity firms in Maryland.
 
Meanwhile, the Cyber Incubator at bwtech@UMBC Research and Technology Park hosts 45 companies: 35 early-stage and 10 mature. In addition, UMBC partners with defense contractor Northrop Grumman on the Northrop Grumman Cync Program. It offers “scholarships” for companies that propose promising ideas for protecting companies against computer threats.
 
By 2016, the federal government’s cybersecurity budget is expected to reach $14 billion. Though federally mandated budget cuts, or sequestration, will curb some of this spending, Baltimore’s proximity to the federal defense and intelligence agencies at the U.S. Army’s Fort Meade and Aberdeen Proving Ground and to defense contractors is still a draw for cybersecurity startups who want to sell to the feds. Four federal agencies, whose missions focus in whole or in part on cybersecurity, have field offices in Greater Baltimore: the U.S. Department of Homeland Security; the Federal Bureau of Investigation; the National Security Agency and the U.S. Army Cyber Command, both at Fort Meade.
 
The U.S. Department of Health and Human Services (HHS), which includes the Centers for Medicare and Medicaid Services in Woodlawn, spends $7 billion a year on IT, including cybersecurity. That’s according to HHS Chief Information Officer Frank Baitman, who spoke at a recent cybersecurity conference in Baltimore.
 
Pittsburgh: Language Tech Hub
 
Home to DuolingoJibbigo and Carnegie Speech, Pittsburgh's cluster of language translation tech companies is due in large part to the presence of Carnegie Mellon University. But there's a lot more to it than that.
 
"One of the problems startups in other areas have is finding engineers," says Luis von Ahn, CEO and Founder of Duolingo. "In Silicon Valley, they say it's so hard to find engineers. We don't have that problem. It's not like that here."
 
He says Duolingo has four computational linguists on staff. "Those are really hard to find." But Carnegie Mellon has one of the biggest and best computational linguistics departments in the world in its Language Technologies Institute.
 
Born in Guatemala in 1979, von Ahn is known as one of the godfathers of crowdsourcing. He was the recipient of a MacArthur Fellows Genius Grant in 2006 and started Duolingo in 2011. The company teaches people languages on the Internet and uses their lessons to crowdsource translations to a wide variety of customers.
 
Duolingo has 24 employees in Pittsburgh (12 of its 14 engineers are Carnegie Mellon grads) and is growing at a torrid pace. "We're scaling and we're continuously hiring," he says.
 
Pittsburgh is not a hard sell to new recruits, he adds. "Affordability is a big deal," he says. "When you compare New York and Pittsburgh, it's almost laughable. Here you can buy a four- or five-bedroom home for what you could maybe rent a two-bedroom apartment in New York."
 
And the city over-delivers in terms of quality of life. "It's not the middle of nowhere, "says von Ahn. "It's a cool city."
 
Public-Private Snowball Effect
 
It's often strong public-private partnerships that set the stage for the rise of a local tech sector. In Tampa, it's all about simulation, spanning military and medical applications.
 
Of the latter, there's nothing more cutting edge than CAMLS, short for Center for Advanced Medical Learning and Simulation, a $38-million, 90,000-square-foot facility that's redefining medical teaching. The University of South Florida partnered with private medical-device manufacturers, game developers and medical and aviation simulation companies on the facility, which opened in 2012.
 
The big picture: Healthcare is the only high-tech, high-touch industry that does no skill assessments, and it's high time for change.
 
"Healthcare is about to go through its largest transformation in a lifetime," says Dr. Stephen Klasko CEO of USF Health and Dean of the Morsani College of Medicine. "While many doctors and hospitals have not yet adapted to this, USF leadership has taken the approach best described by Buckminster Fuller: 'You never change things by changing the existing reality.  To transform something, make a new model that makes the old one obsolete.' That is what we are doing here at CAMLS, at USF and throughout Tampa Bay."
 
"Silicon Valley was not Silicon Valley until they had a critical mass of transformative computer and information technology pioneers," says Klasko, pointing to the upcoming MediFuture 2023 event in mid-May as a sign of the regional rise of medical high-tech. "We believe we are doing that in Tampa Bay and that we will build a snowball effect as we build on our current assets."

Go Where the Technology Is
 
Tampa's not the only place hip to public-private partnerships: Cleveland has fostered health-tech startups with incentives and grants, and the presence of the Philips North America Education Center is a very big deal in the medical-imaging industry. It's the center of a cluster that includes about 80 companies -- a critical mass that exerts a serious gravitational pull on imaging startups.
 
Take ViewRay. Founded in Florida in 2003, the company relocated to Cleveland in 2004. Today, after raising more than $80 million in venture capital, ViewRay now has 40 employees in Cleveland and is making a big push to market in the summer of 2013. The company's technology is a real-time MRI that allows doctors to see how patients respond during treatment.
 
"You have to go where the technology is," says ViewRay Senior Director of Marketing Michael Saracen.
 
Modern web-conferencing and mobile technology make it easy to have "the best of both worlds," he adds.  "We've worked on being a remote-friendly company," says Saracen, who himself spends more time traveling than he does at ViewRay headquarters in Cleveland and lives in San Diego. "You can have the company in a place like Cleveland and still leverage talent in other areas."
 
But hubs are key, especially when it comes to manufacturing. The presence of the Philips center has catalyzed imaging companies large and small in Cleveland. "Wherever you have a hub, that means there are ancillary components," says Sacaren. "It's easier to go down the street to pick up that widget than it is to go across the country."
 
Before joining ViewRay, Saracen says his mental image of Cleveland was a very industrial place. Now that illusion has been dispelled. "It's a much more modern city than I expected," he says. "This area is up and coming.”

Eric Peterson is managing editor of Confluence Denver, a sister publication. Barbara Pash is innovation and jobs editor of BmoreMedia

Cybersecurity conference photographs by STEVE RUARK.

Click photos to read captions.
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