Feature Stories - December 2007

Nevada’s Technology Outlook

The Future Looks Bright

by Kathleen Foley

“Does every company today have a technology component? Absolutely, though some use it more than others,” said Russ Ketchum, the current president of the Technology Business Alliance of Nevada (TBAN). Ketchum is vice president of technology for Allegiant Air, a firm he describes as “a technology company that flies airplanes.” Similarly, Nevada’s large hospitality firms might be called “tech companies that operate resorts” and many other businesses might be considered tech companies as well, since the growth of the tech sector, especially the Internet, means that many brick-and-mortar companies now use more technology than tech companies did 20 years ago.

However, there is a small but growing sector in the Nevada economy that deals specifically in technology issues, from hardware and software providers, to computer consulting, telecommunications and biotech. “Nevada’s image as a high-tech location has improved in the last few years because of success stories involving locally-grown companies, such as zappos.com, yellowpages.com, SRD and Petroglyph Games,” noted Mike Ballard, chairman of Vegas Valley Angels and CEO of 1Velocity, a telecommunications provider. Experts give insight into the Nevada tech scene, to explain the advantages and disadvantages of operating a technology firm in the Silver State, and to predict the future of technology businesses in Nevada.      

What’s Hot in Tech Today?

Dave Archer, CEO of Nevada’s Center for Entrepreneurship and Technology (NCET), said several segments of Nevada’s tech market are enjoying a surge in interest and investment. Companies involved in clean fuel or alternative energy have been enjoying a growth spurt, said Archer, including solar power, biodiesel, geothermal and related fields. Some of the Nevada companies in this industry segment include Biodiesel Solutions, which manufactures equipment to convert vegetable oil into clean-burning biodiesel, Ormat Technologies, which supports the geothermal industry in Northern Nevada, and Solar One, which maintains 350 acres of solar collectors in the Southern Nevada desert between Boulder City and Searchlight.

“Biotech will be the next big thing, especially in Southern Nevada,” he predicted. “With the success of the Nevada Cancer Institute and the planned Lou Ruvo Brain Institute, it is poised to take off.” Las Vegas was named an “Emerging Metropolitan Area” for research, testing and medical laboratories in a report issued earlier this year by Battelle and the Biotechnology Industry Organization. As Genetic Engineering & Biotechnology News pointed out, “Today, operating costs are the white hot issue in the boardrooms of bioscience companies.” This bodes well for the Las Vegas metropolitan area, which had the lowest costs among the 34 cities identified in the Battelle study.

NeoStem, Inc. opened a collection facility for adult stem cells this fall in Las Vegas. The new facility will enable individuals to “bank” their own stem cells for future use in times of critical medical need. CardioVascular BioTechnologies, Inc., a biopharmaceutical company developing drugs to be used in the treatment of cardiovascular disease, recently moved to Southern Nevada from California. One of its products, designed to encourage the growth of new blood vessels, is currently undergoing Phase 2 trials.

Tech experts predict that the hospitality and convention industries, already major users of technology products and services, will develop even more tech capacity in the coming years. “It’s interesting to see how the large gaming companies have embraced technology,” noted Michael Beardslee, president and co-founder of IT Strategies International, a global computer consulting firm founded in Las Vegas in 1996. “When our company started out, their use of technology was rudimentary. Nowadays, they are using the most high-tech computer systems and equipment in the world.”

Telecommunications is another strong segment. KeyOn Communications, founded in Las Vegas in 2002, now provides wireless broadband across 11 states and recently completed its first initial public offering (IPO). Protocol Communications, one of the largest hosted VoIP companies in America, is based in Southern Nevada and doing business all over the country. SkyWire Media, recently named Tech Start-Up Company of the Year by TBAN, enables businesses to reach clients with text messages on their mobile phones.

Why Nevada?

“Tech companies relocate to Nevada or choose to start up in Nevada for the same reasons other kinds of companies do: low tax rates, protection for corporations and affordability,” said David LaPlante, CEO of Twelve Horses. “The cost of operating a business in Nevada is much less than it is on either coast, and that includes things like lease rates for office space, payroll costs and workers’ comp.” Twelve Horses, an online marketing software and services firm based in Reno, was recently named the Tech Company of the Year by TBAN.

“Nevada ‘gets’ startups and entrepreneurs,” added NCET’s Archer. “Economic development agencies, licensing departments and tax people are all here to help them. We make it a very easy process to start a business.”

Because technology, and especially telecom, depends on uninterrupted connectivity, it’s important to note that Nevada is not subject to the natural disasters that plague other areas, such as earthquakes, hurricanes and tornadoes. This makes it a good place for secure data sites, such as Switch and Dataside, both located in Las Vegas.

Ballard pointed out that interconnectivity is an advantage, especially in Southern Nevada, where he said the hospitality and convention industries push for higher connectivity. “Even though we’re a town of about 2 million, we’re developing a lot of infrastructure,” he said. “The multinational companies that are showing their wares here at our conventions are demanding world-class infrastructure.”

“From an infrastructure standpoint, you can’t beat either Las Vegas or Reno,” said Archer. “To a certain extent, we’re lucky that our cities are relatively young and undeveloped. It’s always easier to install new technology than to try to update old technology, especially when you’re talking about digging up streets.”

Challenges to Be Overcome

Beardslee admitted that Nevada’s tech infrastructure is better than it was, but said there is still room for improvement. “If one of the major tech companies did consider building a large facility here and called local service providers about communications capabilities, they’re not as strong as they would be in other major cities,” he warned.

Montano pointed out that Nevada lacks a major university research system. “There is no Stanford or Harvard   here,” he said. “That makes it more difficult to recruit people, because many of them are used to being associated with a major university.”

Another challenge for Nevada is that the technology sector is relatively new. “In California, so many people had personal success in technology that there’s a community of believers,” said Montano. “In Las Vegas, tech angels have an uphill battle. People who have created wealth, made their money in things other than technology, and they may not be comfortable investing in a tech startup. However, things are starting to change a bit.”

Finding Tech Talent

Recruiting talent to staff tech firms has been an ongoing problem for several years, but one that seems to be easing somewhat. Michael Legg, president and co-founder of Petroglyph, a Las Vegas company that designs computer games, employs 62 people, many of them recent college graduates. “Las Vegas has become a great town for the younger crowd, with The Palms and the Hard Rock and the popularity of poker,” he said. “Housing costs used to be fantastic, and even though they did jump up unreasonably a couple years ago, they seem to be lower again.”

Although Archer called recruiting only a minor challenge, he admitted, “We don’t have a surplus of skilled, trained professionals and we need to do a better job of recruiting and retaining experienced, qualified tech people. A major initiative throughout the state, especially in economic development agencies and chambers of commerce, is a focus on young professionals. It’s important for the economic future of Nevada that when people graduate from college, they stay here. We have to make this an environment where they want to stay, where they feel involved and welcomed.”

Montano said it’s easy to recruit people in the biotech field to come to Nevada. “Biotech is centered on the two coasts, both of which are high-tax and high-cost environments,” he pointed out. “When I bring people here from these areas, they get twice the home for half the money, and get 20 percent more take-home pay because they’re in high tax brackets. Once they get settled in here, nobody could afford to steal them away.”

Nevada offers other intangibles that make it easy to recruit young people, such as outdoor recreation opportunities in Northern Nevada. However, people looking for a mature cultural and arts scene may be disappointed when comparing Nevada to major cities on either coast. “The quality of our education system is a concern if you look at the publicity about how our schools rank compared to other states,” said Legg. “However, I went through public school here from kindergarten through my graduation from UNLV and I had a great experience.”

Funding Nevada’s Tech Companies

The importance of venture capital to the tech sector is illustrated by the fact that 10 of the 11 companies funded by the Vegas Valley Angels are technology-related. Ballard, chairman of the organization, said, “In the next two years, six of our companies will probably have very successful exits, either by going public or by being sold, and that will spawn more investment in other startup companies. In addition, people will take the proceeds from these exits and invest them in new businesses. Employees who are displaced will go out and start their own companies. It will have a ripple effect.”

The lack of venture capital funds was one of the challenges Archer mentioned in developing a vibrant technology sector. Nevada currently has two angel groups, one south and one north, and two annual venture capital conferences: the Silver and Gold Conference, held each fall in Reno, and the Vegas Venture Forum, held in Las Vegas in the spring. These meetings bring in angel groups and venture capital firms from throughout the western region and allow NCET and other sponsors to showcase Nevada companies to potential investors.

“The angel groups fill a certain need, but we need the post-angel financing mechanism, namely, venture capital firms,” noted Ballard. “Three or four different groups are in serious discussions and have laid the groundwork for 2008.”

Plans for the Future

The experts we surveyed are all bullish on Nevada’s tech sector, and predict continued growth in telecommunications and biotech, as well as more spinoffs from the resort and convention industries. Archer noted, “Nevada’s colleges are introducing new programs, such as computer gaming and biotech, and historically this has the effect of spinning off new companies.” He added that the state’s major economic development agencies are targeting specific industries for their efforts to bring in new companies, and many of these are tech-related. If their efforts are successful, it will lead to a critical mass of tech companies, which will attract more qualified people, additional tech companies and also investors.

Beardslee pointed out that if the state can attract even one high-profile technology firm, it might cause a chain reaction similar to what happened when CitiBank set up its customer service center in Southern Nevada in 1987. “That was a huge success story,” he recalled. “Other credit facilities realized this would be a great place to be, and it started a whole new trend. We need an accomplishment like that in the tech area.”

“It is my belief that within 10 years Las Vegas will be in the top 10 technology centers for biomedical in the U.S.,” said Montano. “Whenever you find a large retirement community, you find people funding medical research, and we believe Las Vegas will become a premier retirement center over the next 20 to 30 years. In addition, the biomedical field has the support of every level of government.” Ballard agreed that biotech is poised for a big growth spurt, and he expects Nevada Cancer Institute and UNLV to act as catalysts.

“I would love to see a much larger mix of tech companies in Southern Nevada,” said TBAN’s Ketchum. “Tech companies currently comprise between 7 percent and 10 percent of the local economy; I would like them to be closer to 25 percent in the next five years. It’s very do-able. The more we can diversify, the better off our economy will be.”

Kathleen Foley
Kathleen Foley is a freelance writer based in Southern Nevada.