Elk Grove is spending $800K on startups in hopes of reeling in the next Apple or Google

Elk Grove business owner Steve Barnett was in the Bay Area for a conference recently when he ran across the owner of a small company in Fremont. The owner complained about the high cost of living in the Bay Area, then mentioned that his company’s lease on the space in Fremont will be up in a year. He wanted to move his business.

Barnett had a solution for him: Elk Grove.

The suburb just south of Sacramento is one of the first cities in the region to adopt a program aimed at incentivizing tech startups to move. The only other city with a comparable policy is Sacramento.

The Startup Elk Grove Incentive Program, which the Elk Grove City Council approved unanimously on Wednesday, hopes to draw in entrepreneurs and startup companies by providing them loans and grants, all funded by the city. The city plans to allocate up to $800,000 from its Economic Development Fund for the program.

“Startups already want to be in Sacramento, so we need to stand out,” said Darrell Doan, the Elk Grove economic development director, during the council’s public comment session.

The city is targeting tech startups - the kind that tend to start off in garages and operate throughout the Bay Area. Many large tech startups began in suburbs not dissimilar to Elk Grove - and city officials are hoping that the new initiative can catch the next big app, website or artificial intelligence firm at its inception.

“We hope to identify and build loyalty and partnership with the next Apple, or Amazon or Google, that can anchor our economy for decades to come,” Doan said. “Despite occasional headlines, major employers don’t up and relocate very often, and cities have a much better shot at growing the next corporate anchor from within than ... attracting them from outside.”

But it all depends on investing in startups that show promise of expanding rapidly. The hope is that Elk Groves picks the right startups to invest in.

“Some will not work out,” Doan said. “But we hope that many will.”

The city plans on divvying up the money among three types of companies, under the headers of “Launch,” “Scaleup” and “Spaces.” The one common requirement for all the businesses that end up partnering with the city is that they must operate in Elk Grove for at least three years.

Launch targets small-scale startups just getting their footing. The city is promising to give these businesses a one-time grant of up to $10,000, as well as a year-long, city-paid membership to a co-working space or business incubator in Elk Grove. Scaleup is for established startups that are looking to ramp up their operations. The chosen companies that fall into this category will receive anywhere from $30,000 to $150,000 in either loans or grants for business costs. Spaces is for owners of co-working spaces and business incubators — places where freelancers and small businesses can gather to work and bounce ideas off of each other. The city offers owners up to $250,000 to be used for business establishment and operation costs.

In total, the city expects to split the allocated $800,000 among four to six companies in the initial phases of the program. But, according to Doan, they are always open to expansion.

At first glance, the Spaces component can seem removed from the other two, which provide support directly to startups. But if you take a trip down to InnoGrove - one of Elk Grove’s only coworking spaces (at least, for now) - it becomes easier to see why it’s important.

Faith Roberts, the community and office manager for InnoGrove, said coworking spaces give room for startup founders to meet similar people, bounce ideas off one another, collaborate and push each other forward. Many people who work out of InnoGrove are based around Elk Grove, and the space gives them a chance to work close to home.

“It just gives you that good energy,” Roberts said. “It drives the economy forward, it pushes everybody’s revenue up.”

Many city officials believe that to create an atmosphere for startups to thrive, giving the companies money to build their ideas isn’t enough - Elk Grove also needs to create spaces where entrepreneurs can work to bring those ideas to fruition.

“You’re really getting that entry-level place for these companies to make that move into the next level,” said Councilman Patrick Hume.

Right now, Elk Grove is scouting for potential startups to invite into the program. Officials are working in partnership with The Greater Sacramento Economic Council, which already has established contacts in the Bay Area.

“We will pre-identify high-growth-potential companies, meet with them, and potentially invite them to apply,” Doan said. Many of the invitations will be based on referrals from investors and venture capitalists who are already interested in the company. And budding startup founders who want to throw their name in the pile can contact Elk Grove’s economic development specialist, Luis Aguilar.

On the night the initiative was approved, Doan said that four companies had already reached out to the city, expressing interest in applying for the program.

Barnett, who owns both InnoGrove and Bernett Technical Services - a materials science consulting company - said he is excited about the opportunities the program brings, both for the city and for entrepreneurs.

“(Elk Grove) is a great city to live in. Housing prices are affordable, we have great schools, we have great parks, and there’s a significant base of people in Elk Grove who work in the tech industry,” Barnett said. “It’s also relatively quick to get to the San Francisco Bay Area. I can be in Livermore in little over an hour, I can be in Fremont in maybe an hour and a half.”

He’s grateful that the Elk Grove city council recognizes the value of startup companies.

“I’m very optimistic about the future of Elk Grove,” he said.

This story was originally published August 26, 2018 at 1:00 PM.