For Toyota, JPMorgan, And State Farm, Arizona Is The Silicon Valley Of Data Security

In the Phoenix metro area, sprawling data centers and fraud-prevention companies bloom like the cacti and agaves of a growing tech ecosphere.

In the desert, only the hardiest plants and animals survive. They develop spines and foul smells to ward off water thieves, and poisons to cut down competition. They hunker down, specialize, and waste nothing.

You could say the same about startups in Arizona. Here, thanks to some auspicious geography, sprawling data centers and fraud-prevention companies bloom like the cacti and agaves of a growing tech ecosphere.

Phoenix’s tech scene in particular is beginning to coalesce. Household names like LifeLock, Go Daddy, and iCrossing (all Arizona-born) employ thousands of programmers and product managers, some of whom are now spinning off or joining startups of their own. The Arizona Commerce Authority is distributing $3 million in state-sponsored “innovation grants” to startup companies, according to AZCentral, and incubators are starting to spring up.

This reflects a broader trend in top-10-population cities in the U.S. The Internet and other technology have made the costs of starting a company plummet, and movements like The Lean Startup in addition to tech incubators are spreading entrepreneurial culture to nearly every corner of the country.

But Phoenix and the surrounding region stand out for a reason that has nothing to do with technology. Landlocked and flat, they lack the natural disasters that beset other large cities. For that reason, major companies like JPMorgan Chase, Toyota, and State Farm Insurance keep gigantic data centers near Phoenix. Local entrepreneurs have found opportunities in this concentration.

“With many of the top financial institutions having risk operations in town, it may be part of the reason why several startups are security- and fraud-focused,” says Ori Eisen, founder and chief innovation officer of fraud detection startup 41st Parameter. “We are working to help make Phoenix/Scottsdale a center for this kind of work. Perhaps we should name it something like ‘Secure Valley.’”

Identity theft prevention juggernaut LifeLock employs 475 people at its headquarters in Tempe, Arizona. The company processes financial data to identify and prevent consumer fraud, like a home alarm system for identity. With 2.2 million customers, LifeLock has attracted $200 million in venture capital to Arizona.

“Typically when VCs like an idea, they look in their backyards,” says LifeLock CEO Todd Davis. “But to be able to show them that right in plain site out here there is a depth of technology talent… I believe has opened up the VC community [to Arizona],” Davis says.

And while hiring technical talent seems to be the bane of startups everywhere, big fish like LifeLock see hiring as an advantage for Arizona companies. “By far the best is the hiring pool and the talent we have access to, with, bluntly, less competition,” Davis says. “By being in Arizona we're able to attract much of the talent that at some point lived in California, but because of the economy relocated here.”

Still, some say Phoenix needs an extra push to attract investor dollars and grow a “real” tech scene akin to Austin, Boulder, or even Silicon Valley.

“Stuff doesn’t get funded mostly because it is shit,” blogs Derek Neighbors, founder of Chandler, Arizona-based coworking collective Gangplank. “Sure, you see lots of this everywhere, but we don’t make up for it in volume like San Francisco and New York do.”

Innovation scenes are built on momentum. The more startup successes, the more startup interest. But before an oasis forms, the first few desert plants must fight the odds to grow. Says tech investor Howard Lindzon, who lived in Phoenix for 20 years before moving to California: “It really takes a strong mentoring system and lots of money focused on the startup scene, time, intensity and some more wins in general.”

Follow the conversation on Twitter using the tag #USInnovation.

[Image: Nelson Sirlin via Shutterstock]

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