RENO GAMBLES ON STARTUPS

Will Tesla get things started?

By Josh Stephens
Next City

When Reno fell, it fell hard. It fell the way you fall after hitting 21 and then going bust on double or nothing. It fell the way you fall when you find out your husband is sleeping with his secretary. It fell like a boxer hit with the knockout blow. All have played into the checkered history of Reno — a city that has, at various times, relied on gambling, quickie divorces and prize fighting to power its economy.

By most accounts, the 2008 recession struck the hardest blow of all. Reno’s unemployment rate hit 13.9 percent in January 2011. Home values plunged 58 percent from pre-recession highs. Over 70 percent of mortgages were underwater. It was a desperate time even for a small city, with a population of 225,000, that sometimes wears its desperation on its sleeve.

“Our biggest two sectors were construction and gaming,” says Doug Erwin, vice president of entrepreneurial development at the Economic Development Authority of Western Nevada (EDAWN). “No one was building anymore and no one had any money to lose.”

That moment is over. The city’s urban fabric is developing, its self-esteem is rising and unemployment is down to seven percent, only two percentage points higher than the national average. Several big-name tech companies are building facilities slated to bring thousands of new jobs to the city.

Last year, Tesla Motors famously announced the choice of Reno as the site of its “gigafactory,” an enormous plant of roughly 6,500 workers that will produce batteries for its cars and its newly unveiled Powerwall home battery powering system. The State of Nevada provided Tesla with a generous package of incentives, on top of Reno’s standing promise of inexpensive real estate and relatively lax regulations. Construction is underway.

Tesla’s anticipated 6,500 positions are only one-tenth of the new jobs that will arrive in Reno by 2019, according to EDAWN’s projections. Apple and Amazon have back offices there. Switch is building a $1 billion, three-million-square-foot data center. Still, people in Reno speak gingerly about the big companies. To them, something like Tesla may be an enormity, too vast to comprehend and beyond the city’s capacity for optimism.

“People would probably say that the announcement of Tesla’s plans … was an enormous coup for the area and will in turn spawn a lot of other investments,” says Reno’s resident historian Alicia Barber, author of Reno’s Big Gamble. “We don’t know whether or not that will be the case.”

For many locals, more exciting than the migration of big tech is the emergence of a local startup scene, one that isn’t imported from the Bay Area but that is largely homegrown. Over the past year, a confluence of entrepreneurial spirit, municipal support, and unabashed marketing has given rise to Reno’s own fledgling “Startup Row,” a downtown district complete with industrial chic co-working spaces, entrepreneurs who give lectures at Reno’s TEDx events, and lots of buzz.

Led byEDAWN, local government has provided moral, regulatory and financial support for startups. The city channeled $200,000 of its federal Community Development Block Grants into the Reno Accelerator Fund. The state’s flagship university, University of Nevada, Reno, has been collaborating more closely than ever with the city and is setting up a downtown “Innovation Center.”

Hitting bottom in 2008 has proven to be inspiring and economical.

“Because we were in a recession, it really allowed startups to flourish,” says Reno Mayor Hillary Schieve, who was elected to the office in 2014 on a platform of revitalizing and rebranding the city as a place for innovative business. “We worked out deals with landlords that had vacant buildings for years. It really allowed entrepreneurs to get a start that I don’t think they would have had in a booming economy.”

Many of Reno’s startups are niche tech companies. TrainerRoad creates apps and programs for cyclists. Inqiri helps large groups reach consensus. Filament is the “nervous system for the industrial Internet.” Other entrepreneurs are into the “maker” movement, partly inspired by the ingenuity of the Burning Man movement (the annual arts festival takes place in the Black Rock Desert 120 miles northeast of Reno), and the “internet of things.” Reno’s clear skies and temperate climate may make it a hotbed for drone technology.

If there’s one thing that defines the entrepreneurial and small-tech community of Reno, it’s mutual support. Almost everyone wants everyone else to succeed. And common interests abound. Anyone who chooses the alpine lifestyle of Reno over the perceived rat race of Silicon Valley does so in part to enjoy a different sort of lifestyle. (While Reno itself lies in the semidesert of the Washoe Valley, Lake Tahoe and its surrounding ski resorts top the list of virtues that just about every Renoite has at the ready, as if they’d all just attended a massive chamber of commerce briefing.)

“I can’t stand San Francisco,” says Colin Loretz, founder of the Reno Collective, the city’s largest co-working space, which houses 100 or so small entrepreneurs and telecommuters. “There’s just too much of it, it’s a lot more cutthroat … which might produce better companies but also not a lot of loyalties.”

Bootstrapping the Dream

It’s almost impossible not to compare Reno’s startup scene to that of the Bay Area, as if the handful of companies are a glittering stone flung from the billionaire mine of Silicon Valley. Compared to the Valley, Reno makes economic sense for startups, for much the same reason as it makes sense for Tesla. Local entrepreneurs estimate that, with real estate prices, cost of living adjustments and statutory perks like the absence of state income tax, they get an automatic discount of around 30 percent as compared to their counterparts in Mountain View and Palo Alto.

Then again, booms in Reno are not necessarily tied to economic data. And the nascent tech boom, at least for the moment, is grounded more in enthusiasm than in profits.

Views of ski slopes and availability of $1.50-square-foot office space does not, it turns out, get Reno’s startups any closer to the billions in venture capital money that has fueled the tech boom in the Bay Area. Reno has local angel funds, and the Reno Accelerator. But they aren’t intended to provide much more than a boost to support entrepreneurs while they fine-tune pitches and wait on the big money to come knocking.

Nearly all of Reno’s startups are “bootstrapped” — i.e., self-funded — and none has yet struck it big on its own. That’s not just a problem on an individual level. It’s a systemic problem, because the tech economy thrives on network effects. If one company makes it big, there will be jobs and opportunities for their friends — and everyone is friends in Reno.

“We need to see a company get acquired and become one of the bigger employers in town,” says Loretz. He estimates that the number of startups in Reno has remained consistent over the past year or two, as they have formed and failed at roughly equal rates.

To get where it wants to go, Reno has to live down a reputation spanning everything from farcical cop show “Reno 911” to being Las Vegas’ stepchild to its very real history as the divorce capital of the United States. In the most recent Muppet movie, a haggard Fozzie Bear fronts the house band in a dank Reno lounge. Reno is the city that inspired the bleakest lyric in the American songbook: “I shot a man in Reno / Just to watch him die,” Johnny Cash sang.

Reno’s downtown still speaks to hard times, with vacant lots and the seediest of motels in the shadow of fading casinos. The city’s signature gift shop, “Reno Envy” (a play on “Reno, NV”), uses a mobile home trailer as its logo. The number of obvious hard-luck cases on the city’s desolate sidewalks is unsettling. (Reno is too sunny, and the streetscape too barren, for most folks to get out of their cars.)

City administrators worry about paying for the city services that new residents will need. The city’s tax structure depends heavily on gaming revenues, sales and property taxes. It doesn’t collect income tax — not a good formula when high-paying jobs are moving in.

As with many other western cities, save San Francisco, the attractiveness of Reno’s built environment seems inversely proportional to that of its natural environment. Decades ago, the city bulldozed much of its historic downtown — including old-west casinos and the divorcee hotels — in the fit of urban renewal that swept the nation in the 1960s and 1970s. Up rose multi-block casinos, with enormous parking garages, blank street-level walls and dreams of competing with Las Vegas.

“That architecture is so ingrained into that industry that it’s hard to integrate that into this new spirit that is emphasizing walkability and connection and collaboration among entities,” says Barber.

The rest of downtown consists of gap-toothed development. Only a tight cluster around First Street (including the stretch recast as “Startup Row”) and Virginia Avenue bear any semblance to the type of vibrant downtown that the city’s planners are promoting.

As with Los Angeles’ Wilshire Boulevard or Atlanta’s Peachtree Street — or, more to the point, Las Vegas Boulevard — the Whole Foods Market and upscale hotels long ago evacuated from downtown are a few miles down South Virginia. As you go southward on South Virginia, endless neighborhoods of suburban homes fan out, with the prime properties climbing the foothills to the west and reaching south, to be closer to Mt. Rose Highway and the portal to Lake Tahoe. These neighborhoods are served by a predictable array of strip malls, office parks and chain restaurants.

Between downtown and south Reno is Midtown, where Reno’s recent renaissance began. Blink and you’ll miss it, but amid motels, laundries and auto parts stores are places like farm-to-table Midtown Eats, Goth-Victorian mixology lounge Death and Taxes, and Midtown Mindfulness yoga studio. This is, in its small way, the gentrification of Reno. At the western end of Startup Row, there’s the appropriately named Hub Coffee, overlooking the river in the prettiest, leafiest corner in all of Reno. There, entrepreneurs buoy each other while they hone their elevator pitches. Insulated from the clatter of all-you-can-eat buffets, places like these offer just enough by way of culture and amenities to keep young Renoites happy and give the city a legitimate, if tenuous, claim to hipness.

Schieve herself was instrumental in revitalizing the Midtown District, and, in her mid-40s, she embodies the spirit of the city’s young entrepreneurs. Schieve grew up in Reno as a competitive figure skater and, after going to college in Arizona, returned to establish a pair of secondhand clothing stores. The Reno Gazette-Journal named her “Entrepreneur of the Year” in 2011. She’s the antithesis of the brain-drain phenomenon, by which many of Reno’s most promising sons and daughters grow up assuming that they will seek their fortunes elsewhere.

Schieve envisions the transformation of downtown into a more walkable area where local businesses can thrive and where an increasing number of amenities will satisfy the young entrepreneurs and tech workers that the city wants to retain.
“I think in two years, you won’t even recognize it,” says Schieve. “We have a lot of work left to do.”

Much of that work is only a dream, though. There are no cranes looming over downtown just yet, and Reno does not have its own Tony Hsieh. A hometown-boy-makes-good story in Las Vegas, Hsieh has become a local hero for investing $350 million of the fortune he has made as the founder of online shoe retailer Zappos into that city’s Downtown Project, a redevelopment with an eclectic array of retailers and local businesses and nary a chip or Joker in sight.

Small developments are in the works, however. Reno’s Beaux-Arts post office building will soon reopen with a marketplace for local artisans and food purveyors. A tax increment financing district stretching along the Fourth Street corridor, from the National Bowling Stadium in the heart of downtown to the city’s AAA baseball stadium on its eastern edge, spurred development of a new transit terminal.

The corridor, which still has its share of vacant lots and transients, is now being positioned as a new center of craft brewing and art galleries, foretold by street upgrades such as a bike lane. Schieve is leading efforts to make “problem” motels clean up their acts. She says she is not afraid to get aggressive, by invoking eminent domain. The city has taken some of the toughest cases off the streets with the recent opening of the Community Assistance Center, a shelter and provider of supportive services for the homeless.

Meanwhile, much of Reno’s traditional economy operates in windowless warehouses far outside the confines of downtown. Being in the middle of nowhere has given Reno a distinct advantage in logistics and transshipment. Vast expanses of warehouses hold goods traveling along the I-80 corridor and serve as transshipment points between rail and truck. E-commerce companies enjoy Nevada’s lack of inventory tax; Zappos figured this out a while ago. Other warehouses are dedicated to manufacturing. Nevada is, to an extent, like a domestic maquiladora. Hugging the California border, it has proximity to the crucial markets of the West Coast without the costs of doing business in California. The latest company to set up shop in Reno is Hose Master. It makes hoses.

In many ways, Tesla is simply building on this industrial legacy, only in bigger, more advanced ways — with, the city hopes, the possible upside of becoming the world’s next great car company. But, even as Reno positions itself as a 21st-century manufacturing hub, what happens in those factories and warehouses generally stays in those factories and warehouses. How they will contribute to the culture and urban fabric of the city remains to be seen.

One warehouse is different, though.

The Generator anchors the piece of Reno that, whether startup or casino, hardly cares about making money. The Generator makes … stuff. A nonprofit arts collective loosely associated with the Burning Man movement, the Generator provides free workspace for artists making oversized creations out of everything from clay to lumber to castoff motor homes. Generator co-founder Matt Schultz may be the most famous person in Reno these days. He estimates that he’s been interviewed by over 40 publications worldwide, and he’s been featured in at least three documentary films.

No fan of capitalism, Schultz issues words of caution about companies that would become the next Tesla — or even about Tesla itself.

“I’m not interested in attracting bankers and lawyers, and I’m not interested in attracting VCs,” says Schultz. “What I want to see in Reno is … weirdos, innovators, artists making grassroots startups that move slowly and provide realistic, long-term job growth.” Schultz added that he is tired of the city’s constant boom-and-bust cycle.

What Schultz and the startups agree on is that Reno, for all its rough edges, operates with a serious spirit of mutual support. Residents share the feeling that they’re all in it together. With lower stakes, competition gives way to cooperation.

“A lot of people consider us a backwater, but Reno has this stunningly kind heart and it’s chock-full of weirdos who want to do their own thing,” says Schultz. “I’ve always found this perception of being this dirty little Podunk backwater absolutely wonderful.”

Schultz doesn’t have to worry that Reno will lose its spirit just yet. All the office space of Startup Row could probably fit in the Generator’s warehouse and still leave room to build a whole fleet of Burnmobiles for this year’s gathering.

The Biggest Little Unknown

While the Generator’s tenants might not earn a dime, others in Reno have made fortunes. For a while, Reno was the state’s biggest city and the world’s biggest gambling center. Once air conditioning, Hollywood glamour and aggressive marketing arrived in southern Nevada, Reno was left behind. Tourism and hospitality remain the region’s biggest industry, at $4 billion annually.
But that money is old Reno, if you ask the entrepreneurs. Many of Reno’s casinos are family-owned, and those families have, thus far, shown little interest in investing in their city via startups. The same criticism is levied at Reno-based IGT, the world’s largest manufacturer of slot machines and other games. The closest they have come is naming buildings and sponsoring programs at the university.

The disconnection between Reno’s old money and new spirit may be frustrating financially, but liberating emotionally. Reno is crapping out of a competition it will never win and in which, in fact, it has been falling steadily farther behind. Las Vegas dealt Reno its first major blows in the 1960s, when its boosters broke the unspoken rule that Reno would promote itself to the Bay Area while Las Vegas would stick with Los Angeles. The world knows how that turned out.

In recent decades, the proliferation of gaming on Native American lands in California further decimated the Reno casinos. Today, many in the downtown community are waiting — hoping — for one of the major casinos to fail. The hopes are that the building will be creatively repurposed or demolished entirely to make way for new development, presumably something more pedestrian-friendly.

“Any morning we could wake up and read in the news that one of these very large casinos is closing in downtown,” says Barber. “I think we know that their dominance of the landscape and the economy is waning.”

As casinos wane, the startups try to hang on.

It has been said of the microstate of Liechtenstein that it exists only if you’re in it. Startup Row is the opposite. Banners proclaim it, the city touts it and newspapers write about it. There are as many startup and tech support groups, like One Million Cups coffee gatherings or Maker Faire, as there are actual companies. But those entrepreneurs who make Startup Row know that winning the PR battle in Reno is not the same thing as winning the funding battle in Silicon Valley or the client battle around the world.

The question is not whether they can broadcast the city’s new brand loudly enough, but whether the city’s talent is talented enough to convince the right people, whether it can get a big startup win or stay above water on its mortgages long enough to withstand the next downturn, whenever it arrives. Reno is running a relay race, with enthusiasm taking the current lap and success waiting around the bend. The city cannot let the latter quit before the former kicks in.

“We’ve been preaching at the top of our lungs about the magic and wonderment that is Reno,” says Schultz. “I think sometimes we yell a bit too loud and we might be losing that thing that makes us special.”

All of which leads to the question of branding. Is Reno the other neon-lit desert outpost — energized only by extreme sports enthusiasts and Burning Man artists — but with the same checkered past and boom-and-bust casino economy? Is it the next Oakland? Or is it content simply not to be the next Atlantic City?

Through it all, the city’s famous slogan — “The Biggest Little City in the World” — remains harmless kitsch, for sure. But its essential meaninglessness also speaks of a city unsure of itself. A big venture capital score or the Tesla halo might change that — for good. Until then, Reno is doing everything it can to stand proud.

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