IBJ hosted its annual Technology Power Breakfast on March 10. IBJ technology reporter Jared Council moderated a discussion that included Kristian Andersen, partner at High Alpha; Ting Gootee, chief investment officer at Elevate Ventures; J.J. Thompson, CEO of Rook Security; Yaw Aning, co-founder of Sticksnleaves; Angel Morales, co-founder and chief innovation officer of SmarterHQ; and Brad Wheeler, vice president of information technology and CIO at Indiana University.
Here's a transcript of the discussion:
COUNCIL: So for those of you who just weren't paying attention to tech news over the past year or so, 2015 was quite a busy year for Indy's tech scene. We've had global companies like Emarsys and Return Path set up outposts here and we've had former execs like Chris Baggott hop back into the startup driver's seat. Chris Baggott runs ClusterTruck today, and, by our account, venture capitalists here have poured about 140 million dollars into Indiana tech outfits, including 35 million into venture studio High Alpha. SalesForce continued to grow into 2015 and just might be expanding into the Chase, dare I say, SalesForce Tower later this year. If you didn't know that, then you guys need to read "IBJ," obviously.
COUNCIL: Kristian, I just want to start with you. What were the highlights, the 2015 highlights, for you and what do you see emerging in Indy's tech scene in 2016?
ANDERSEN: Yeah, well, obviously aside — you know, no one thinks their own kid is ugly, so aside from High Alpha successfully raising its first round, I would say maybe most notable was the sheer volume of companies that elected to vote with their feet and move their headquarters to Indianapolis, it was really kind of remarkable. You mentioned a couple, but Emarsys, Appirio, Geofeedia, in particular. It's really a testament to what's happening in the city and in the state that these types of folks are uprooting from their homes in the Bay area and setting up shop in Indy. I think we're on Day 1 of that, I think we're going to see a lot more of that, but to me that was really exciting.
COUNCIL: Uh-huh. And, Yaw, you've worked with companies like Bluebridge, so you're kind of on the frontlines to what's, you know, what's going on in the local tech space. What stood out for you last year and what do you see on the horizon?
ANING: Yeah, I mean, we saw a lot of companies that were at an early stage get funding. I think Indianapolis has traditionally been a place where companies really figure out how to launch their businesses on limited resources and I think a lot more money is flowing to the state from a lot of different areas, and so I think being a catalyst for launching new businesses, that's really been a positive sign for what the future of Indianapolis startups look like.
COUNCIL: Gotcha. And, Angel, I want to come to you on this one. It's been almost a year since RFRA and while no legislation came out of this session, Indiana is not at the center of a national firestorm like it was last year, my question for you is did any of that leave a permanent mark on the Indy tech scene at least?
MORALES: Yeah, I mean "permanent" is a big statement, I mean I think — I mean I found out about it, I was traveling at the time and I got a phone call from a buddy of mine in London who got exposed to it on the BBC.
MORALES: I mean, it wasn't necessarily so much national as it was global, and what I really view is as we take steps together and drive compelling media, compelling events in our community, I mean ExactTarget IPO through some of the funding that we've gotten on a national scale in Indy, you know, that fills up our glass, our credibility glass, and really anything that occurs where we wind up taking a big sip of that credibility glass, you know, frankly, we need to fill that back up. So did it have impact? Was there visibility nationally? Yes, but we keep achieving more and more every day and as long as we keep filling that glass up with great stories from our tech communities, great stories about our businesses, our culture, you know, I don't think the effects will be long-lasting, but they were definitely felt.
COUNCIL: Uh-huh. Gotcha. And, Ting, I'm curious to know, you know, you're in the VC world and in recent weeks we've seen mutual funds cutting their valuations on private tech startups like Zenefits and DraftKings, what's behind the pullback, do you think, and what are you seeing in the Midwest?
GOOTEE: Let me start with what we are seeing in the national marketplace. As some of you are well aware, you keep track of the public market SAS, the technology sectors. After the financial crisis the valuation for the total tech sector has really experienced a surge in terms of investor interest and corresponding price increase, so that kind of peaked late 2014 where tech companies on the public markets have been valued upwards of 10 to 15 times revenue cycle. What's been happening, we're seeing, and this is since last couple of years, since late 2014, there's been some market correction happening in the public marketplace, so seeing the median valuation dropping from 10 to 15 times to six to eight times and the latest stats of median valuation, enterprise value to revenue, was roughly 4.2 times, which is significant given where we were at before, and, obviously, there's concerns in both the VC market and entrepreneur world about how is that triple effect going to trickle down to investors and the portfolio companies. We'll see whether this year will play out, but I think Angel might have some specific views on the Midwestern market. Their company had raised significant funding, not just from the Midwest VCs but also from the coastal VCs. Our Midwestern, you know, we always have a value story to pitch, right, that's part of our attractiveness in this particular marketplace and even there's a correction happening specific to this market, our starting point was so low, we'll see how dramatic the decrease might look like.
COUNCIL: Angel, I see you nodding your head a lot, man, what's on your mind?
MORALES: It's one of the benefits of being a Midwest startup. We, as an investment community, we look for value, I mean it's not so much about the hype, I mean we're very focused on the numbers, we're very focused on the opportunity, and we invest conservatively and, frankly, I think that gives at times the early-stage companies here a little bit of an edge because you're not seeing incredibly huge valuations, although it would've been great, it forces you to be judicious with your spend, I mean, where money might have been easier with early-stage funding from a coast, the valuation might have been higher. Because that valuation wasn't higher, the amount of money raised was less and, again, we have to be judicious with every dollar invested. There wasn't room for the super-cool hard plastic laminated business cards, you know, and I think this adjustment that we're seeing in the industry is going to be felt, but because of the types of business that we often see starting in the Midwest it's going to be felt a little less for us.
COUNCIL: Yeah. Now, I mean, we've seen a lot of companies last year, you know, raise a million, some raised more than that, a lot have raised less than that, but I'm curious about, you know, how do we get to that level where, you know, investors here are writing 5 million, 10 million plus dollar checks, you know, is that within reach for Indiana? J.J., do you want to take this one?
THOMPSON: Well, we have to win more first, right? So the reason we have to be judicious here, "we" is not me, I don't have that backing and I don't have that money, but if you think about the wins here, we don't have growth capital in Indiana, we have very limited, drop-in-the-bucket, amounts that can be allocated because there's some people here who created something from nothing and have chosen to reinvest that money in new startups, mostly in marketing tech, not as much in other sectors. The problem is that we're not seeing 5 million dollar checks, we're not seeing 10 million dollar checks or 30 million dollar checks here, because they don't exist here. The few people, less than probably 16 people in the state, that could afford to write checks like that aren't comfortable enough with a track record of success to do that, and what that actually means is, in my opinion, we have a nascent venture community here that's headed by some fantastic people who are doing great things, but the bottom-line is we haven't reached to a venture status. We're not a venture status until you pick ten bets, all of them with a lot of money in it, and you only expect two to win and that's going to hit your number, that's when you have a venture community. We're not even close. So that's a real challenge, and that's no offense to any of the venture people in Indiana because they are building our venture community. We don't have a venture community, we don't have growth capital, we don't have banks underwriting debt deals, you know, that's all coming from the coast, so they are building something from nothing, and that's the Indiana way, by the way, people here build stuff from nothing, they rub sticks and stones together, they bale hay to make money to buy computers to go write code to build websites to then create ExactTargets, okay, and that's how we do it.
COUNCIL: So, Kristian, how do we get that concentration of venture investors where, you know, they are making those types of bets?
ANDERSEN: Yeah, well, not to be the contrarian, but —
COUNCIL: Go ahead, be the contrarian.
ANDERSEN: I don't put as much stock in the importance of having a big swinging venture community in any given GO as that being like the critical component or the first component. I mean I think best-case scenario it can make life a little easier. I think if we think about where we want to focus our time and energy it needs to be on creating a community where the best entrepreneurs in the world want to live and historically that did mean going where the money was. Today I think that is less and less of a reality as the means of production and the means of access, access and capital continue to be democratized. Listen, I've been a party to raising a significant amount of venture in my career and I can tell you it is, thankfully, we, you know, kind of say thank God for Don Aquilano, right, because Allos is here and has played such a pivotal role in kind of plugging the Series A hole for so many local companies and Midwestern companies, but as the ecosystem continues to mature, our visibility and the kind of startup entrepreneur's visibility to the coast has increased in lockstep with that, and a week doesn't go by, sometimes a day doesn't go by, where we're not entertaining an investor from another part of the country that is in town looking at deals, getting very excited, and then subsequently writing checks. So I think the presence of venture is kind of a lagging indicator of the success of your startup ecosystem and not necessarily a primary ingredient of it.
THOMPSON: Well, could I put that in Rook terms real quick?
COUNCIL: Go ahead.
THOMPSON: I love what you just said, by the way, I mean I think the best community that's shown those attributes is Fishers, bar-none, right now, I mean they are embodying what a tech community establishment will be by attracting really great people to that community to keep them here and grow business. But when we look at what this has meant, for example, in Rook terms, our inability, which is entirely on my shoulders, by the way, to raise capital at the right stages with the right people, I really wanted to do it here; I wanted to keep our money here. I brought our business from Silicon Valley here because this is home, and the piece that this means to us is, for example, right now we're on target for 12 million revenue this year, we're fully bootstrapped, have no investors yet, we have 5 million in the pipe. Last year we had a 50 million dollar cash-based valuation, okay. Whether or not that's accurate or not, we're talking let's say four to six (can't figure out word) blend, in security that's low right now. To get to a hundred million dollar valuation we need to be at 20 million in recurring revenue, about, and to get there for us that's going to be eight $500,000 deals this year or five 2 million dollars deals this year, all of which are very easily doable. Other communities — You know, Mike Langellier was telling me about the Kauffman Foundation I think did a study recently that showed that our community doesn't buy from local tech the way that other communities buy from local tech. That's our fault, right, we're not getting — you know, it's all about the person at the microphone, it's not about the buyer, so this isn't about the buyer, but the point is that we could easily double our size this year if we sell those deals that I just described. Now, to get to that —
ANDERSEN: That is an excellent point, and if you look at the highest performance startup eco- systems in the country, they are unapologetically incestuous —
ANDERSEN: In terms of how they do business with one another, and, you know, the problem is — I think somewhere in Scripture it says "A prophet has no honor in his own land" and we deal with that issue. It's not unique to central Indiana, by the way, but when you look at the hot performance ones, they have an unapologetic bias toward — and I would say we're a supportive community, by the way, I would say we're a very supportive community, but that last mile of stroking checks and having the mandate handed down from upon high that whether you're at Cummins or Lilly or — and it's not just a big-co problem, by the way, but that you're going to commit to buying local the same way we all go crazy for local restaurants, you know, if we applied that same thinking to kind of the startup ecosystem it would have a huge impact because you know this, when you start a company, every company I've ever been a part of, the first 30 people that bought it was somebody that I knew well enough that I could say "You'd better buy this," you know.
ANDERSEN: And you've kind of got to explode that out across the city, and not to cut you off, but you're right, that will have a huge impact.
THOMPSON: Well, and so it's interesting because what that means right now is, for example, we just released our first product, we're really proud of that, we spent the last few months putting that together and released it at RSA, everybody's wanting it that was there, I've never experienced anything like that because we've been a services business, so this just blew my mind. So we come back, we've got 40 opportunities validated in the pipe, in addition to this other 5 million pipe we're working on, and how do we actually get this off the ground now to the level that it needed to be to deliver on what they're expecting as fast as possible with the cash flow constraints we have from rubbing sticks together and funding it off of our borrowing base, right, so that's an exact example of where we need the funding. Now, what happened? I looked around Indiana; things weren't really a fit here from both parties' perspective. In two days in Silicon Valley last week I had 43 qualified meetings downscaled from 300 prequals that my guys went through and of those we have eight matches that we both liked and of those we have four primaries that we're probably going to do a deal with in the next three months, of which the deals are markedly different types of deals. We need to get to a point somehow to close the gap between the problem we're having now and the opportunity that was realized in those two days, that's just my opinion.
ANING: To add something to this, too, I think one of the things that people gloss over quickly is that, you know, startups are risky, though, and when these buyers are looking, these large companies are looking to purchase new technology to use within their firms, they're making big bets and, you know, the person who's the VP who's leading that bet, you know, they might lose their job if they make the wrong bet, and so I think we need a culture within larger firms to be a little bit more innovative and understand that there is risk involved in purchasing early-stage software but you can have some unique competitive advantages if you're able to leverage a new technology that pushes your business magnitudes further and faster, so I think both sides of the equation have to be aware of how you make the relationships work and if we can do that in Indiana, like if we can be that, that could be our competitive advantage to launching more successful startups.
COUNCIL: Awesome, awesome. Ting, you got any thoughts on this, I mean you are in the VC world?
GOOTEE: I see both sides of their comments and I tend to agree with a lot of those. To J.J.'s point, you look at the first wave of successful tech companies here, Angie's List and ExactTarget, their growth capital is coming out of state, you know, for Bally's to put an office here, for anybody to raise a hundred million dollar fund to target this particular marketplace, there's not enough density of 10 or 20 million, 50 million revenue type of companies they're looking for. With that said, however, you see the C stage, we've got angel investors, super-angel investors very active in creating a number of companies and we have the next stage called the institutional Series A venture funds, they not only continue to invest but also more importantly being that connector for companies here to the valleys, to the coasts, that's part of their role, right, that Kristian mentioned that we pass by, that they don't host somebody from out of town, that's what we're also trying to do from Elevate's perspective is be that institutional anchor for companies here who are looking for the next growth phase, stage of growth capital, and we have in the last couple of years been hosting institutional one-on-one events for companies and just the best looking new companies in general and that has led to a number of interesting opportunities, so in my mind those were good starting points and hopefully that will lay the foundation for the next five to ten or 15 years.
COUNCIL: Gotcha. So, Brad, you've been kind of quiet over there and I want to bring you into the conversation, but before I do I want to read the poll results from this morning's question. So, again, the question dealt with the average salaries for Indy- area computer jobs. In 2010 the salaries were about 71,000, 2015 are about 83,000. We asked if people thought the average salaries would grow by more than 10k, less than 10k, stay flat or decline. 80, let me see here, 80 out of 111, so 72 percent of respondents think that it will be by more than 10,000.
WHEELER: That worries me greatly because some of my staff are here.
COUNCIL: So, you know, when average wages are growing like that, I don't know, maybe we should've had "15k plus" as an option, but when salaries are growing like that it suggests increased demand for a short supply. So from your experience, I mean, what does that shortage mean for companies?
WHEELER: Well, let me comment on three things. First I was enjoying listening to this because we just extended our table conversation on these very topics to bringing it up here and sharing it with you guys, and the core answer to I think a lot of what we're all saying is this state punches above its weight when we sew it together. We have to win on our synergy and connectiveness and the things that we really do have going for us here, which are tremendous advantages relative to many of our rivals out there, but we do have to sew it together. We were just talking, there's a piece in the "New Atlantic," it's been about four years ago, the question was "Is Stanford Too Close to the Valley?" and the two lenses in that article said "Oh, my gosh, on one hand look at all of these incestuous relationships with Silicon Valley and the university and somebody working here and students there and equity, all of this," and then someone else says "Yeah, that's what we call synergy," so I think we have to reach our level of comfort of sewing our synergies together and, to your point, labor force is a huge part of that. So the first effort, you know, we've got a lot of demand here for tech talent. You know, I'm here representing supply from Indiana University and my friends up the road at Purdue. Everyone in this community has heard the debate in Indiana for a decade or more about brain-drain. One of the biggest problems we have with brain-drain is when we produce graduates who are skilled where are the tech jobs to keep them in the state. Not all of them want to run and just pay high rent in downtown Chicago. So the more this happens, what you just heard, the more we really are making our move on dealing with the brain-drain. The second point I would raise in terms of wages and demand, J.J. here knows, I mean literally if you can spell "cyber security" with a "C" or an "S" in the beginning you can get a job right now.
WHEELER: I mean it's just absolutely and utterly insane out there in deep networking skills, the advanced application development, and particularly cyber. Boards and their concerns about risk profiles around this obviously have changed dramatically. So the thing that we're seeing, you know, at IU we have a large sewn-together technology shop, we've got over a thousand people because we run the IT for all eight campuses. For a long time we could go in and retain people in the state of Indiana and it wasn't because we were the wage leader but because we were a part of the university environment, et cetera. Increasingly in the last five years when we lose people we're losing them and the companies that are hiring them say "You don't have to move to Silicon Valley, just telecommute, sit there in Bloomington, have a nice life, go to the opera and, here, we'll double your salary" and I mean case after case of that, so we can do that to other places as well, too, I think that's an important thing. Just thinking to your point about you mentioned Fishers, quality of life really can retain people coming out of some of these other things. And one more point and I'll pass the mike. The other thing that we can do is build an inclusive education and inclusive workforce, and I'm really proud of what's going on with the iDEW, Informatics Diversity-Educated Workforce, led by Executive Associate Dean Mathew Palakal here at the IUPUI campus, it is working hard to bring in more under-represented minorities at the high school level into the pipeline of tech talent, supported by Chase, Cummins and others, it's a great program, and I think we've got to be very deliberate about growing that broader pipeline of tech talent coming in. On the Bloomington Campus, and much thanks to my predecessor Bobby Schnabel, I'm pleased to say that in our faculty, our undergrads and our grad students for the School of Informatics, we're north of 25 percent women in all three of those.
WHEELER: E-mail security is a pretty male- dominated field right now, unfortunately, definitely, so we've got to keep working at pulling everyone in the state into these pipelines of talent.
COUNCIL: Now, we are going to get to diversity later in the conversation, but, Kristian, I just want to ask you, it seems like every other month last year there was a tech company involved in an economic development deal. Now, granted, all of those jobs that they target are not computer jobs but many are. I'm curious, are these companies going to have a tough time meeting these doubt targets when the demand for tech talent far outweighs the supply?
ANDERSEN: Well, if they have a tough time meeting those obligations, I would argue it won't be because they can't find qualified people to join, it may be just because they have a bad business and it's not going to grow kind of at the clip that they'd hoped it would. But, again, much like capital, all of these resources will find their best application, will find the best opportunities. Wages will go up in Indianapolis, as was evidenced by your all's prediction from the poll, but, again, what we're seeing is if 2015 is any indication, people are now not just electing to stay in Indiana, they are electing to come here to pursue these types of jobs, right? Now, you've got to think about how profound that shift is over just a decade, people leaving to pursue tech jobs, people staying to take tech jobs, not to a point where people are coming here, again voting with their feet, and competition will increase, there's no question that wages will be pushed up, but, again, as long as we keep building remarkable companies that are generating tons of value, that is not something that keeps me up at night, and I know it keeps a lot of the people up in economic development and at the university and I'm glad somebody else gets to worry about it, but I can tell you based on my experience hiring over the past decade, in particular the last couple of years, we're seeing higher and higher quality candidates because more and more people are willing and eager to move to Indianapolis, not just stay here.
THOMPSON: We do not have a talent production problem anymore. Five years ago we had a talent production problem, in my opinion, and between what the universities and campuses, our top five recruiting campuses that we look at in state and between the Xtern program and everything else that TechPoint's doing, we are flooded with people who want to stay here, they don't want to go to Google, they don't want to go to Apple, they want to stay here, they want to stay local, they want to go to SalesForce, they want to come to Rook, they want to go to all of these great places. There's over 300 students a year graduating with cyber security degrees in the state. I only wish I could gobble them all up right now, and so we do not have a talent production problem. Our universities and programs are doing their job; it's now about catching from the employer's side.
COUNCIL: So how do you go about doing that?
THOMPSON: Grow, create things that people want, get them to buy it, right, I mean that's the thing. That also ties back to the growth capital piece, I mean, you know, we're in a unique problem right now which is different than some others may be, but as a tech community we need to do a better job of getting to those students. Sometimes it's a recruiting problem, we don't have the relationships, and this community is in the last five years head- and-shoulders above everybody else in my opinion on what they've created on talent.
WHEELER: But another part of the growth here, we often think about the commercial side growth, but we've got a hundred network engineers in high-performance advanced networks that work at the Global Network Operations Center across the road here at IUPUI and some in Bloomington and I think it's important to note how that happened. The state of Indiana back in the Myles Brand days and now President McRobbie put a little investment in to go after the Internet2, the National High Speed Network Contract. You might've thought that operation center was going to go to MIT or the coast or something, but the Hoosiers won it, we won that. So fast-forward 20 years, that group now has grown from just a handful of engineers to almost a hundred engineers. We have the contracts for the National Oceanic and Atmospheric Administration, the links to Asia, the National Science Foundation-funded links to Europe, Internet2, of course, I can go on and on. When Pennsylvania got a hundred million dollars to put in their fiber networks some years ago they came to IU and asked GlobalNOC to be the operations center for it, so there's a ton of this work in networks and cyber security that goes on in federal, state, non- for-profit sectors that we are extremely well poised to grow jobs in those areas as well.
COUNCIL: Gotcha. Go ahead.
GOOTEE: I'll just chime in two seconds. I agree with what these guys just said. And additionally, when you think about how people talk about tech talent, it tends to be this image popping up as developers or coders, and that's true, but there's also other functional areas that's critical to building the business, you've got sales and marketing, you've got customer success, you've got operational people and as the company continues to grow those are important areas, and I'll agree with Kristian that most of the functional areas, compared to five or ten years ago, today we wouldn't worry about hiring any sales experts or marketing experts or coder or finding a CTO, but from an investor's standpoint if you're looking for the next level of entrepreneur leadership talent, that's a different ballgame. You know, it would be a nice to have ten Kristian Andersens or ten Scott Dorsey's to invest in every year that magical leadership piece that pull all the resources together, right now we don't, so that's the next level we should be thinking about.
COUNCIL: Now, I want to touch on, you know, something that obviously deals with the workforce topic and that is diversity. Tech has come under a lot of fire for having employee bases that do not reflect the customer bases and I've spoken with companies who have told me, you know, "Look, our approach is we remove all biases as best we can and try to hire for the best talent." But what happens when you turn around and the hiring is done and the teams are not diverse, is that a problem? Yaw, you want to take this?
ANING: Yeah, sure, I'd love to take this one. Diversity is a big topic at Sticksnleaves; I mean it's one of our core values. We believe that you can launch an application today and you can have a global audience nearly instantly and if you're trying to build a product that reaches a global audience your team should be representative of that audience as well because we think like the skills and background, upbringings, if you have that you've got a really good understanding of having empathy for the user rather than sympathy and you can increase your chances of success around that, so I think when you're thinking about hiring there's the employer side where if you want to attract talent, you, yourself, have to be diverse, you've got the applicant side who, you know, say, for instance, I'm looking at a company and the company's got, I don't know, all Scandinavian women and I want to go and interview there, I'm going to feel like I don't necessarily fit in, I'm going to feel like I don't belong, so employers, you know, if you're trying to recruit that talent, you also have to show applicants that this is a place that's welcoming to you. So, you know, the question I'm trying to put the best person in the best position I think is a little bit flawed as well. I don't think you're trying to optimize for the best person, I think you're optimizing for the best team when you're building companies. There's a great study that looked at 200 companies pre-IPO and post-IPO and one of the interesting things that they saw was that these firms had three different hiring strategies, the first is that they hired off of skills, so, you know, what is it that you know now; the second is off potential, you know, how are you going to learn new things; and the third is cultural fit, you know, do you match our values, and when they looked at these firms they saw that the companies that hired for cultural fit saw less failure rates and they also saw they were more likely to get to IPO, but the interesting thing is post-IPO their growth stagnated versus companies that were hiring purely off of skill and potential, and so you can make some conclusions around that where you've got these really smart founders who are very visionary and when they're going out and they're recruiting they're looking for people that see the vision and see the world exactly like themselves and you get group-think, you get all of these companies thinking the same way and so their growth slows and so to kind of dodge that bullet you can basically do two things, recognize that in the trajectory of your company the values that got you to where you are may not be the ones that are going to get you where you need to go and you start hiring based off of cultural addition rather than cultural fit, or the second is you bake diversity as a core value into your company early on and you recognize that bringing in a lot of different perspectives and experiences help you build a better team and a better company in the long term and there's a lot of studies coming out that's showing diverse management teams outperform homogenous teams by significant amounts.
WHEELER: Let me add to that, if I may. I had a tech employer recently tell me that rather than chase the same set of computer science grads that everybody else was chasing or various forms of that, he was hiring out of the liberal arts, comparative literature, somebody who really knew how to think and write and compare and had demonstrated skills in math or physics. He said "I can layer technology on to that if they can already do that because it makes a stronger team down the road."
THOMPSON: What I love about what you said, too, was it's about group dynamics and group behavior. A really amazing and brilliant Purdue professor in psychology, who happens to be my mother,–
THOMPSON: — taught me about the Holland's model. The Holland's model is basically looking at personality types and if they're adjacent to each other they're going to create a harmonious environment that's good for sustaining and if they're opposite of each other they're going to create a very conflicting environment that's going to appear to be somewhat hostile, bad word to say in business, but you're actually going to create things. And so what I liked about what you said was the implicit, what I took way, was that it's implicit that diversity isn't just about outward-facing attributes, it's about the behavioral personality attributes and what you need to accomplish at a given point in time with your team.
ANING: Absolutely, I mean, because you grow up in very different environments, everybody grows up in very different environments and there's a lot of things that happen that you've got a unique perspective on and if I bring a lot of people to the table that have the same perspective, we're all going to come to the same conclusions and if that conclusion is wrong, your company's going to blow up, right, so you need to bring a lot of different people, get them in the room and have conversations to increase your odds for success.
COUNCIL: Awesome, awesome. Yeah, I liked what you said about cultural addition, not cultural fit, so something for people to think about. I want to shift gears here a little bit to a topic that's been dominating the news lately and that is this ongoing saga between Apple and the FBI, and, J.J., man, I've got to start with you, you know, what are your thoughts about the issue, you know, this discussion of personal privacy versus national security, where do you stand, if anywhere, on that?
THOMPSON: This topic is incendiary, so it's a very challenging topic, and I've done a lot of research on this one because when I saw — So we have social media monitoring in our threat intelligence team and they started seeing all of this chatter picking up on that evening and then, sure enough, about midnight that night our PR people started saying there's inquiries inbound, so I'm preparing for the "Reuters," "The Journal," like all of these people the next day wanting to talk about this. They all like talking to me because I'm not going to give them a gentle answer.
THOMPSON: And so they either use it or they don't. In some cases they didn't and one of them was that "Tim Cook is grandstanding and using this to his business advantage instead of looking at what the realities of the situation are and he's doing so in a way that's politically savvy and customer-motivated and it's entirely about driving his stock right now, not about thinking with his head." That was one that didn't get used by "Reuters" and the reason was because, you know, what's going on is that people have this implicit kind of thought that everybody gets the right to privacy. The 4th Amendment, through case law in California, does not extend to the dead, so get over it, right? And the problem with that is then you can keep going and that's not just been in — you know, there's a case Maritote versus Desilu Productions, you've got James versus Jones, you've got all of these different things, and so there's people who think that "If Apple gives in it's a slippery slope, all of our privacy's going to disappear, we're going to be back doored," it's very scary words that Tim Cook's using. It's not true, you know, it's just simply not true, you know, and if this were an established precedent, the precedent would be simply this, if a terrorist attack takes place on U.S. soil with people that are known affiliates and self-proclaimed affiliates of a terrorist group who kill people here and then they have a mobile device on them that has intelligence on it that we should obtain in those specific cases it's okay to work with the tech manufacturer to get that intelligence so we can thwart ongoing attacks or hold these people accountable, I'm perfectly comfortable with that slippery slope. So in my opinion what Apple should have done differently is simply this, they should've looked at this and not taken a grandstand approach to polarize a topic that didn't need to be done at this juncture, what they should have done is taken the warrant, look at it and said "This is not worded correctly. We need to work with the FBI agent who wrote this, along with the AUSA who is part of this, and we need to reword this warrant so that we can accomplish the objective without violating our customer's privacy and take care of the solution without creating a bigger problem" and they chose not to do that and I'm very disappointed.
WHEELER: We sorted this out in the physical world. You know, can the police barge into your home? No, there's a warrant process involved. The courts are involved. Can they hire a locksmith to come open your door if they have a legal warrant to get into the house? Yeah, there are processes. We work this out in the physical world; we're going to work this out in the digital world.
COUNCIL: Gotcha. Kristian, what would you do if you were Apple?
ANDERSEN: Well, I'm the least qualified person to weigh in on this.
ANDERSEN: But from a technical perspective and an ideological, because I tend to skew kind of hard-core Libertarian here, so like I just have a kind of convulsive response any time someone says "Give government access to" insert dot, dot, dot.
(Laughter and Applause.)
ANDERSEN: But I also understand the argument is several levels above my pay grade and there's a lot of nuance and I've actually never heard that analogy of kicking in the — not kicking in the door, obtaining a warrant and a locksmith, that is a really good example. I would argue, without getting too kind of high-concept here, that the difference is when the authorities have been to my home, I know it, right, and if we lived in a world where, J.J., to your point about slippery slopes, where everything is perfectly knowable and all of the decisions were just and righteous that were leading up to the actions, I would be very comfortable with that, but humans, news flash, are deeply flawed and so are the systems that we've created around us to govern society, so I just like to be extra-careful every time we cede additional authority to government. That doesn't mean we shouldn't do it, it's just to me the bar for doing that is even higher than it is in kind of a civilian life, quote-unquote, so there's my uninformed opinion on that.
WHEELER: To add to that, I think it's important, when we say "the courts," we all generally mean the courts that we see in the orders, we understand them, I mean this is how things work through as transparency, not the FISA courts, which we don't know in general what's going on.
ANDERSEN: Correct, yes.
COUNCIL: Angel, man, I want to shift gears and ask you about marketing clouds, which seem to be all the rage these days with companies like SalesForce and Oracle and Adobe offering marketers a suite of tools to help them do their jobs better. Oddly enough, SalesForce and Oracle have nice-size operations here and Indy seems to be at the vanguard of this emerging industry. How did this happen?
MORALES: I mean, it's a natural progression, you build an e-mail marketing platform, then, sure enough, you need tools to bolt art to it to increase the value and over time it becomes a cloud, hopefully not a storm cloud, but it becomes a cloud, and for Indy, I mean, it creates a lot of opportunity. You know, we have, I mean just in the last year, Kristian, you'll probably know more than I would, how many marketing startups have we seen either launch or a company expand into Indy?
ANDERSEN: Yeah. Well, I can tell you five have expanded into Indy. It's hard to keep track of the number of kind of homegrown heroes that have done it, but we are unapologetically kind of in the top three in the world in terms of the depth of the cluster, which is, you know, a lot of people kind of yawn or get frustrated that there is such a focus, you know, there's this "Well, it's a really tough city to launch a consumer web startup in." This is a fact. I'm not sure that that's a bad thing, though, because when you are — You know, if you're like me, you know, 5'8" and 165 pounds soaking wet, if you want to whoop somebody that's twice your size, you'd better get good at one particular weight fight, you know, and that is kind of where Indy finds itself, which, for better or worse or consciously or unconsciously, has focused on this marketing tack or more broadly kind of enterprise cloud focus and that's what has allowed us largely to be as successful as we've been over the past 10 years. If we had bifurcated our focus or had ten different focuses, it's just tough. When you're at this inflection point, you've got to put all of your wood behind one arrow, and what's great is now we've got companies like J.J.'s and service sector companies like Yaw's that are able to basically take advantage of the fact that we've now built a sufficient gravitas, a sufficient infrastructure, because here's the thing, it's not just about coders and designers and people who have domain expertise and e-mail marketing, there are multiple concentric rings of support infrastructure that have to emerge, galvanize, and then become expert over a long period of time in order to sustain these high-growth ecosystems. You think about, you know, my friends over here at Ice Miller, right, you know, there's a dedicated practice for working with startups and that's a very different world than working with big companies, not the least of which is that they don't have any money so they have to figure out the economics of that business, but —
ANDERSEN: — that didn't exist 15 years ago. And then the PR firms that are completely focused on B and B software, right, which wasn't even, you know, like a thing, you know, 15 years ago, and then the marketing firms and the design firms and the accountants because the economics of SAS is fundamentally different than the economics of kind of traditional business and so because of that cluster the city as a whole was able to build muscles that had not existed historically that now allow for the rise of new clusters and new areas of focus and expertise like security, for example.
MORALES: Yeah, so the cloud, it's not so much what got spun out of it but also what gets added to it. So my company, you know, really, we do trigger e-mail as part of our solution. That said, we don't have an e-mail send engine, so we've been able to grow by actually plugging into SalesForce, plugging into Experian, actually working with Adobe, who, you know, is a pseudo-competitor, a frenemy, if you will, and, I mean, that's part of the beauty because, I mean, as you look at some of the additional marketing startups we have, you know, we've got groups that are liberating, you know, marketing practice and extending it out to small business. I can't remember the name of the startup at the moment, but, you know, —
MORALES: It is Torchlite, good, yeah. So, I mean, we're consumers of the cloud, we're beneficiaries of the cloud, the cloud is spinning out new companies that feed the cloud and a lot of it's happening here in town, so I'm pro cloudy weather.
THOMPSON: So it's interesting because, I don't remember the name of the effect, but IBM acquired Internet Security Systems out of Atlanta in April of 2006 for about 1.3 billion, all right. Out of that acquisition the same type of thing happened, this maelstrom of spinouts, about 150, if I remember correctly, I don't remember, that's another Mike-ism that I'm repeating, but about 150 spinouts that then created I think it was about 12 billion in market cap, effectively, all right. The same thing's happening with the marketing tech here and it's so doggone exciting, right. Now, we're getting pretty dense in one area but that density is good and it's creating opportunity, and so when you see that maelstrom effect happening, that's exciting. Now, what are going to be the next marketing techs and what's going to come next for that next explosive area, is it going to be IRT, is it going to be security, is it going to be, what, you know, and then let's see that maelstrom happen there, too, so we've got one maelstrom started and it's going really well for everybody, let's see what's next.
COUNCIL: Another thing we've been seeing lately is companies outsourcing for their software needs, including tech companies themselves, and, you know, kind of — whether they're tapping free-lance networks or niche shops. J.J., I just want you to briefly tell us the story about you tapping into some third-party resources and kind of —
THOMPSON: I am so proud of this.
COUNCIL: — why you went that route. Go ahead.
THOMPSON: This is really cool, guys, because it has to do with us a little bit but it's more about the others, and so here's what happened. On January 15th, about, I had a conversation with one of the lead Gartner analysts in our sector and I happened to mention to him an idea I had while driving the previous day that I shared with our lead developer who told me "Please do not ever mention this again until we get caught up on our" (didn't understand word, sounds like datasprings) "because you're ruining my life."
THOMPSON: And so the next day, of course, I mention it offhandedly to Gartner and they say "Gosh, that's a great idea, that's an industry first, it blows our mind, we're excited, that's cool, and too bad you can't get that done by RSA," which was the conference we just left last week, so let's just say a 35-day turn time, max, and the idea was this GoToMeeting for instant response for security professionals to collaborate on instant response, put it in your pocket, make it easy for everybody to be informed of what's going on, make decisions together, know the plan and execute it and stay alert. All right, well, the next thing I did after that Gartner call was I picked up the phone and I called a couple people, I called John Qualls and I called Mike Reynolds.
COUNCIL: John Qualls is at Eleven Fifty.
THOMPSON: At Eleven Fifty and Mike Reynolds is at InnovateMap.
THOMPSON: And I said "Hey, guys, do you think you might help me with this really crazy idea because I promised my" (sounds like debt team) "I wouldn't ruin their life but I'm going to anyway and I need your help in doing that." I'm just kidding. I said "Hey, I really need your help in bringing something from concept to reality in about two and a half weeks and I want it in Web UI and I want it in the App Store. Do you think we can pull this off? And, oh, by the way, it has to look better than anything else out there," and, you know, minor thing to accomplish. So let me tell you, guys, so Brett Keck, Eleven Fifty Consulting, and then John and Christian over at InnovateMap worked with our team and we made this thing happen in three weeks, okay, back end, front end, functioning little app, released the Tuesday of the conference on the App Store approved by Apple, and it blew people's mind, all right, so let me tell you something, that doesn't come in any other environment in the country where you can have relationships like that, they will pivot and people will buy in with passion to an idea that wasn't theirs that they get to be a part of and they get to create something that will change the way we do security moving forward, and they did it in three weeks. People were blown away. So we were at the TechPoint stuff, the Mira Awards stuff after, and I was asking "How long would this have taken?" to different people, "Oh, three months for the Web UI, three months for that iPhone App," and then we're at RSA and the bottom-line is we talked to investors and no way could that have been done for less than a half-million dollars. We got it done for far, far less and paid the right prices to people that were good prices, they bought into the idea and they brought something from nothing to market in three weeks. It doesn't get better than that, that only happens here.
COUNCIL: So we've got to wrap it up here, but I want to just ask everybody briefly, you know, what do you think we should be watching for, whether it's enterprise tech or consumer tech, over the next year? We can start with you, Kristian.
ANDERSEN: You mean like —
ANDERSEN: — anywhere in the world? Yeah, good point. This is the most, like, cliché part of the panel because it's like drones, virtual reality, and I won't deviate, I'll be cliché, too. I think of all of the big kind of mega-trends that are coming down the pike, one is one that probably sounds the most boring on the surface but has the biggest implications by far for the next generation is the proliferation of sensors, the ultra-low cost of production and installation of sensors in everything, from the screws that are holding your cars together to cereal boxes you bring home from the grocery store to all of the points of failure, you know, in an airplane because at the end of the day the most valuable thing in the world is to be able to tell the future, if you can tell the future, you're a very, very important person, and, ultimately, if you have enough data you can get very, very, very good at predicting things, kinds of, e.g., telling the future, and what these sensors are going to allow us to do is predict outcomes, whether that be the failure of a mechanical device or the behavior of a consumer in a way or forecasting demand that we've never been able to, and so I think, it's not sexy, but the implications of embedded sensors in everything, which is the ultimate expression of the internet of things, where everything is the internet of things, that's coming and that's going to be big.
ANING: Yeah, so I think the last couple of years everybody's talking about the mobile phone. I think where we're moving towards is this interface- less environment where a lot of companies are now creating experiences that are a lot more human-like, so you see this, if anybody uses Slack in the room, you see this with Slack bots where you can communicate where this bot can return information back to you. You see this with things like Amazon and their Echo device where you can just speak something really quickly and get that information back. So, you know, the shift of platforms moving away from having individual properties that are accessed through an interface and more of these platforms that exist and can interact and return information I think are going to be huge. And even I think one other trend that may be interesting to watch is how platforms themselves evolve, so you think of everybody needs a mobile application and now there's a billion, so I only use 12, do I really need a billion apps? I think the "smart" companies are looking to integrate themselves into the platforms that already exist, so you look at Uber, Uber is a transportation company. Any time somebody needs to move, that's where they are, so they've got integration with Foursquare, right. So if I'm looking at a place and I want to go to that place, it's easy for me to just order an Uber right through the Foursquare app instead of having a non-standalone application.
COUNCIL: Awesome. Ting, if you want to speak to anything in the VC world or any topic, go ahead.
GOOTEE: I've been thinking about that question and kind of relate it to my personal — not just my personal experience but most folk's here's personal experience in the last five to ten years, what are some of the things that you are doing in every-day life that is not being enabled by some kind of technology or tech-enabled services? I haven't been able to come up with one, but I'm going to kind of lean on Kristian and the VC and trying to predict the future based on the past. I don't have a magic ball to say where the next wave of technology application disruption might be coming from. However, you look at the last financial crisis cycle in the 2008/2009 timeframe and that enabled a new wave of tech-enabled services which were never imagined before, Airbnb and Uber, really they changed the business world because they figured out the technology-enabled services that cater to consumer's desire to drive down costs and increase convenience and who would've thought 10 years ago that would be the next billion dollar company, so I'm hopeful, that's the interesting thing about working in the entrepreneur environment, you can't exactly predict the future based on past, but I'm hopeful that something's going to happen that will just be completely out of the blue.
MORALES: Yeah, I happen to agree with all of these guys, sensors, bots, but the key thing is they're all powered by data science and that's really what we need to keep our eyes on. Less than eight years ago there was no industry known as data science. This year when we close out 2016 it's a 53.4 billion dollar industry. Between 2011 and 2012 job opportunities grew by 15,000 percent based on VentureBeat, and Bloomberg is forecasting that within the next five years there's going to be a 50 to 60 percent shortage in data scientists, so, I mean, frankly, I definitely want to have some conversations with Brad because that's what my company does as well, we need those resources. But data science, predictive analytics, machine learning, is already touching every life in this room. For a lot of our businesses we are not beginning to think about automated intelligence, which is oftentimes the by- product, whether we're extending sensors or the next bots, we're going to fall behind and for me that's my biggest concern relative to talent pool is having the talent that will fuel the next round of businesses, which data science is going to be so core to all of it.
COUNCIL: Gotcha. J.J., Brad, briefly.
THOMPSON: Yeah. You know, I'm going to take a different tack. I think the big trend's going to be that based on what we've all been talking about here so far it's going to be the next generation of everything from here is going to be the idea economy in Indiana and it's going to be that our kids, my four-year-old and my two-year-old, when they are 10 and 12, will have the opportunity here in Indiana to dream something up, bring it to life with their friends because of this awesome thing that's been happening in our state and they'll have companies going by the time they're 13 years old and that's an idea economy and that's my dream for Indiana, and I think for the first time in years, in the last couple months with the interactions I've had with people in this community, you know, I think it's going to happen and that just sends chills up my spine, I'm excited to see what we do in the next 10 years here.
WHEELER: Speaking to Angel's point, two and a half years ago there were 20 students in the master's program in data science at the School of Informatics. Next fall there will be over 500 and that's at the master's level, residential and online, so we hope to supply that. I think the next big thing is really what we've all been speaking to that it's anticipation and delegation. We want to anticipate our needs and we want to delegate thinking about stupid things like changing our flight to be automated as you're saying, and I'm going to give you one absolutely perfect prediction for tech in 2020 in the state of Indiana, some companies sitting in this room will be hiring their first intelligent systems engineering graduates from Indiana University.