Leaving the nest: what's behind the out-migration of Utah's fledgling companies?

• Author: Lindberg, Kelley J.P.
• Position: Economic Development

OVER AND OVER AGAIN, IT HAPPENS.

A promising Utah company develops a great idea, grows to a certain size, then moves its headquarters out of state. Whether it's acquired by an out-of-state company, merged into one, or just plain moves to the coast, the story is repeated several times a year. Why?

Three major factors contribute to this trend. The first is money According to Rod Linton, deputy director of the Division of Business and Economic Development for the state of Utah, "We're located inland from the major cities on the East and West Coasts, and that's where the concentration of investment capital is."

The second factor is "critical mass." The East and West Coasts simply have higher and more concentrated populations and have been developing fully integrated industries for a longer time.

The third factor, although Linton contends Utah is slowly overcoming this challenge, is management talent. "Sometimes we have problems recruiting well-experienced upper-level management people to Utah," explains Linton. "If they won't move to Utah, the company will move to them."

Follow the money

Many Utah companies get their starts from early-stage Utah venture capitalists. The first round of seed funding from these Utah angels supports these young companies as they grow and get products started.

However, to obtain larger second- or third-round funding (typically $10 million to $30 million), the companies must turn to out-of-state venture capitalists. And according to Linton, "Those VCs like to have the company close to home where it's convenient for them to work with the management team."

Another aspect of the money factor is that young, developing Utah companies are often so successful that they become attractive targets for acquisition. Says Linton, "The acquirer will typically be outside of Utah because of money and critical mass, because we don't have a lot of companies headquartered in Utah."

Campus Pipeline was a fast-growing company in Salt Lake City, developing software and services for higher education. Their technology helps institutions unify campus data, enterprise applications and services into a web-centralized "digital campus." Much of Campus Pipeline's initial seed funding was provided by SCP Corporation, a well-established Pennsylvania company that provides enterprise technology software and service solutions to higher education.

According to Andy Cooley a former member of the Campus Pipeline management team who has since moved to...