This article is part of a series of stories about growth in Elk Grove.
The city of Elk Grove has taken a page from the playbook of seed-stage venture capital investors. It gives a little bit of money to promising local startups at the time they need it most.
The city launched its Startup Incentive Program in 2018 to supply cash to promising local companies and groups that are working on technology business efforts.
“We believe that we need to be an economy based on innovation,” said Darrell Doan, Elk Grove's economic development director. “California is the birthplace of innovation, and it is still the capital of it. We want to be part of it.”
Rather than chasing large Fortune 1000 companies that realistically aren’t going to move their headquarters to Elk Grove, “we find it more effective to identify and support home-grown startups,” Doan said.
The companies can’t just be working on a back-of-the-envelope concept; they must be well founded with a solid business plan.
“We want to get them when they are at the point where they are ready to move out of the house or move out of the garage, and then support them with micro-infusions of cash when they are just starting up and need it the most,” he said.
This is the stage of startups where they usually get money from friends, family and founders, he said. “We come in as one of those friends.”
The companies don’t have to pay the grants back, as long as they maintain their headquarters in Elk Grove.
The city has invested in seven companies so far, and combined they have created more than 80 jobs in Elk Grove.
One of the city’s first grants was to InnoGrove, a coworking office space that is home to some of the startups as well as being a hub of the local tech community.
The Startup Incentive Program’s biggest success so far has been its $75,000 grant to EyeRate in 2020. Since then, EyeRate has changed its name to Edge. It also grew from three people in a garage to more than 50 employees, most of them in offices in Elk Grove.
Edge also has raised a lot of real venture capital. In the summer of 2021, the company raised $1.7 million in an investment round led by Santa Monica-based Mucker Capital. In March last year, it raised $4 million more in a seed round of funding led by Folsom venture capital firm Moneta Ventures and with money from Rocklin-based Growth Factory Ventures. Edge uses point-of-purchase technology to get front-line employees more money by rewarding them for good service based on positive reviews.
All of the companies Elk Grove has made grant awards to are still in business, Doan said.
These are high-risk ventures, and since the city is funding them with tax dollars, it wants to make sure that they are investments with a good chance of return to the city, Doan said.
As a way to let entrepreneurs and investors know about Elk Grove, the city has hosted two Pitch Elk Grove competitions, with the top prize being $10,000 cash.
This year Pitch Elk Grove is moving from spring to September, which is a better time for pitch competitions, said Sara Rodrigues, economic development specialist with Elk Grove.
“We will never go to other local cities and poach their businesses,” Doan said, but he added that Elk Grove will support any business that wants to expand or relocate to Elk Grove.
Citing local groups that are supporting startups, Doan mentioned the Growth Factory accelerator in Rocklin, the AgStart program in Woodland, Venture Catalyst as part of the University of California Davis and the Carlsen Center for Innovation & Entrepreneurship at California State University Sacramento.
“We want to be part of this ecosystem,” he said.
Under the Startup Elk Grove Incentive Program, the city makes a cash grant and it takes no equity in the companies. If the company moves out of Elk Grove, or if the company is acquired, the grant becomes a loan, and it needs to be paid back. So far, no one has left.
