After John MacKrell launched an app-based laundry pickup and delivery service more than three years ago, a question sometimes came up during his search for early-stage investors.
“We were asked, pointedly, ‘Are you planning to stay in Rhode Island, or would you move to Boston or New York?’ ” MacKrell recalled.
He was honest. He had lived here for decades and wasn’t willing to pull up stakes. MacKrell’s answer cost him some funding deals and may have slowed the growth of the startup.
Still, if not meteoric, East Greenwich-based HappyNest Inc. has expanded steadily from three employees initially to about 40 now, and the service is offered in 35 states.
And maybe his reluctance to move may have saved him a lot of heartache, too.
That’s because while well-funded technology companies in major hubs such as Boston, New York, the San Francisco Bay area and Los Angeles have had to undertake massive layoffs in recent months, the much smaller tech sector in Rhode Island has largely avoided the carnage.
Indeed, companies with plenty of cash from investors went on a hiring spree during the COVID-19 pandemic, when lockdowns required people to transition to a more digital life that included remote work and online shopping.
Now that things have returned to something closer to normal, many online companies have seen sales decline and those big bets on needing a big headcount have not paid off. Couple that with recession worries, and layoffs have followed.
Nationally, giants such as Amazon.com Inc., Lyft Inc., Google LLC, Meta Platforms Inc. and IBM Corp. have slashed thousands of positions. Just up Interstate 95 in Boston, about 40 tech-related companies have handed out pink slips since January, including e-commerce retailer Wayfair LLC, which cut 1,750 positions, and software and marketing company HubSpot, which laid off 500, according to layoffs.fyi, a website tracking tech job losses.
In Rhode Island, companies in the sector haven’t seen catastrophe, observers say – in part because the local tech industry hasn’t matured to the point that it could engage in a binge of hiring during the pandemic.
“There aren’t gobs and gobs of large software companies in Rhode Island,” said Thorne Sparkman, managing director of the nonprofit Slater Technology Fund, the state’s most active seed-stage venture investor. “So the layoffs that you see on the West Coast, or [at] places like Wayfair, those are about companies that experience the broad trends of recession.”
These tech giants are “also coming off crazy high peaks during the pandemic, and they’re reacting to new patterns of employment,” he continued.
Could this disruption be an opportunity for Rhode Island to gain some ground on other tech hot spots? Maybe.
As to why the tech sector hasn’t established itself more prominently in Rhode Island already, it’s hard to say, according to Sparkman. Its neighbors certainly have, he says, with Boston and New York City known globally as venture capital hubs.
Rhode Island’s status poses “more of an ecosystem question that has to do with where is innovation concentrated, where is risk capital concentrated, and how many serial entrepreneurs are produced in that cycle,” Sparkman said. “That’s the kind of thing where if you get even a tiny piece of that economy, it can be very self-sustaining.”
‘MORE RESOURCEFUL’
Some local entrepreneurs acknowledge the lack of significant financial resources for digital technology in Rhode Island, but they say it may have worked to their advantage amid the tech downturn.
Nick Cianfaglione started Artist Republik in Providence in January 2020, an automated networking platform that let independent artists market themselves, book shows and monitor engagement through social media platforms. He sold it to California tech company Friendable Inc. two years later in a stock deal.
Now he’s working on Restaurent, an event booking platform, and he’s happy to be based in Rhode Island, where tech companies are less likely to get caught up in the exuberance that can be contagious in big hubs where there is no shortage of investors.
The tech downturn is “mainly just due to overhiring … rather than fundamental changes within the businesses,” Cianfaglione said.
Because tech companies in Rhode Island don’t have an abundance of resources available, “I think a lot of [them] can be a little more resourceful,” he said. “I think a lot of them are more used to the ebbs and flows of economic changes.
“They’ve seen the growth,” he said. “But they had to work maybe three times harder to get the growth because we don’t have as many [venture capital] funds, as many resources or options. When money isn’t readily available, you don’t spend it as much as if you walk around town and see a VC every 10 feet.”
Toye Onikoyi, founder and CEO of two tech-related startups in Providence, has a similar view.
Onikoyi’s first startup, Muse LLC, produces mirrors that provide users with an interactive reflective surface that allows them to streamline daily activities such as beauty routines, calendar reminders, streaming services and video calls onto the mirror. In early 2022, he opened The Bubbler VR at 568 Charles St., what’s billed as a virtual reality arcade and soda bar.
Onikoyi isn’t sure why Rhode Island is moving at a slower pace, but he wonders if this aspect of the local tech ecosystem could potentially be helping companies here avoid some of the issues plaguing Big Tech.
“Maybe that’s an advantage,” Onikoyi said. “I think those companies [in big tech hubs] moved faster than their valuations, whereas Rhode Island moves at a much slower pace.”
[caption id="attachment_441108" align="aligncenter" width="995"]
GROWTH PATTERN:
John MacKrell, founder of the app-based HappyNest Inc. laundry services, didn’t have the funding for explosive expansion but has steadily grown the East Greenwich business to 38 states so far, as shown on the map behind him.
PBN PHOTO/MICHAEL SALERNO[/caption]
THE DOWNSIDE
That said, Rhode Island’s tech sector hasn’t been entirely immune to layoffs and losses. And the area’s lack of funding sources has grown more challenging.
Early-stage startup Abyiss LLC, a cryptocurrency and blockchain platform focused on market chain data, has had trouble finding funding opportunities for software-focused tech startups.
Drew Gillen, founder and CEO of Abyiss, recalls a conversation with an investor who told him he was in the wrong place for this type of business.
One of Gillen’s team members joined Abyiss this year after he said his previous employer, Providence-based Mojotech LLC, carried out layoffs. Mojotech, which builds custom websites and mobile apps for high-growth and Fortune 500 companies, declined a request for an interview and did not respond to questions about layoffs.
And even companies with a track record of steady growth, such as HappyNest, are noticing that investors have become more cautious with their money.
“It’s harder now to get funding than it was a year ago,” MacKrell said. “Back then, it was grow at all costs, just keep growing. Now, it’s much more, you’ve got to have a plan. You’ve got to be able to grow and show returns. Before it was all about capturing the market share, and now it’s more about smart growth.”
Other entrepreneurs noted similar difficulties locally.
“I feel like it’s in its infant stage, but the foundation is here right now,” Onikoyi said of Rhode Island’s tech sector. “There are a lot of initiatives who are here to help, and businesses offer free resources. … There are great resources in terms of mentorship, but there definitely needs to be more money allocated across the board.”
Entrepreneur Liz Lima says the limitation of the local tech resources became clear when she launched her startup, FierceModa LLC. She found numerous mentorship opportunities in Rhode Island but few funding sources.
Lima launched the company, which is based in Pawtucket and Rehoboth, to serve as a “virtual dressing room,” providing users with fashion options catered to their specific measurements and body type. But as a software-based startup, Lima found little help aimed specifically at businesses primarily operating in the digital realm.
That’s not to say that resources don’t exist, Lima says. Numerous local organizations have helped her business, such as RIHub, Innovation Studio Inc. and Venture Café Providence. But when founders start to look beyond general innovation resources for technology-focused support, the gaps become apparent, she says.
“The amount of push that has been put into entrepreneurship and the startup space is big, and it’s working,” Lima said. “There’s been a lot of people going through these cohorts. So now, if they could just do a little bit more like that for tech, that would be great.”
[caption id="attachment_441110" align="alignleft" width="378"]
THE MONEY MAN:
As Slater Technology Fund
managing director, Thorne
Sparkman is plugged into
the local technology scene.
PBN FILE PHOTO/RUPERT WHITELEY[/caption]
CAPITAL QUESTION
Getting a clear snapshot of the Rhode Island tech sector isn’t easy, in part because the definitions of what is considered a technology company can vary. And while there are some larger tech-related businesses based in the region, a significant portion of the industry is made up of small early-stage firms.
RIHub has about 325 active startups in its database, with around 20% focused on what the organization would loosely consider software technology, according to Managing Director Annette Tonti.
In the second half of 2023, the organization plans to increase its reach in this technology sector.
“One of the things we’re doing this year is ramping up RIHub’s outreach on the technical front,” Tonti said, “because we want to make sure we’re engaging with the prospect of technical founders and technical people who might be employed by our startups.”
Arnell Millhouse, CEO of CareerDevs Computer Science Institute in Providence and previously an entrepreneur-in-residence at Brown University’s Nelson Center for Entrepreneurship, describes Rhode Island’s tech sector as often overlooked but rife with potential.
Last month, Millhouse organized a quantum computing-focused event at Brown that featured headliners from IBM. But tech developments and opportunities often don’t reach people who aren’t actively seeking opportunities, he says.
“This is a topic that, outside of Brown or [the University of Rhode Island], probably has never graced the ears of the average Rhode Islander,” Millhouse said of the quantum computing event. “[Last month], it did, and people realized we are on the cusp of great things taking place.”
But then there’s the question of capital.
Outside of Slater, all other Rhode Island-sourced funding for HappyNest came from individual contributions, MacKrell says.
MacKrell says he’d like to see the state take action to bolster the sector with such steps as putting more emphasis on keeping recent college graduates within the state, and providing more funding opportunities for software-focused tech companies in Rhode Island.
These issues have also been apparent at VoltServer Inc., an East Greenwich company marketing its electrical energy distribution system. Like HappyNest, the company also received funding from Slater – an important resource due to the scarcity of investors in the Ocean State, says founder and CEO Stephen Eaves.
“We’re close to Boston and New York, which helps, but we just don’t have the same classic venture capitalists,” Eaves said.
The culture isn’t there either, he says.
“From a state perspective, I wish we were just tweaked a little more to cultural entrepreneurialism,” Eaves said. “It’s not that kind of state. It’s very biased towards hospitality, tourism, service industries.”
Still, Rhode Island has factors working in its favor such as quality-of-life measures such as lower rent and less traffic, he says, which employees seem to find increasingly valuable.
And VoltServer has managed to use these factors in its favor, sometimes drawing talent from the Boston area – the company is currently hiring “pretty aggressively,” Eaves said. But successful recruitment requires a lot of effort.
“You have to be competitive,” he said. “You don’t have to have quite a Boston pay rate, but we still have to be competitive.”
Sparkman doesn’t see the relatively fewer sources of Rhode Island-based funding as a roadblock for companies, particularly in today’s world of remote meetings and an increased reliance on digital communication.
“The venture capital business is now worldwide,” Sparkman said. “It’s not really about the capital sources so much as companies here commercializing breakthrough technologies, and do they have great teams that are growing quickly. So it’s less about funding opportunities and more about the companies themselves.”
To fund Artist Republik several years ago, Cianfaglione relied heavily on financial support he garnered through connections with alumni at Bryant University, where he was attending at the time. With Restaurent, he says nearly all of the more than $1.5 million he’s raised comes from Rhode Island investors.
That’s a minuscule amount compared with the massive venture capital deals in places such as Boston and New York City. That’s fine with Cianfaglione and other local tech entrepreneurs.
Providence’s low profile can also be advantageous when Big Tech is in turmoil in the renowned tech regions.
“I believe that it’s better to be a big fish in a smaller pond,” Cianfaglione said. “It makes the company more attractive, it makes running the company a little easier. … There aren’t a lot of hoops to jump through to talk to the right person.”
