10 Surprising Facts About the Software Industry in Arizona

I published Gregslist of Arizona Software Companies on this website one month ago, in August 2016. What started as my personal Evernote list of local software companies grew into a thriving web page to find cool Arizona tech companies and connect with them.

The results have been interesting. In one month, almost 5,000 people have visited the page with over 1,500 likes and shares and one write-up in the Phoenix Business Journal. Local founders tell me how they are getting leads, job submissions and LinkedIn messages directly from this page. It’s working!

The initial list of 129 companies has grown to over 205 companies in the last four weeks. I’m sure it will keep growing as new companies start and I find more that I didn’t know about.

Even the old-timers in the center of the local tech ecosystem are shocked at how much is actually going on in the Phoenix software business that they just hadn’t seen before.

Here are the 10 most surprising facts about the Arizona software industry that I have learned since publishing this list.

1) There is a LOT going on in the software business in Arizona

There are 205 companies in Arizona that are primarily software companies. I have never heard anyone estimate that there were more than 100 software companies here in Arizona. It’s actually double that and the list keeps growing. These are just software businesses, which doesn’t include the many other startups or tech businesses here that are not building commercial SaaS software, platforms or apps.

2) Arizona software companies directly employ 20,000 people

A simple tally of the total employment of software companies on the list shows an estimated 20,000 direct jobs created by these companies. These are good jobs in software development, sales, support, finance, operations, HR and everything else. That’s between $1-2 billion in wages and benefits that goes into our local economy. Then add all the local contractors, service providers and “trickle-down” impact that is created through real estate, taxes and retail spending. Software is bigger part of the Arizona economy than everyone knew.

3) Over $500 million in venture capital funding has been invested in Arizona software businesses

With no Arizona-based venture capital firms, two local seed capital firms and few software-savvy angel investors, local software founders agree there should be more local capital investing in these companies. No surprise there. What is surprising is the $500 million invested in Arizona software companies by institutional venture capital or private equity firms. And that’s just counting the companies who publish their funding, haven’t sold their company or haven’t gone public yet.

4) 75% Arizona software startups are self-funded or angel-funded

We read about huge sums invested in cool San Francisco startups, but few Arizona startups are funded by institutional investors. 75% of software companies in Arizona are self-funded or attract very small investments from friends, family or angel investors. This self-sufficiency creates lean and savvy companies, but it also limits big thinking, fast growth and job creation. VC investors tell me they don’t see as many ambitious Arizona entrepreneurs who are committed to creating big, valuable companies. Not every software business needs growth investment, but the reality is that investment follows ambition, not the other way around.

5) Women run 7% of Arizona-based software companies

There are 13 women CEOs out of 173 Arizona-based software companies. (This doesn’t include remote offices in Arizona of companies based in other states.) The proportion of women-owned or women-led businesses is higher outside of the software business, but 7% appears to be typical or slightly low for the software industry. I haven’t found definitive national statistics about women-led software businesses yet.

6) 83% of Arizona software companies are in Scottsdale, Phoenix or Tempe

I was surprised at the concentration of software companies in just three cities, given the common belief that our software community is so spread out. True, Scottsdale and Phoenix cover a lot of area and these business are not within walking distances, but it’s still relatively concentrated. Almost all (95%) of Arizona software companies are in the Phoenix area, with the rest in Tucson and just one company in rural Arizona (GraphLock in Coolidge).

Arizona software companies by city:

Scottsdale – 88 (43%); Phoenix – 59 (29%); Tempe – 24 (12%); Chandler – 12 (6%); Mesa – 11 (5%); Tucson – 8 (4%); Gilbert – 2 (1%); Glendale – 1 (<1%); Coolidge (rural) – 1 (<1%). Total - 205 companies

7) 76% of Arizona software companies have fewer than 50 employees

There are always fewer big companies than smaller ones, so this isn’t that surprising. However, there are are more software companies that have 11-50 employees (74) than there are companies with 1-10 employees (58). This shows that we have plenty of real, stable and growing companies in the early stages, vs. startup experiments which may or may not be around in a year.

8) 75% of funding has gone to companies with more than 50 employees

It’s no surprise that bigger investments go to bigger companies, since they attract capital investment and need more capital to grow. There are 41 Arizona-based software companies that have currently have venture capital or private equity funding. There are three Arizona-based software companies that are public (GoDaddy, LifeLock and Limelight Networks). More than a dozen other local companies have grown up and been acquired by bigger software companies or by private equity investors.

9) Local software leaders are not very connected to each other

Despite many efforts to connect people through local tech events, networking and publicity, most of the software business leaders in Phoenix and Tucson don’t know many of their peers. These are some of the busiest people around and they don’t run local businesses, so you can’t blame them for not getting out more. These peer connections and advisor networks are critical to any founder to grow a business and are a normal part of any thriving ecosystem. We can expect to see even more networking, events and peer support as the community grows.

10) There are 34 startup incubators and 42 coworking spaces in Arizona

From the Arizona Startup Resource Directory published by our friends at the Arizona Commerce Authority (ACA), we can see there are 42 coworking spaces, 34 startup accelerators and incubators and 20+ startup capital investment organizations in the state. Most of these are in the Phoenix metro area, some are in Tucson and several are in rural Arizona, which is directly correlated to population in these areas. Considering there were almost none of these in Arizona just ten years ago, our ecosystem is exploding and this support is helping ambitious companies to start and grow.

There’s a LOT going on in the software ecosystem in Arizona. From what I see, it will keep growing from here. Arizona will soon be known for the size, vibrancy and local impact of our software industry.