DURHAM – As a New Year begins with the world continuing to grapple with COVID-19, the leadership at American Underground remains very positive that more growth on the way for the entrepreneurial hub now entering its 11th year of operations.
From a humble beginning in a basement to one of the most highly acclaimed startup centers for new company development …
In reviewing the past while at the same time looking ahead, Adam Klein, chief strategist at American Underground and director of strategy for Capitol Broadcasting Company which operates AU, is realistic – and optimistic.
What’s on deck for 2021 and beyond?
“Clearly, the virus has altered the pace and trajectory of growth this year,” Klein told WRAL TechWire. “However, we see this reset as something that will fuel long-term growth of the startup scene that may not have happened otherwise.”
That’s because, according to Klein, large companies won’t drive the recovery. It’ll be new and growing startups that create new jobs and momentum. That’s what the historical data suggests, says Thom Ruhe, president and CEO of the NC IDEA Foundation.
“We see important work ahead,” said Klein. “We have the goal of reaching 250 new entrepreneurs [in 2021] with ‘how-to’ programming to take an idea to market.”
Since the AU recently celebrated a 10th anniversary, WRAL TechWire decided to take a look at how the story began. Many partners and thought leaders who helped make AU a success shared recollections and talked about pivotal moments.
In the beginning
Throughout 2009, Chris Heivly and Glen Caplan, among others, were pitching anyone in the Triangle who would listen – including Capitol Broadcasting’s Michael Goodmon – on the important role that easy, affordable and accessible real estate options were for fostering entrepreneurial communities.
“We had been meeting with investors and community leaders,” said Caplan, partner at Robinson, Bradshaw & Hinson and co-founder of Joystick Labs, “to garner support for Joystick Labs when we were made aware of a potential concept of converting the basement of an American Tobacco Campus building into an incubator of incubators.”
“We kept hearing, over and over, from startups and entrepreneurs, and those who wanted to support them, saying ‘we can’t be in traditional office structures, in the terms of the typical lease, or in terms of the prevailing market rate,’” said Goodmon, vice president of real estate at Capitol Broadcasting Company, which owns WRAL Tech Wire and WRAL-TV.
“We knew that a win in the entrepreneurial industry is a win for all, and we envisioned a thriving entrepreneurial community, using real estate to make it possible,”he explained “We thought we could get a lot of like-minded folks who believed in that same fundamental concept together and it would be a win for Durham and for the Triangle.”
According to Heivly, later that fall, Goodmon and his father, CBC CEO and Chairman of the Board Jim Goodmon, invited Heivly, Caplan and others to a meeting at American Tobacco Campus—in the unrestored basements of the Strickland and Crowe buildings.
“They brought us down there, and it was full of trash and old furniture,” said Heivly.
Nevertheless, Heivly and Caplan agreed to share space, and together became the first anchor tenant of the project, which would require nearly a year to complete.
About that name …
The name “American Underground” would come later, from the architect of the project, Eddie Bell, who had written the name atop the first set of plans for the space. “We were in that meeting, reviewing the first plans, and I looked at Eddie and said, ‘Well, I think you’ve just named it,’” said Goodmon. After floating the name to a few folks, including Heivly and Caplan, it stuck, and the renovation of the basement was underway.
The renovated 26,000-square-foot basement in the Strickland Building on the American Tobacco Campus, welcomed three anchor tenants when it opened in 2010
- Caplan’s Joystick Labs, which was a first-of-its-kind seed-stage accelerator program to launch digitally-distributed video game companies
- Heivly’s LaunchBox Digital, a business accelerator program sourcing entrepreneurs from across the southeast and mid-Atlantic
- The CED, the Council for Entrepreneurial Development, one of the Triangle’s longest-standing entrepreneurial support organizations
“Downtown Durham was a place where there was a lot of entrepreneurial energy, and we wanted to be a part of that,” said Joan Siefert Rose, former president and CEO of CED. “The chance to co-locate with startups and other support organizations was a big plus.”
According to Rose, the decision by CED to co-locate with other anchor tenants—startups and support organizations alike—demonstrated a commitment to support entrepreneurs in the region, just as the region began to emerge from the Great Recession. “CED has a legacy of being at the center of the entrepreneurial activities in RTP, and this move represents CED’s continued focus on remaining relevant to and engaged with its members and the greater entrepreneurial community,” Rose said at the time.
NC IDEA and IDEA Fund Partners would later join as tenants, bolstering the facility’s early mission of becoming a dense center of gravity for entrepreneurship in Durham and in the Triangle.
“It was a great space that soon became a mecca for new founders,” said Heivly, reflecting on the early days of their tenancy and the early tenants of American Underground. “We were pioneers—either by skill or by luck.”
Here come the startups
“We had only been in business for a few months,” said Nick Jordan, founder and CEO of Smashing Boxes. “I was in the market for space, and it was obvious that American Underground was very entrepreneurial and inspiring.”
Even in a basement, Jordan saw promise—modern finishing, lots of glass, stained concrete and the promise of instant community. Equally important to his consideration, recalls Jordan, the only financial documentation requested was a one-pager and a financial projection.
After three years of growing his company, Jordan moved out of the basement, but remained close to the original facility. He moved above ground, and across the street. “American Underground has been an incredible part of the growth of Durham,” said Jordan. “Even back then, when it was just a space, it was so much more than that—it’s eye-opening how much a space can influence people, companies and communities.”
That same year in North Raleigh, James Avery launched a startup, Adzerk. Realizing quickly the benefits of identifying office space, he began his search, weighing whether he’d move to downtown Raleigh or downtown Durham.
He went to tour buildings in both places. In Raleigh, Avery shared an elevator on the way up to the potential office with a lawyer in a suit, finding out that space he was considering shared a floor with a law firm and a newspaper. “We felt out of place,” said Avery.
By contrast, Avery heard about American Underground on Twitter—he thinks—and when he toured, felt right at home. “You could feel the energy,” said Avery. “It also helped that after touring the facility, we walked downtown and ran into other entrepreneurs.”
The feeling was not limited to Avery and Jordan.
“Being in the American Underground made me fall in love with Durham,” said Anil Chawla, founder and executive chairman of the board of directors, and former CEO, of ArchiveSocial. Chawla, who was selected to participate in the first cohort of Heivly’s accelerator program, said it was a no-brainer to remain as a tenant in the Underground after the cohort completed the 12-week program. Chawla agreed to rent a portion of a room—at the time, the company couldn’t afford to rent the whole room—and quickly came to understand the facility as the epicenter of entrepreneurial growth.
Growth and expansion
“I remember walking through the space about six months after American Underground opened,” Klein recalled. “People talk about the water cooler effect of bumping into someone in a particular place—American Underground, on that day, was the first time I really had that experience.”
When Klein first walked the hallway, he’d recently begun working as the startup strategist at the Durham Chamber of Commerce, which was in the midst of launching an aggressive branding campaign and aligning resources to bolster the entrepreneurial economy.
In August 2012, after delivering an award-winning concept, the Smoffice, to Durham, and launching the Startup Stampede, which brought 37 early-stage companies to the city, Klein accepted the role of chief strategist for the American Underground, becoming the first employee.
“So many communities are pursuing startup initiatives,” said Klein. “They’re all trying to emulate Silicon Valley—it’s a foolish endeavor.” When he joined, the goal was density—then expansion. “We thought growing in downtown Durham would lead to a richer scene than spreading our energy and resources>”
A second incubator, AU@Main was conceived, then born, with that goal in mind. Launching in 2013, AU@Main added approximately 30,000 square feet of space for events, coworking and private office suites, designed to house as many as 100 startups and entrepreneurs. Shortly after launch, Klein announced that American Underground had been named a Google for Startups Tech Hub, then worked with Mary Grove, the head of Google for Startups, to debut a roughly 5,500-square-foot American Underground facility in downtown Raleigh in 2014.
The growth would continue. Also in 2014, American Underground launched the Soar Triangle program to focus resources and mentoring arrangements on female-founded companies in the region, and member/tenant Windsor Circle won the first Google Demo Day. The organization would also announce plans to expand the AU@Main facility, adding another 30,000 square feet of space including a rooftop patio, then deliver on that promise in 2015.
Klein hired Jesica Averhart in 2014 as the director of corporate partnerships and new business. After a trip to Google headquarters for the Trailblazers Summit—at which, Google announced plans to accept applications for an “exchange” program to bring founders from across the Google for Startups Tech Hub network to a specific, particular hub for specialized training—Klein and Averhart discussed how to showcase and capitalize on Durham’s diversity and history of black entrepreneurship.
“We had this audacious goal as a team to build the most diverse tech hub, and this program, the Black Founders Exchange, had the potential to accelerate that goal,” said Klein. Google accepted the team’s proposal and funded it in full in the first year, launching in 2015. In the five years since, alumni have raised $23 million and created more than 100 new jobs.
Measuring the Impact
“We went through a period of time in the 2010s where every community’s economic development plan was to go after startups,” recalled Goodmon. “Of course it isn’t easy, it takes a culture, a homegrown approach, and a whole lot of people to make it successful, but for us, it wasn’t about any profit motive, it was about building businesses, creating jobs and continuing the revitalization of downtown Durham.”
A December 2016 case study of the American Underground published by The Thriving Cities Project, a research initiative of the Institute for Advanced Studies in Culture at the University of Virginia, deemed the project “a runaway success” and a “leading example of what we call a new-paradigm enterprise.”
The Thriving Cities case study highlights achievements, self-reported by the American Underground, tracked and measured by Klein and his team, that included hosting 257 companies (up from 73 companies at the end of its first year) which had created 1,166 new jobs in the region since inception.
The 2016–2017 American Underground Annual Report tracked the creation of 608 jobs between October 2016 and September 2017, with 269 companies on four campuses, representing 43 industries. Nearly $40 million in total funding was raised by member companies, and 48 percent of companies headquartered in an American Underground facility in that time span were female- and/or minority-led. That’s much higher than the nationwide averages at the time, tracked by CB Insights, which found that 1 percent of all companies were led by black founders and 8 percent were led by female founders.
“There has been a steady increase of funding raised by American Underground-headquartered companies,” said Klein, reviewing the topline measures of impact that he and his team track. “This is a reflection of the area’s emergence as a startup powerhouse as well as the network effect of companies locating at American Underground and receiving introductory support to various VCs.”
The diversity of companies is also notable, Klein pointed out. “Our founding teams have become more diverse over time, but we’re by no means at a destination, and we’re continuing to focus on and improve our support of female entrepreneurs and founders of color.”
The latest numbers from American Underground?
Thirty-two percent of companies are female-led and 26 percent of companies are led by a person of color. That’s according to the American Underground Annual Report 2018–2019, with data gathered between October 2018 and September 2019.
According to the report, nearly 60 percent of all companies headquartered in an American Underground space are cash-flow positive, and 88 percent have earned revenue.
“I spoke with a number of founders in 2018 and 2019 who were expressing concern about the direction the startup scene was going—fewer new business starts and talent harder to come by,” said Klein. “Recent reports show more new business starts in 2020 compared to 2019, which is encouraging as it relates to future growth of the startup scene. But these new founders need help building strong businesses—and we can provide that on-ramp.
In total, according to the data provided by the American Underground, $290 million in funding has been raised by companies affiliated with American Underground since 2014—and these affiliated companies have created more than 3,300 startup jobs in the Triangle.
As the organization begins its second decade, in the midst of the economic fallout due to the coronavirus pandemic, Klein and the team still see their role as serving early-stage companies and people launching businesses who want to work at or with a well-connected, leading organization in the local entrepreneurial ecosystem.
“We are more than space—that’s a commodity—our focus is on building an ecosystem that enables the growth of startups,” said Klein. “We use real estate as a tool to enable this growth, but the startup mission is why we run the programs we do, dedicate staff to network building, online events and more.”
Klein doesn’t think the mission has changed since that first day he walked into the basement and witnessed, first-hand, the water-cooler effect. “The vision the Goodmon family had of a robust entrepreneurial community being a key to the region’s future is certainly in full swing,” said Klein.
“We’re fortunate enough to have played a small role in that and to be joined by so many great partners throughout the past decade, and though none of us expected to see American Underground grow to the extent it has or take on such an ambitious mission, it’s been a joy to do so.”