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By Leah Hughes and Spencer Campbell

PassportParking Inc.’s new headquarters is fairly boilerplate for a tech startup, which is to say it’s very cool. Across the street from a craft brewery in Charlotte’s trendy South End neighborhood, the 8,500-square-foot renovated warehouse is a mostly open floor plan, with employees — the dress code runs from yoga pants to chinos — grouped in three-desk pods. There are pingpong and foosball tables and an Xbox that can be played on a projection screen, as well as a couple of bottles of brown liquor on a table near the refrigerator. The staff just moved in, so things are messy: The kitchen and shower, for those who ride their bikes to work or come to the office after CrossFit, are under construction.

The company’s product — software that allows parkers to pay for spaces using a cloud-based app — isn’t revolutionary, either. “People in the industry thought we were late, but people we were calling on thought we invented it,” managing partner Khristian Gutierrez says. It claims to have about half of the pay-by-phone spaces in North America, though its main competitors, Parkmobile USA Inc. and PayByPhone, have been around longer and have deeper pockets. About a year ago, Passport secured $6 million in venture financing, which it used to increase its workforce from 14 in March to about 40 sales, research and service staffers. It handles mobile payments for cities such as Chicago, Toronto and Louisville, Ky., which are among more than 150 customers using its software in more than 600 locations. Founders and cousins Bob, 36, and Charlie Youakim, 37, won’t disclose revenue but say it’s soaring.

Trailblazing or not, Passport is a boon for Charlotte’s tech scene, which needs a boost. While Raleigh-Cary and Chapel Hill-Durham rank among the top 25 U.S. metros for tech startups, according to a 2013 study by Kansas City, Mo.-based Ewing Marion Kauffman Foundation, the state’s largest MSA didn’t make the cut. Local officials are trying to change that. In September, state and local governments pledged $8.6 million in incentives to AvidXchange Inc., which automates payroll services, after it pledged to add at least 600 jobs to the 200 it has in Charlotte and invest more than $20 million in a new headquarters. “It is important for us to grow and contribute to the city that has supported us from our days as a small startup,” CEO Michael Praeger says in a statement.

The Youakims do not share Praeger’s hometown enthusiasm. Their beef with the Queen City: It uses Parkmobile rather than Passport to process mobile payments. “If Charlotte wants to change and be a tech hub, they have to support the community of Charlotte,” Bob says. Doreen Szymanski, a spokeswoman for the city, says parking officials had never heard of Passport when the city signed its deal with Parkmobile in January 2012. Passport landed its first municipal customer later that year. Gaining Charlotte’s mobile-parking business won’t make or break Passport. At this point, it’s about pride. “Charlotte has about 1,100 on-street [spaces] for parking,” Bob says. “To put that in perspective, Chicago is 36,000. Toronto has about 20,000 on-street, 55,000 total. Then we get the support of COMET, in Columbia, S.C., their bus system. All the city of Asheville has it. But in our own backyard … ”
After college, the cousins backpacked through Europe, where they talked about someday launching their own company. Bob eventually became a vice president of Wells Fargo & Co.’s investment bank in Charlotte, while Charlie, a mechanical engineer, worked at Amano McGann Inc., a Japanese-owned parking-product company, before enrolling in business school at the University of Minnesota. He graduated in 2010, with the economy struggling and no great opportunity awaiting him.

At the time, he was using a parking lot in Minneapolis that required him to write his license plate on an envelope, stuff $3 inside and shove it into a tiny slot. “This is 2008, 2009, 2010. The parking situation was really messed up.” So he developed a business plan — he would become a parking operator, using mobile-pay technology to get a leg up on antiquated competition — and asked his cousin to join the startup. Bob was doing well at the bank but often worked past 10 p.m. He didn’t see his kids a lot. Nevertheless, people told him that leaving the bank would put his family at risk. “We believed in ourselves,” he says. “We were like, ‘If this was Vegas and you had a 50-50 chance of succeeding, would you bet on yourself?’ And we were like, ‘Yeah. Let’s go. Let’s do it.’” In 2010, they started Passport in Bob’s Charlotte basement.

It quickly became clear that they had made a mistake. “Owners of parking facilities wouldn’t switch for a $10,000, $15,000, $20,000 gain,” Charlie says. They knew and trusted operators who often had been managing the lots for years. The final straw was a meeting with Daniel Levine, president of Charlotte-based Levine Properties Inc., who has about 2,000 public parking spaces in downtown Charlotte. His advice: Forget about operating lots and just provide software. “We were a little upset about it after the meeting,” Charlie says, but eventually conceded that Levine was right.

The idea wasn’t revolutionary. Vancouver, Canada-based Verrus Mobile Technologies Inc. was founded in 2000 and acquired by PayPoint PLC — a United Kingdom-based company with revenue of more than $300 million last year — a decade later. In 2008, Netherlands-based Parkmobile Group BV partnered with BCD Group, a Dutch travel company with revenue of $24 billion in 2013,
to launch Parkmobile USA in Atlanta.

The Youakims used about $500,000 of their own money to launch Passport. They opened a software-development office in India to keep costs down and leased a parking lot in downtown Charlotte from the N.C. Department of Transportation to streamline the back end. For example, they discovered that parkers stay longer if they can add time without returning to their cars. Also, operators needed a simple way to raise rates during a concert or football game. (The lot was near Bank of America Stadium, where the Carolina Panthers play.) “We’re not developing something that we think you need,” Bob says. “We know you need it.’”

Park Select in Wilmington became Passport’s first customer in June 2012. Ease of use was the most important selling point, says Kirk Iventosch, who owns Park Select with wife Sandi. If he wants to increase rates during, say, Wilmington’s annual Azalea Festival in April, he visits an online interface — stored in Amazon’s Cloud service — on his computer, phone or tablet and makes a few clicks. There aren’t any upfront costs for operators. Passport charges parkers (not operators) a convenience fee for using its app. It’s 50 cents at most of Park Select’s lots. “There are a lot of private-parking operators who are on short-term leases to operate facilities, so they don’t want to make a big capital investment into a facility,” Charlie says. Park Select started expanding at the start of 2013 and now has franchises in Raleigh, Myrtle Beach, S.C., Houston and Cleveland. They all use Passport, Gutierrez says.

The company has snagged its biggest customers by selling them their own brands. In April, Chicago rolled out mobile payments through its ParkChicago app. “The app saves you time, namely the three minutes or so you spend trekking to the pay box, fiddling with your credit card and then walking back to your car to display the tag on your dashboard,” according to a review in Crain’s Chicago Business, a weekly newspaper. The write-up did not mention that Passport created and supports the app. It will soon roll out a similar system for Toronto. “Cities want their own brand,” Bob says. “They don’t want to have to change all the signs. Forever it’s going to be ParkChicago, even if PassportParking isn’t providing it.”
It’s that sense of stability that keeps its hometown from using Passport. Charlotte spokeswoman Szymanski says mobile-payment contracts don’t have to be put out to bid because they don’t cost anything. Passport and Parkmobile get transaction fees, but Charlotte’s revenue stays the same — whether paid with cash, card or app, the city charges its same hourly rate. “The only reason we do it is for the convenience of the consumer,” she says. Charlotte had a one-year deal with Parkmobile but exercised the first of two, one-year renewal options in 2013. Switching to Passport, Szymanski says, would be a hassle for parkers, who would have to download another app and learn a new system.

“It’s a lot of work for them,” says Peter Lange, executive director of transportation services at Texas A&M University and co-chair of the International Parking Institute’s technology committee. “There’s signage, education, re-education. Why would they change when everything’s working fine?” Texas A&M has used PayByPhone for five or six years, Lange says, because it was one of the only ones in the market back then. “Do you have an iPhone or an Android?” Lange asks. “I have an iPhone. Just got the 6. I haven’t been lured away by Android.” What he’s saying is that people stick with what they know, as long as it works. The good news for Passport, he adds, is that there are plenty of cities that don’t have mobile-payment service yet. “It’s an open field at this point.”

Early on, Passport almost left Charlotte. After landing a few customers, it applied for a $1.5 million grant through a Tennessee incentive program that required 60% of a company’s employees live in that state. But the deal fell through over some technicalities. Neither Bob, who is from Illinois, nor Charlie, who’s from Minnesota, have deep roots in the Queen City. “When we decided to found it here, he had a wife and kids and a house and I had a car,” Charlie says. That’s why they’re in Charlotte.

But both admit they owe a debt to the local startup community. Last year, Dan Roselli, the co-founder of Packard Place, a Charlotte business incubator, connected the Youakims with Don Rainey, a general partner with Vienna, Va.-based Grotech Ventures, who had moved to Cornelius in June 2013. Grotech, along with Nashville, Tenn.-based Relevance Capital Inc., provided the $6 million of funding in December 2013 “They’re a very focused small company in a distracted world,” Rainey says, “and that’s what it takes.”

Passport is widening that focus, partnering with the transit system in Columbia, S.C., on a pilot program that allows passengers to pay bus fare via their phones. In the new office, Charlie tinkers with a barrier gate that syncs to smartphones through Bluetooth technology. The Youakims claim to be too big to care about hometown slights anymore, but the snub still stings. A customer recently visited Passport’s Charlotte office and asked, ‘So why is your competitor on the street here?’” Bob says. “He’s just being funny, but in every little joke, there’s a little bit of truth. It’s embarrassing.” The city’s contract with Parkmobile comes up for renewal in January. Charlotte will review the deal, but Szymanski admits, “I think we’re happy.”

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