Geolocating Your Startup

Susheel asked me in the comments what I thought of this column by Pascal Zachary in this weekend's New York Times. Susheel posted that question anonymously. And because I am obsessed right now with the community that's here at AVC, I chastised the anonymous comment:

anonymous,

if you start leaving comments with your real name, i'll tell you and everyone else who reads this blog what i think of that article.

but not unless you stop posting anonymously.

fred

Susheel came clean so here's my thoughts.

I am with Valleywag which called Pascal's post a "yawner". Tell me something I don't know. Silicon Valley has been the center of the global startup scene for longer than I've been an adult. Yes, it's true that iPod, Google, eBay, and YouTube came out of Silicon Valley.

But I find it more interesting that Skype, Blackberry, and MySpace did not.

Does starting a company in Silicon Valley increase your chances of success? Maybe, but Pascal didn't present any stats to make the case.

How many startups got started in Silicon Valley over the past three years? How many have been "successful"? And by what measure? Then do the same math for Boulder, Austin, Seattle, Southern California, Boston, New York, London, Tel Aviv, Shanghai, Beijing, Singapore, Bangalore, [and Canada fo course - thanks Kendal], etc.

Then we'll talk.

Comments

[Andy Swan]

Work where you love to live and make it happen.

1/1 in Louisville, with #2 in startup stress mode. Ya, ya, "I can be there tomorrow" Louisville.

What can I say---we LOVE it and it's where I see my daughter growing up!

[Alex Iskold]

There is a good discussion about it on R/WW. It seems that consensus is that it is easier to get funded, which is not quite the same.

http://www.readwriteweb.com/archives/poll_does_location_matter_web_innovation.php

Alex

[Jeremy Epstein]

Fred,

I am liking your obsession with your blog community and wanted to throw out an idea that came to me after I went to hear Seth Godin speak on Friday.

I'm a huge fan of Seth's (and yours, of course) and had the privilege of introducing him to the crowd of 150 or so. I quoted some of his books, talked about his blog, etc.

Afterwards, two other "self-proclaimed Godin junkies" came up to me and we really hit it off. In fact, one of them may end up being a business partner, a relationship that was accelerated by the fact that we are Godin co-religionists. It's like we shared a common language.

So, here's the thing. My BlogLog is great, but what about a local/geo-location angle that builds physical communities based on the virtual community?

What if, for example, MyBlogLog (with permission, of course) passed their info to Meetup.com or something along those lines (or did it themselves) to help facilitate the actual meeting of members of your Blog reader community?

It'd be great for me to get together with others in my zip code who are fans of yours (and the other blogs I read). Local Fred Wilson parties across the country on Fred Wilson Day..ok, maybe a bit much, but certainly a potentially powerful angle for companies and authors to strengthen their "sneezer"/influencer communities.

Evslin just posted on this a few days ago (http://blog.tomevslin.com/2007/01/local_the_first.html).

[Kendal H]

Canada is alive too. As much as people may forget, it does exist, and it produces some great companies! Often overlooked way too much.

[J. Mark English]

I love the blog that you have. I was wondering if you would link my blog to yours and in return I would do the same for your blog. If you want to, my site name is American Legends and the URL is:

http://www.americanlegends.blogspot.com

If you want to do this just go to my blog and in one of the comments just write your blog name and the URL and I will add it to my site.

Thanks,
Mark

[Bangalore]

You spelt Bangalor wrong.
As an aside, I like your blog.

[Matt Cobb]

Fred, I've been a avid subscriber for several months, but this is my foray into the visible part of your community.

Based on having worked in the Bay Area during the 80's & 90's, starting in the Lisa group at Apple and ending by selling my software business to a dot-com, I agree the article was a yawner.

That notwithstanding, here is some data to answer your questions within one startup segment: Web 2.0. I happen to have just posted data on 34 Web 2.0 startups that received $110+m funding in December (http://web2success.blogspot.com/index.html). If you geoslice the list, this is where the companies are located:
NorCal: 56%
SoCal: 18%
Pacific NW: 12%
NY: 6%
Austin, Virginia & Australia: 3% ea

So, if you buy that one early measure of 'success' is getting funded, Northern California is still the place to be -- at least for Web 2.0 startups.

[Ben Casnocha]

Starting a high tech company in the Bay Area certainly improves your chances but it's not a requirement. It's silly to think that ALL the important tech start-ups come from one region. At the same time, it's naive to dismiss the Bay Area effect as unimportant. NY for finance, SF for tech, LA for movies. These may be generalizations, but they hold some water.

[Richard Giles]

Thanks Fred, for highlighting the discussion. It's ridiculous when the suggestion is made that the Valley is the only place for an Internet startup. Agreed, it may make funding easier because the money comes from people that understand the segment, but isn't one of the values of the Internet that you can be located anywhere.

I know plenty of Aussies who are successfully building online businesses.

[fred]

thanks for the corrections. i updated the post with them.

Matt - the question is not where the money is. those stats for web 2.0 are almost mirrors for the entire VC business. NYC has been 6% of the VC market for as long as I've been looking at those numbers (well over 10 years).

The question that Pascal's piece posed was where are the odds of success highest?

i suspect that the number of failures in the bay area are also the largest in the world.

the bay area is the biggest for sure, but maybe not the most likely to succeed.

i still haven't seen the data that will address that question.

[Charlie Crystle]

We're in the center of all culture and technology--Lancaster, PA, where the buggy whip is still selling well.

We have 21 people and great products, we're a real business, real revenues, and have a great team of people who don't namedrop every other sentence to assert some relevance to the Silicon Valley success ladder.

Our cost of living is low, cost of operations low, and standard of living high. Our CTO is one of the most innovative architects I've known, and our devs--all with families of at least 3 kids--work as hard or harder than the devs we had at my last company in Seattle. And they are very good.

And we pay well, cover 100% health insurance, and work out of an old tobacco warehouse for $6.70/sf.

We're an hour from Philly by train, 2 and a half from New York, an hour and 15 from Baltimore, and 2 hours from the beach.

We're moving people from California and New York (and anywhere else we find good people) who have terrific experience, new and growing families, and want to get out of the lousy air, long commutes, high cost and low standard of living, and don't care about whether you had lunch at Buck's with Steve Jurvetsen (Steve, you could have at least bought me lunch at Buck's). We just care about great peopel with great experience who share our values and goals.

And it works. We're changing the world, and making money while doing it. If you want to do well while doing good, SEND RESUMES to resumes at missionresearch.com. You're needed here, and we'll take you to lunch at The Neptune Diner, where you'll only run into a venture capitalist if they've gotten lost looking for us.

Check here for articles on SalesWorks and GiftWorks:

http://charliecrystle.blogspot.com/2007/02/salesworks-reviews-are-in.html

[Jed Christiansen]

Fred, thanks for this post.

Statistics are so easy to twist to any story, this one just like the rest. Sure, an even slightly higher percentage of VC money is going to the Valley, but does this mean that the companies are that much more likely to turn a profit? Is he really basing this article just on the top-shelf technology brands? (And not even all of them.)

Writing an article like that based on vague memories and press releases is just poor form. I'm also quite wary of group-think / herding, which is all too easy in a close community like the Valley. What is sometimes a great level of resource can also be a limitation of real diversity.

[carl rahn griffith]

well, i can confirm that yorkshire in england is pretty darn quiet for technology ventures. in hindsight i should have done my utmost to extend my usa visa. but, there we go.

have i given up yet? not quite - am getting close, though! and if i do give up (an alien concept to me, but one i must face as an option) i have decided i will also give up on IT entirely. period.

in much of the world, there simply aren't the other options to go to as a contingency plan - and that i believe is the valley's USP; if you fail there's a good chance you'll easily walk into something else and by the law of averages one of the ventures you're involved in will be a success.

having worked extensively in most of europe and much of the usa i would say the geography of where one is based is hugely influential to the final outcome. regardless of one's own efforts and the merits of your start-up.

as pointed out elsewhere, much of this is anecdotal supposition but i know where i'd rather be ...

it's not a meritocracy out there, in a start-up/VC context.

[Charlie Crystle]

BOARD MEETINGS!

That's the one thing that DOES influence VC attitudes about location. So for all you startups out there who want Valley money but don't want Valley Life, tell them you will have all board meetings in Palo Alto, but insist on one a year on your premises. Make sure you bring in local food for the board meeting, and insist on showing them the town, get meetings with the mayor, etc. You never know--they might invest in more companies in your hometown!

[Shane]

Location is very dependent on location of talent. If you can find the talent in the local area then you are fine. If you can pay enough to have the talent come live in your area, you are fine. I completely believe I could run a startup from here in Champaign IL, I am just short an idea

[Lee Semel]

The success percentage of funded startups is besides the point... focusing on funding is a narrow filter. What percentage of good ideas/teams in each location never get off the ground because they couldn't secure the funding, talent or other resources they need? The real question is: If you're right at the starting line with a good idea, which location's the best for success?

[Russ]

I have been a founder and/or employee at 4 startups in the last 10 years and lived in SF for all 4. I had the unique experience of working for a startup based in Northern Virginia while living in SF. That experience makes me believe the #1 question VCs should ask entrepreneurs in the Bay Area that they never seem to ask is: WHY are you starting your company in the Bay Area?

Having seen it from all sides, I believe Silicon Valley VCs and entrepreneurs are far too insular in their thinking. Yes, in general, the best early stage (meaning those excited by small teams, equity, etc...) engineers and product folks tend to be in Northern California but that's where it ends. Startups founded outside of the Bay Area have enormous cost advantages / non-technical talent pool advantages and far too many Silicon Valley entrepreneurs ignore that fact.

Having seen it from both sides, a quality idea can get quality investors regardless of location and you simple cannot underestimate the enormous cost savings of non-Silicon Valley hires.

[Rajan]

I think an 'e' is still missing in 'Bangalore' :)

I am not an economics major but having read that article I can say that it does not add up based economic concepts that's used in the article.

'Increasing Return' which leads to a 'First Mover Advantage' is the characteristics of a knowledge based economy, and thats regardless of it is in valley, India or China so that alone does not explain anything. IIRC it was Brian Arthur now at Santa fe who popularized the term 'increasing return' almost a decade back, check his article from 96.
http://www.santafe.edu/arthur/Papers/Pdf_files/HBR.pdf It would have made more sense if the author of the article had said that it is 'path dependence' that makes silicon valley special.

I don't think a comparsion of #success/ #trials or #failure will be indicative. As you have said in many of your earlier posts venture business is a hit business in other its a winner-take-all so the distribution
will be a power - law.

If we plot the comparsion that you ask for then we will get different tails,are you saying that these will explain, I don't think so.

Btw I will also pass this question to Umair, he did an admin post two days ago asking readers on what to post on :) Since I picked my econ from him and not any text book he will be able the best to comment how good my argument holds.

One of his pet topic in earlier days used to as to why there are not any innovative startups from Europe so I am sure he will be able add a quite good perspective.

- Rajan

[Charles Wilson]

I agree. I think there has always been an unhealthy disconnect between perception and reality when it comes to the the success rate in SV (though, to Fred's point, I haven't done the math). Failure is so commonplace among early stage start-ups that it carries little stigma and it's quickly forgotten; people move on. Failure has no resources for media relations. Success, on the other hand, creates a halo that lingers over a disproportionate area of the landscape. And the collective Bay Area PR machine built around this success does a pretty good job letting the world know about it.

On the talent front, the irony is that, for an area so densely populated with "talent," there are *so many* Web 2.0 startups popping up in the Bay Area that many of the most exciting companies I know are having trouble recruiting (flashbacks from '99).

Take Charlie's company, in Lancaster PA... They not only have the resources they need to grow, but they also have the ear of any partner or potential acquirer. Why? Because they make great software and have a business model that works. And his development team isn't quitting to start a social networking site for gerbil owners, because, regardless of what's getting funded, they think it's a dumb idea. Some might say that his location has improved his odds for success.

[Shanti Braford]

This would be a great study for someone to do, actually. Hard to come up with the metrics, but perhaps doable.

I was surprised recently at the amount of "startup" (it's all mostly self-funded) activity here in the Phoenix area.

Although I wish my phx comrades the best, it seems like they are all fighting a huge uphill battle by not being located in the Bay / NYC / Boston / Seattle.

They end up pursuing it as a side thing to their consulting businesses, rather than a Startup-startup, like one would do in the valley.

My $.02 on working/living outside one of the startup hubs: it's great to sit in the desert here and crank out reams of code, but if you actually want to network and get plugged into the scene, you have to be located in one of the hubs.

[Kash Funds]

Are you looking for funds? visit http://www.kashfunds.com - funding for startups seedmoney in USA, UK and India