The Lindy effect is not some immutable law. It's an observation and it does not necessarily have to be always true. A friend of mine was funded by a Tier 1 VC and has an office in Palo Alto. But all of engineering is in Princeton, NJ. He is thinking of opening another office somewhere in Texas if needed.
Is the startup scene actually moving to SF? I put together some actual (SEC) data on this. The answer is yes. But contrary to popular opinion, the startup scene in Palo Alto is not declining, it's just flat (measured by funding dollars).
Right, it's a self-reinforcing trend. Companies move to locations where talent exists, talented individuals seek those locations out.
But my point was that this makes it really difficult for startups (or any tech company) to make a calculated decision about whether or not location is worth the extra expense. I don't think it's surprising that tech companies are located together, but I think the community would do well to investigate whether the costs provide adequate returns in a majority of cases. (TWGS;IHRTS)[Take with a grain of salt; I haven't researched this shit]
I'm not sure how scientific we really need to get about this. Go to San Francisco, go to Palo Alto, go to Mountain View and hang out with startup people. You will see this multiple times a day, and it will pervade your entire impression of the industry.
This phenomenon is not a secret, nor is it obscure.
I agree but the problem is also the money. A lot of the VCs want to talk about how many ex GOOG and FB engineers who graduated from MIT that they have building their next unicorn. They don't have the same story talking about three state school graduates from Kansas who may be just as talented and have a better product. They also never want to fly to Kansas, like ever.
I've lived through this working at a startup in central PA. We were in discussions to be acquired by several of the top 10 west coast tech companies and having to have an office in PA and come here killed all but one deal. Some Director of X doesn't want to fly to Philly and take an hour train to visit the team. This is despite the fact that costs here are like 30% and there is plenty of reasonable talent.
> And yet whatever argument you use to prove that startups don't need to move from London to Silicon Valley could equally well be used to prove startups don't need to move from smaller towns to London.
Well, what if it isn't the raw number that makes a city a startup hub, but having a certain minimum amount of startups? That argument would then account for small towns not being as startup-friendly as London, but London (or Boston or New York) being an equal to Silicon Valley. Maybe the startup friendliness of a town looks more like a logarithmic graph than a linear one.
I think the physical location is kind of a fallacy. For example, there are so many super smart and talented developers in DC working for government contractors because they may not be exposed to the startup option. Most people now have to move to Silicon Valley to focus on long term compensation, but often there is a stronger force of their local network (friend, family & significant others) who keep them stationed near by. Having quality startups in new geographical areas is probably the key ingredient to bringing in talent and capital, not the other way around.
I think being in the Stanford engineering ecosystem has been a positive funnel into starting a tech company. Whereas in NYC it’s more likely you’d get recruited by a finance company.
Two-sided markets have virtuous-cycle network effects, yes.
DARPA made Silicon Valley, but Stanford and UC Berkeley — and nearby communities that evolved to become basically playgrounds for the students of them — kept it going. Entrepreneurs came (or stayed) to capture the supply of smart and bored college-aged intellectual labor; and VCs came (or stayed) because of all the entrepreneurs.
But that doesn't mean that seed-stage companies don't move to (or stay in) the Bay Area these days primarily because of the VCs, rather than because of the talent. Talent is free to move anywhere it likes — especially these days. An entrepreneur will find just as many potential employees for their startup in literally any college city.
But tech VCs (and especially ex-tech-entrepreneur angel investors) will, despite having a presence in many places, mostly still live and spend their free time in the Bay Area. And so you'll be much more likely to have your name on their lips if you're showing up at local events they attend, bumping into them at restaurants, meeting them on the golf course, etc.
Let me put it this way: every Canadian seed-stage startup I know of, has their CEO regularly fly to the Bay — even if they're located on the east coast of Canada! — to rub shoulders with the Sand Hill VCs, in hopes that they'll get more attention there.
What's hilarious is how puzzled many of the VCs I meet with are over the fact that everyone leaves Boston. They constantly ask what they can do to get more startups to stay in Boston.
It's simple; invest in more companies. IMHO Boston is an ideal place for a startup: great city with lots to do, solid public transportation, very reasonable living costs (more like Chicago than DC, NYC or SF), tons of talent (oh hai MIT and Harvard) and very close to other metropolitan areas (NYC, DC). But all of this doesn't matter - people follow the money.
Also, as big as the discrepancy is between the amount of VCs in the SF area vs. the Boston area, the discrepancy between SF area Angels and Boston area Angels is even bigger.
Startup is growing quickly. Founder needs to find both high-potential engineers and experienced engineers. Hence the move to the Bay Area.
They've been having a lot of success recruiting graduating-students out of the university in their current town, so the Palo Alto option takes that playbook to Stanford.
The data proves that the kinds of companies that need a great engineering talent pool and venture capital will tend to hail just a couple of locations.
I'm not saying there aren't exceptions. There are. But in an endeavor where the failure risk is so high in the most optimal of circumstances, I wouldn't add another risk factor like location into the mix.
A buddy of mine years ago did a sports-coaching related start-up in Washington, DC. It was a cool idea targeted at high school and college football teams.
He wanted to stay in DC, and had the talent he wanted there. His app was high-quality, and he ended up getting an investment from a VC. The VC was based in SF. My buddy didn't want to move there, but the VC made the investment contingent on him relocating to SF, because that's where the VC lived.
He made the move. He immediately noticed that he had to pay far more for people who weren't any more productive or talented than what he had in DC. His biggest gripe was that the turnover was a lot higher, and he was often getting people who seemed to have lower aptitude for their roles.
Apparently, VC's requiring relocation to SF is a common thing, and I suspect that it's part of the reason so much is concentrated there.
I agree completely, but it's worth pointing out that a big reason for this is that Cambridge and Boston have vastly fewer and worse connected VCs than the bay area. I did try to pursue VC funding for a hard-tech startup (thin film deposition for making solar panel conductive pastes), but there was really only one VC group that was relevant so there wasn't exactly a surplus of opportunity money-wise just waiting for a good use.
Personally I think bootstrapping is way better for startups that intend to be acquired or don't mind growing slowly (or don't mind never really growing much at all). Nothing wrong with "lifestyle businesses".
After a few tries, now I have a consulting company that helps people develop their weird scientific equipment and commercial prototypes. I don't really care about funding with that model, and my salary went up 3-fold in one year versus a job at a startup in Oakland.
I'll probably create a product soon, I have a prototype about done and I'll definitely try to make a business out of it -- but because most of my income is consulting I can also afford to move slower, do it right, and not have to hire anyone to help with it unless I actually find traction and need help with manufacturing them.
Short plug: I'm making color changing strobe light art pieces that use the ganzfeld effect to cause vivid geometric illusions -- not novel in the concept, but the implementation is really good after a decade of casually improving it over time. If this sounds awesome to you do feel free to send a note so that I can let you know when they're ready =)
http://neltnerlabs.com is the website, I haven't mentioned the art piece on it yet since it's not done but here's a youtube video of the basic hardware before being put into a frame.
That’s nice in theory and likely a factor over some areas. The primary differentiator is a culture of local access to VC funding. It explains both the timeline and geographic distribution.
pg's description of his day in Palo Alto is telling. I don't think he learned anything from these interactions, or if it ever led to any concrete action. But it helps sustain the idea that what you are doing matters, or could matter. That is the single biggest psychological stumbling block for the people I know who are in startups. There's this nagging sense that maybe they are just throwing all this time and effort away for nothing.
It's possible that the reason why other cities are "startup killers" is that this optimism is, to some extent, a shared delusion. If there were a town in the USA where all the lottery winners moved to, the people who also happened to be there would have completely different ideas about risk.
But the Bay Area is that town for internet startups. Although there are real benefits to moving here, I bet there's a strong delusion-enhancing component too. Which is good for VCs, but perhaps actually maladaptive for the individual startup founder or employee.
I don't disagree with the author's premise; but Cleveland? If you look at the major technology startup hubs around the US (San Francisco, Austin, Boston, NYC, Pittsburgh) the one common factor is that they have major, world-class engineering universities.
There's a qualitative difference, though, in being in a place that is full of mostly people who don't share your interests/goals of founding startups (Stanford) versus those who do (Olin). E.g. there's more gay people in Dallas than in San Francisco (owing to population size differences), but the latter is still a much better place to be gay because of the concentration.
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