Tuesday, September 16, 2008

SV quaking in its boots

Regular readers know I’m skeptical of claims of Silicon Valley exceptionalism. Nothing lasts forever: the sun set on Pittsburgh, Detroit, and the British Empire, among other places.

So at first I was sympathetic to the arguments made on GigaOM last week about “5 Reasons to Move Your Startup Out of Silicon Valley.” The oft-digged (and trackbacked) article lists some reasons why SV types shouldn’t be complacent and other cities should try to recruit startups. The 5 points.

1. The weather sucks in some of these towns (not Tallahassee) so your people will actually work instead of bugging out at 5:15 to train for a marathon, triathlon or Ultimate Frisbee.
There’s a longstanding hypothesis in cultural anthropology about Northern Europeans being more industrious than Southern Europeans due to the winter weather. This arguments seems to work for Nokia and its ecosystem companies, at least until you get to August when everyone takes the whole month off (though it’s not any worse than Mediterranean France).
2. You can recruit better outside the fishbowl. Every technology company hits the wall — some multiple times. In the Valley your employees will bail at the first sign of trouble and jump to a better job in the next parking lot. That means you will have to spike salaries to rebuild your team. Other places in the world aren’t quite so spoiled - or they come to you already cynical and stay through the rough times.
When we were building software companies (and the SDSIC) in San Diego, we used to make this argument. However, recent college graduates are wise to this argument and choose regions where they have multiple career options.
3. You won’t get lost in the startup maze. In the Valley, every VC has a portfolio company in each flavor - their own LP’s can’t tell them apart.
OK, but conversely in most cities you will have a so-called “VC” who’s never invested in your industry.
4. In my experience, other startup communities aren’t as pre-occupied with the “exit” as Da Valley. SV VC’s have attention spans measured in picoseconds and will sell/merge your company at the first sign of trouble. I can say that in Boston, at least, we are used to gutting out long “winters.”
The excessive fixation on flipping companies and making a YouTube-type exit is a problem, although VCs will eventually have to correct. However, Boston VCs may hang onto their losers too long, because they have more of them.
5. Academics make great board members. Each of these cities has a rich educational environment and are great places to recruit sartorial advisors. And unlike at Stanford, you wont have to give up 1 percent of your equity just to put the provost’s name on your board!
Sure, you get the provost, but where in the US do you get Stanford-quality engineering or science professors? For engineering you could go to Boston, Pittsburgh (CMU), Atlanta (Georgia Tech), downstate Illinois (UIUC) but not in Florida or Philadelphia.

While some of the arguments seem plausible, the recommendations are so lame as to undercut the credibility of the arguments:
My top non-Silicon Valley cities are: Boston; Pittsburgh; Philadelphia; Austin; Research Triangle, N.C.; Minneapolis; Tallahassee; Toronto; and Basking Ridge, N.J.
This is apparently someone who’s never set foot on the West Coast (ever hear of Microsoft? Qualcomm?) and rarely ventures West of the Mississippi. As Saxenian noted a decade ago, Boston (once home of the Massachusetts miracle) got stomped by SV due to societal attitudes toward entrepreneurial activity — cultural attitudes that all of the West Coast (and much of the Southwest and Mountain West) share to some degree with the Bay Area.

Of course, the author is more than a little biased towards Boston:
Howard Anderson is a founder of The Yankee Group, a cofounder of Battery Ventures, and a professor of business at the MIT Sloan School of Management.
My list of places outside the Bay Area would be equally biased in the other direction:although obviously some regions are better than others for specific industries such as software, telecommunications, semiconductors, biotech, biomedical or cleantech.

Also, too much is made of the anchor role of colleges, which (outside life sciences) mainly provide talent rather than technology. Thus, Seattle is a hotspot for IT because of the engineering talent pool among Microsoft alumni, not the faculty housed within the Paul G. Allen Center for Computer Science and Engineering.

All this speculation is mostly hot air, anyway, because investors put their money where their mouth is. Of the $7.4b of VC invested in Q2, LA/Orange County got more VC than Texas and Philadelphia/NJ combined. San Diego (population 3 million) got the same VC as five Midwestern states, and more than twice as much as the six North Central states (which includes top schools like Minnesota and Wisconsin).

Of course Silicon Valley took 40% of the national total — or more money than the combined take of the next six regions (comprising all or part of 20 different states). So I don’t think the entrepreneurs and their local infrastructure here in Santa Clara County or the Peninsula are lying awake at night worrying about Tallahassee or Basking Ridge.


asdf said...

Last time I checked, Berkeley had much better engineer/science professors than Stanford :)

Joel West said...

Yep, but if you live in the Bay Area you have the choice of either one. (The only other comparable closest pair of engineering schools would be USC/UCLA).

The list I gave was of other cities where you might hope to get the quality of Stanford or Cal faculty.

Jane Sales said...

An issue you didn't really touch on is "does the Valley get mobile the way Europeans do?" My gut feeling, based on friends looking for funding, is that the answer is "no".

The UK, which sees itself as slow-moving and risk averse compared to the go-getting US of A, seems to be a better place to raise finance for your mobile start-up right now.

I'd suggest Cambridge (the first one) as my Silicon Fen.