Friday, March 4, 2011

Starting Up Outside the Valley

I'm in Lancaster--an hour by train from Philly, 2.5 hrs from NY, and a world away from the Silicon Valley. The online scuffle between Vivek Wadhwa and some Bostonians about whether Boston has a vital scene is a bit boring and ridiculous to me. Why?

There will likely never be another Silicon Valley. 95% of the world's venture capital sits on Sand Hill Rd, and it's not going anywhere, so the world goes to it. And when the world comes knocking, more often than not the VCs almost require a relocation to somewhere within spitting distance.

No, that's not always the case. But it's not unusual at all to require at least a strong high-level presence in the Valley. Why?

It's where the deals get done. If you're not in the conversation there, then the business that flows from those conversations won't include you. That doesn't mean you can't build a competitive business somewhere else, but the likelihood of the good biz dev deals, the good distribution, the great acquisition--it's just not going to happen very often for you.

So you move. Or you hire people out there and hope they carry the torch as well as you do.

I'm building in Lancaster, but I'm not certain I'll stay here. If the right capital and team sign on, I can easily see basing out of New York, San Francisco, Austin, or even Philly. Philly's scene is really coming up, and there's a lot of energy and some capital.

But areas outside of the Valley will never, ever have what they have to the same degree--the huge pool of capital, a huge pool of angel capital, a huge pool of experienced techies, marketers, and founders, and a huge pool of social capital, which even more important than capital itself.

Never.

That said, Amazon.com is a fine business. Phenomenal. World changing. Market shifting. Seattle. Has nothing to do with Microsoft.

Diapers.com sold to Amazon for a gagillion dollars recently. Philly. Turns out that New York sports a number of great startups and a good concentration of capital. It's a great place to build a startup.

Lancaster? Well, it's different. We do have a pool of talented engineers here. We have marketers working with the world's leading brands, certainly. Mapquest is still here--an AOL company. We have a number of software startups, and some hardware companies.

The capital, though, does not flow. It's here, but there is not a culture of investing in venture funds--that's an uphill battle I'm not interested in fighting. On the other hand, I get to spend time with Amish farmers (through Amy's organic CSA), and learn from "regular" people here in middle America. Our 2700 square foot house, built in 1895, cost just $230,000 when I bought it in 2004. We eat fresh produce picked the same day. Living is a lot easier. But it ain't the big city, and there is very little startup ecosystem here.

Employees here tend to be older, more experienced, more stable, and have families. The downside is they can't work for sweat equity. The upside is that you don't have to make crazy offers to developers right out of college. In the valley, I'm hearing $80k for entry level, and $150k for sr engineers. You're gonna need that capital !

Most customers don't care where you're HQ is. They want great products and great service. They want you to be a solid, going concern. They don't want hassle. None of that has anything to do with who you saw at Buck's.

Would I turn down investment from Valley VCs if they required a move? No. Not for that reason. Integrity? Sure. When you take investment, you're in for the long haul and you want people with high integrity and ethics.

Would I turn down investment in PA if required to stay here? Possibly. Being tethered to the Valley is understandable--investors want you networking as much as possible and benefiting from that ecosystem, including their own ecosystems. But tether me to PA, where it means flying to the Valley regularly to make some of the things happen I expect we'll need to, and yeah, it becomes a tougher proposition.

The alternative is to acquire your daily presence in the Valley. Hire great people there, pay them well, motivate the hell out of them, and make sure you spend a lot of time with them. If you can find true business drivers, true networkers, then do it. If you can't, don't do it half-assed.

I'd prefer staying on the East Coast. For now, that's the plan, because I'm not actively raising funds in the Valley. In the next month, though, well, check back. Right now we're focusing on serving initial users, narrowing our features, ramping the dev team, and getting feedback.

But I'll see you at Buck's in April.

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