Why to Move to a Startup Hub(paulgraham.com)
paulgraham.com
Why to Move to a Startup Hub
http://www.paulgraham.com/startuphubs.html
95 comments
A startup simultaneously creates several products for different markets:
1) It creates software for users to use. 2) It creates a company that owns the rights to certain software and accompanying intellectual property 3) It creates a community of users 4) It creates a team that has proven that it can create and ship a software product.
#1 is not geographically limited. You don't have to be in Silicon Valley to write software. Anyone in Duluth, MN can create software and load it on a server for users all over the world to use or purchase.
The market for numbers 2, 3 and 4 are geographically limited, however:
#2 and #4) The highest concentration of software companies in the world is in Silicon Valley. This in generally your market for #2 and #4. Your chances of interaction with someone interested in buying your IP are much higher in SV than in Duluth. Your chances of finding someone interested in paying top dollar to acquire a proven group of developers increases exponentially in SV.
#3) Many companies are interested in purchasing large communities of users. These tend to be located in large urban areas, however. If I'm Chief Acquisitions Officer (CAO) for BigMediaCo, and I'm interested in acquiring a startup that has a big community of users, it's not going to hurt if that company is based in Silicon Valley. It adds to the CAO's prestige if he has to travel to silicon valley to acquire a startup.
But, ask yourself this question: How would that CAO feel about traveling to Duluth to talk about the acquisition?
Also, the value of a network increases exponentially with the number of users in the network. In SV, it's hard to avoid networking with entrepreneurs and people in the software industry. It's really not that large, and after you've been here for any length of time, there are no more than 2-4 degrees of separation between you and everybody else in the Valley, including people who want to fund you or acquire you.
Case in point: I've been here for 1 year, and I know for a fact that there are 3 degrees of separation between myself, Guy Kawasaki and Woz, and 2 degrees of separation between 3 different VC's and me. That would probably never happen in Duluth.
1) It creates software for users to use. 2) It creates a company that owns the rights to certain software and accompanying intellectual property 3) It creates a community of users 4) It creates a team that has proven that it can create and ship a software product.
#1 is not geographically limited. You don't have to be in Silicon Valley to write software. Anyone in Duluth, MN can create software and load it on a server for users all over the world to use or purchase.
The market for numbers 2, 3 and 4 are geographically limited, however:
#2 and #4) The highest concentration of software companies in the world is in Silicon Valley. This in generally your market for #2 and #4. Your chances of interaction with someone interested in buying your IP are much higher in SV than in Duluth. Your chances of finding someone interested in paying top dollar to acquire a proven group of developers increases exponentially in SV.
#3) Many companies are interested in purchasing large communities of users. These tend to be located in large urban areas, however. If I'm Chief Acquisitions Officer (CAO) for BigMediaCo, and I'm interested in acquiring a startup that has a big community of users, it's not going to hurt if that company is based in Silicon Valley. It adds to the CAO's prestige if he has to travel to silicon valley to acquire a startup.
But, ask yourself this question: How would that CAO feel about traveling to Duluth to talk about the acquisition?
Also, the value of a network increases exponentially with the number of users in the network. In SV, it's hard to avoid networking with entrepreneurs and people in the software industry. It's really not that large, and after you've been here for any length of time, there are no more than 2-4 degrees of separation between you and everybody else in the Valley, including people who want to fund you or acquire you.
Case in point: I've been here for 1 year, and I know for a fact that there are 3 degrees of separation between myself, Guy Kawasaki and Woz, and 2 degrees of separation between 3 different VC's and me. That would probably never happen in Duluth.
In essence: You can't win the lottery if you don't play.
So how valuable is it to move to a strange city where you don't know anyone versus staying in the less optimal city where you actually have friends and connections? It's great that Silicon Valley and Boston have this bubbling startup culture, but if you didn't graduate from school there it seems less likely you'd be able to tap into that resource.
That is a good point. Off the top of my head, at 25 you should move, while at 35 connections might be enough to compensate for the difference between, say, Boston and SV.
I'm 37. I have set up businesses in London, Houston, Chicago, NYC, Edinburgh and (soon) Sydney. You can hook into a city in just a couple of months, being from elsewhere sometimes helps in creating interest, and the people who will be of most use to you in a start-up are likely to be very open to new people if they've got the skills, drive and charisma needed to succeed. Just my 2c.
I dunno.. even in biotech startups tend to cluster around specific areas (and universities).. A lot of state govts want to attract business, but have yet to achieve critical mass.
Without a doubt, you have to be near a university.
Without a doubt, you have to be near a university.
Schools in Silicon Valley don't automatically give you a network. You're at no more of a disadvantage than someone who graduated from Berkeley (definitely outside Silicon Valley). What's very important is your openness to meeting people and talking to people. If when you get a call from a recruiter you just hang up you will never get a chance to make a connection. By answering my calls and at least talking to the next fly-by-night internet startup, I have ended up at very lucrative ventures, and now have a network of friends that encompass early to mid-stage startups and post-IPO companies. It's taken 15 years to have a network that rich, but the first step is to be in a place where you can have that network in the first place.
Stay home and go as far in life as those you know at home or go somewhere new and in short order it is YOUR HOME and go as far in life as your new circle of acquaintances and chances are much better if your new circle is in SILICON VALLEY.
This essay really strikes a chord with me. In fact, I followed Paul's advice about three weeks ago when I left Charlotte, NC to move to Sunnyvale, CA in hopes of starting a start-up (or at least working at one). In non-hub cities, I would hear all the time about how I needed 10-15 years of experience to start my own company; maybe 1 out of 20 people would take me seriously. (To tell the truth, most people would assume I was starting some sort of manufacturing-like company. They would ask me where I was going to find the capital for such a huge investment). That sort of negative energy can weigh on anyone, and I knew I had to get to a place where I felt more accepted for this ambition.
On that topic, now that I have left my job (for the move), I would really like to get involved at a start-up out here. I loved working my tail off while I was at college and hated (barely) working at work for the past year. I really want to get back into nose to the grindstone working to build something cool. Anybody have a good idea how to get the ball rolling. I am teaching myself a few extra programming languages, but I feel like I need to get with the right people to get things off the ground.
Anyway, great essay Paul. Sometimes I wonder if the start-up companies will revolutionize "work" in a way that factories and unions changed the landscape of America during the 19th and 20th centuries. Are we that far away from a start-up being the norm? I suppose not everyone could work at a start-up, how could a start-up expand to a larger corporation if everyone is working at a start-up? But, I could see the mentality switch such that students work for/start a start-up for 2-3 years after college, if it succeeds, great, if not, they go work for a larger company or go to grad school. Either way, it sure would be nice to live in a society where everyone "takes their shot" before settling in to a nice, steady, safe career.
On that topic, now that I have left my job (for the move), I would really like to get involved at a start-up out here. I loved working my tail off while I was at college and hated (barely) working at work for the past year. I really want to get back into nose to the grindstone working to build something cool. Anybody have a good idea how to get the ball rolling. I am teaching myself a few extra programming languages, but I feel like I need to get with the right people to get things off the ground.
Anyway, great essay Paul. Sometimes I wonder if the start-up companies will revolutionize "work" in a way that factories and unions changed the landscape of America during the 19th and 20th centuries. Are we that far away from a start-up being the norm? I suppose not everyone could work at a start-up, how could a start-up expand to a larger corporation if everyone is working at a start-up? But, I could see the mentality switch such that students work for/start a start-up for 2-3 years after college, if it succeeds, great, if not, they go work for a larger company or go to grad school. Either way, it sure would be nice to live in a society where everyone "takes their shot" before settling in to a nice, steady, safe career.
"That sort of negative energy can weigh on anyone, and I knew I had to get to a place where I felt more accepted for this ambition."
Interesting observation. Being in a non-hub, that has also crossed by mind.
OTOH, when you do a start-up, if the negative energy doesn't come from one place, it will surely come from another. So, instead of trying to minimize it, I have had to learn how to better respond to it.
I'm kinda old fashioned, so I believe that the code has to come before the funding. And as a hacker, I don't need a lot of contacts to do that either. So, for now, I don't care what others think or what the atmosphere is where I live. I will hack on.
This is a necessary, but not necessarily sufficient, condition.
Interesting observation. Being in a non-hub, that has also crossed by mind.
OTOH, when you do a start-up, if the negative energy doesn't come from one place, it will surely come from another. So, instead of trying to minimize it, I have had to learn how to better respond to it.
I'm kinda old fashioned, so I believe that the code has to come before the funding. And as a hacker, I don't need a lot of contacts to do that either. So, for now, I don't care what others think or what the atmosphere is where I live. I will hack on.
This is a necessary, but not necessarily sufficient, condition.
"if you have a good investor who has committed to fund you if you stay where you are, you should probably stay. Finding investors is hard. You generally shouldn't pass up a definite funding offer to move."
What if you have definite funding from someone who wants you to move?
PG used a similar argument style in Hackers & Painters to show that some languages are better and Lisp is the best. Reduce it, then refine it. "Rural areas are clearly very bad"=="basic is clearly very bad", then "SF is the best"=="Lisp is the best".
It's funny because we're in Boston using Python, the roughly #2 spots in cities and languages.
What if you have definite funding from someone who wants you to move?
PG used a similar argument style in Hackers & Painters to show that some languages are better and Lisp is the best. Reduce it, then refine it. "Rural areas are clearly very bad"=="basic is clearly very bad", then "SF is the best"=="Lisp is the best".
It's funny because we're in Boston using Python, the roughly #2 spots in cities and languages.
"And just as Jews are ex officio allowed to tell Jewish jokes..."
I don't think "ex officio" is really appropriate here (although I'm sure we all knew what you meant), since being Jewish isn't strictly speaking an office which is held. Perhaps ex genesis ("by right of birth") or ex sanguinis ("by right of blood") would be more appropriate?
I don't think "ex officio" is really appropriate here (although I'm sure we all knew what you meant), since being Jewish isn't strictly speaking an office which is held. Perhaps ex genesis ("by right of birth") or ex sanguinis ("by right of blood") would be more appropriate?
Hmmm... this depends on how long you lived in England. I was born in the UK too, but I moved to SF when I was 10 months old. The rest of my family was all born in the US - mom, dad, older sister, younger brother. And I sound like I'm from California, not from England.
I may have a UK passport, but I don't think I'd be allowed to pass off any jokes about England as self-deprecating humor (excuse me - humour).
This reminds me of the convert on Seinfeld who starts making Jewish jokes, but then keeps on making Catholic jokes as well.
Preist: "And this offends you as a Jewish person?" Seinfeld: "This offends me as a comedian."
I may have a UK passport, but I don't think I'd be allowed to pass off any jokes about England as self-deprecating humor (excuse me - humour).
This reminds me of the convert on Seinfeld who starts making Jewish jokes, but then keeps on making Catholic jokes as well.
Preist: "And this offends you as a Jewish person?" Seinfeld: "This offends me as a comedian."
I'm Irish. I don't know how entitled I am to make jokes about the English, but I am eager to.
It's funnier slightly wrong.
> 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.
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.
PG's point about non-Silicon Valley VCs not knowing their stuff as well is a good one, but your point helps bolster the other side of the argument.
New York may be underrated as a startup hub, for the reason you cite. According to Wikipedia, "though it is not often thought of as a 'College Town', there are about 594,000 university students in New York City, the highest number of any city in the United States." Similarly, there's a lot of startup activity in New York, but it's not considered a startup hub because there's so much else going on in the city. Silicon Valley doesn't have anything else going on, so startups and the tech industry dominate its image.
New York may be underrated as a startup hub, for the reason you cite. According to Wikipedia, "though it is not often thought of as a 'College Town', there are about 594,000 university students in New York City, the highest number of any city in the United States." Similarly, there's a lot of startup activity in New York, but it's not considered a startup hub because there's so much else going on in the city. Silicon Valley doesn't have anything else going on, so startups and the tech industry dominate its image.
not sure about that, but i can say that new york is an ugly city, and i'm happy it's not a technology hub
There are definitely people out there who cannot stand New York for a minute. These are the people who associate it much more with the city of Taxi Driver and Teenage Mutant Ninja Turtles than the one of Annie Hall.
It may just be me, but it seems that many Europeans are more nationalistic than Americans when it comes to certain things. Not in a negative sense, but as if more of a cultural thing. It does not surprise me that PG speech about startup hubs might have offended many in the audience, even though the offense was obviously not intended.
If the situation were reversed and PG came from the UK to give that talk in SV, I dont think many would have been offended on terms of national pride. I suspect many startup entrepreneurs from SV would not hesitate moving to a different city in another country if it greatly increased their prospects of success. I for one do not have a problem moving somewhere else, and I consider myself to be at least somewhat of a patriotic American.
Again, not meaning any offense to European citizens in general, just sharing my observation.
If the situation were reversed and PG came from the UK to give that talk in SV, I dont think many would have been offended on terms of national pride. I suspect many startup entrepreneurs from SV would not hesitate moving to a different city in another country if it greatly increased their prospects of success. I for one do not have a problem moving somewhere else, and I consider myself to be at least somewhat of a patriotic American.
Again, not meaning any offense to European citizens in general, just sharing my observation.
I won't try to disagree with the advantages mentioned about Silicon Valley. However, I think there are equally important reasons to live in the UK or in Europe: namely, the quality of life, the way the cities are designed, the public transportation, the people's attitudes. I am an American who prefers Europe and I hope to move over there one day. Silicon Valley is a wasteland. Try riding your bike somewhere. Try strolling around the town center (there isn't one.) If you are going to actually get rich, then it may be worth it to live in Silicon Valley. But if you end up being simply middle class, then quality of life should be considered.
I lived in Fremont for a couple of years, and I can't tell you how much I hated it. Urban sprawl. Nothing to do.
I lived in Fremont for a couple of years, and I can't tell you how much I hated it. Urban sprawl. Nothing to do.
I agree with you that much of silicon valley is depressing. This is actually a really serious problem for valley companies, because employees don't get to know each other as well, and everyone scatters off to various suburbs after work.
My wife worked for a startup in SF next to a cool bar and a cool coffee shop. When you left work, a couple of your friends/coworkers would often be in that bar or coffeeshop. So you'd stop in, and start chatting. Often, you'd chat about work, and come up with new ideas. They might get excited enough to go back into work to hash it out a bit more - at least they'd have something they were charged up about.
At the time, I was working for Sun Micro in Fremont, a spiritually crushing place. On occasion, we'd all agree to get together for drinks at the W nearby. But it took planning, arranging, getting into your car, driving over there... not at all spontaneous. And so we didn't get to know each other as well, and didn't have any fun.
That said - your post is missing one really important thing: San Francisco and Berkeley have a vibe that is very conducive to creativity, and even parts of (admittedly suburban) Palo Alto aren't so bad. This is why I drove a horrendous hour and fifteen minutes to work every day. It's also why I finally got so fed up with the commute that I faced a choice: quit sun, or move to Fremont. I quit.
But hey, would you rather live in SF and be an hour from the valley, or in Munich and be a trans atlantic flight away? One poster called SF a "second rate new york" in a previous thread (obviously not getting it). San Francisco is not a big city like New York, so don't go looking for Manhattan. Look for a small (surprisingly small to some, considering how many comparisons to NY I hear) but very entertaining city with a terrific vibe and a ton of technical and creative people to hang with.
My wife worked for a startup in SF next to a cool bar and a cool coffee shop. When you left work, a couple of your friends/coworkers would often be in that bar or coffeeshop. So you'd stop in, and start chatting. Often, you'd chat about work, and come up with new ideas. They might get excited enough to go back into work to hash it out a bit more - at least they'd have something they were charged up about.
At the time, I was working for Sun Micro in Fremont, a spiritually crushing place. On occasion, we'd all agree to get together for drinks at the W nearby. But it took planning, arranging, getting into your car, driving over there... not at all spontaneous. And so we didn't get to know each other as well, and didn't have any fun.
That said - your post is missing one really important thing: San Francisco and Berkeley have a vibe that is very conducive to creativity, and even parts of (admittedly suburban) Palo Alto aren't so bad. This is why I drove a horrendous hour and fifteen minutes to work every day. It's also why I finally got so fed up with the commute that I faced a choice: quit sun, or move to Fremont. I quit.
But hey, would you rather live in SF and be an hour from the valley, or in Munich and be a trans atlantic flight away? One poster called SF a "second rate new york" in a previous thread (obviously not getting it). San Francisco is not a big city like New York, so don't go looking for Manhattan. Look for a small (surprisingly small to some, considering how many comparisons to NY I hear) but very entertaining city with a terrific vibe and a ton of technical and creative people to hang with.
>>>Fremont, a spiritually crushing place.
I remember trying to make the more than 1 hour drive from there to SF, and then back again... just to spend a few hours in a the nice city. Yes, I'd rather live in Munich.
This is a huge topic and it affects the entire USA. Our whole country is stupid automobile sprawl. "The greatest mis-allocation of resources in the history of mankind."
I remember trying to make the more than 1 hour drive from there to SF, and then back again... just to spend a few hours in a the nice city. Yes, I'd rather live in Munich.
This is a huge topic and it affects the entire USA. Our whole country is stupid automobile sprawl. "The greatest mis-allocation of resources in the history of mankind."
I agree, a lot of the US is pretty awful. I'm not sure that this is specific to the US, though - I think it's specific to places that were largely built after WWII. The outskirts of european cities are generally pretty soulless, too. But since most of the European cities were built before the automobile, they've avoided this truly depressing problem. I really doubt it has all that much to do with Europeans being particularly marvelous people - after all, San Franciscans like to credit themselves with how pretty their city is (and there is some credit due - my dad remembers signing the petition to preserve the trolley cars when he was a kid), but it was too full to build anything else much after the 50s - so I know I didn't have a damn thing to do with it. (Ok, there is the factor that some people value the physical environment so much that they'll shell out 1Mil+ to live in a small 2br house, so some self-selection may be going on here...)
Hang out in the outer suburbs of Paris some time, and you'll see what I mean - not a big improvement over the outskirts of SF or LA (actually, don't - vacation time in the US is precious, and you definitely don't want to waste it on that).
Hang out in the outer suburbs of Paris some time, and you'll see what I mean - not a big improvement over the outskirts of SF or LA (actually, don't - vacation time in the US is precious, and you definitely don't want to waste it on that).
I concur.
There are two possible future outcomes I can think of.
1. We have an oil crisis, and cities return to the way they used to be, over the course of time.
2. Alternative energies gracefully take the place of oil, there is no crisis, and things continue as they have been.
Oddly, the crisis outcome is more appealing.
There are two possible future outcomes I can think of.
1. We have an oil crisis, and cities return to the way they used to be, over the course of time.
2. Alternative energies gracefully take the place of oil, there is no crisis, and things continue as they have been.
Oddly, the crisis outcome is more appealing.
In the "good old days", a smaller fraction of the population lived in major metro centers than does now.
If you go back far enough, there were no cities at all. Nevertheless, I think there is a wonderful "city" concept in many old towns around the world, and especially in Europe. If you move to Silicon Valley, and you spend some significant fraction of your life there, then your day to day quality of life is seriously affected by this. This discussion thread may be getting "off topic", although it is about an article telling entrepreneurs from all around the world to come to Silicon Valley if they possibly can. I am warning them. It's not a paradise (in my opinion.)
> Try riding your bike somewhere.
You're kidding, right? Silicon Valley has the best year round cycling anywhere, and some of the best cycling, period. Maybe Switzerland in the summer is better, but that's about it (and it frequently rains in the summer in Switzerland). I lived in Silicon Valley without a car for 7 years. It's flat, and by drawing a 16 mile radius around my apartment in Sunnyvale, I can hit nearly every important tech startup of any consequence.
The quality of life in Silicon Valley sucks if your idea of fun is visiting bars, going to rock concerts, or top quality museums. For people for whom outdoor life is important, Silicon Valley is great. I regularly run into famous outdoorsy types (Brian Robinson, Jacquie Phelan, Jobst Brandt, Tom Ritchey) just by riding around in the area. On my cycling trips around here, I've met the former VP of IT at Adaptec, the VP of Engineering at Portal Player, etc.
And much as you might want it to be true, Fremont isn't Silicon Valley. Neither is Redwood City.
You're kidding, right? Silicon Valley has the best year round cycling anywhere, and some of the best cycling, period. Maybe Switzerland in the summer is better, but that's about it (and it frequently rains in the summer in Switzerland). I lived in Silicon Valley without a car for 7 years. It's flat, and by drawing a 16 mile radius around my apartment in Sunnyvale, I can hit nearly every important tech startup of any consequence.
The quality of life in Silicon Valley sucks if your idea of fun is visiting bars, going to rock concerts, or top quality museums. For people for whom outdoor life is important, Silicon Valley is great. I regularly run into famous outdoorsy types (Brian Robinson, Jacquie Phelan, Jobst Brandt, Tom Ritchey) just by riding around in the area. On my cycling trips around here, I've met the former VP of IT at Adaptec, the VP of Engineering at Portal Player, etc.
And much as you might want it to be true, Fremont isn't Silicon Valley. Neither is Redwood City.
I know some people were asking of other cities.
I have folks over here in Portland that I visit, usually I'm in LA or SV sometimes. It's a dramatic shock the types of friends you make, even if you try.
For example, if you're in Portland and try coder or Linux groups, the forums are dead a lot, the Meetup groups are the same way. Ask around successful people about who they know. Your network will be limited.
It all adds up in differences.....
The advantage is that you can get the feel of people who aren't bent on startup -> domination, which is probably the majority of your customers.
Think of it like the art of personal maturing by living for a few years in a different country. Gives you major perspective and altitude.
I have folks over here in Portland that I visit, usually I'm in LA or SV sometimes. It's a dramatic shock the types of friends you make, even if you try.
For example, if you're in Portland and try coder or Linux groups, the forums are dead a lot, the Meetup groups are the same way. Ask around successful people about who they know. Your network will be limited.
It all adds up in differences.....
The advantage is that you can get the feel of people who aren't bent on startup -> domination, which is probably the majority of your customers.
Think of it like the art of personal maturing by living for a few years in a different country. Gives you major perspective and altitude.
It takes guts to tell Boston VCs that they just don't know startups the way SV VCs do. Way to call it like you see it.
As a serial CEO I moved my latest venture from NY to Silicon Valley when I took it over. My reasons were access to talent and access to capital. Our target customer is Wall St but I felt it was lower risk to be far from the customer than far from the talent pool to build the technology. Finally, there are too many fun things to do in Manhattan - and not that many fun things to do at night in Foster City; this helps startups focus.
I was just reading this article and immediately saw a nice parallel. Take a look at "The Secrets of Intangible Wealth" - http://reason.com/news/show/122854.html. It's about a World Bank study of the effect of intangible capital on productivity. One conclusion that can be drawn from the study is that pure application of financial capital in itself does not result in productivity - in other words, it's not just where the money is. It seems pretty clear that startup hubs have a significant amount of intangible capital related to startups. For economic development in general, according to the study, natural and financial capital are actually dwarfed by intangible capital: "In the U.S., according to the World Bank study, natural capital is $15,000 per person, produced capital is $80,000 and intangible capital is $418,000." It would be great if there were a study on startup-related development so we had solid data, but it would not be surprising to me if the effect of startup-related intangible capital in startup hubs was indeed significant.
Now just a damn minute. If the article you linked to is correct, then the World Bank is playing a devious game of sleight of hand: They got the idea that the US must have "intangible wealth" because of the fact that the domestic resources and domestic production don't account for all the wealth. The sleight of hand is in the fact that they never consider the fact that the USA's rich classes operate in dozens of countries. The US imports most of its natural resources, and it even imports a large portion of the finished goods. All of these imports benefit American investors. About the only thing they export are the costs: Those who aren't part of the rich class have to constantly worry about their jobs going to China, India, Jakarta, and Indonesia, where labor is cheaper.
All "intangible" means in this case is "Oops, we missed it!"
All "intangible" means in this case is "Oops, we missed it!"
A culture of social egalitarianism (as opposed to the material kind) seems important to encouraging and developing new ideas. Here's Tom Wolfe on the culture of the places the founders of Silicon Valley came from:
"Back East, engineers, no matter how gifted, ranked below doctors, lawyers, Army colonels, Navy captains, business executives, and professors of English, history, biology, chemistry, and physics. This piece of European snobbery never reached Grinnell, however, nor did it turn up in many of the thousands of small towns in the Midwest and the Far West. An extremely bright student, the one possessing the quality known as genius, was infinitely more likely to go into engineering in Iowa, Illinois, Michigan, or Wisconsin than anywhere Back East."
That's from this: http://members.forbes.com/asap/1997/0825/102.html . It's great.
"Back East, engineers, no matter how gifted, ranked below doctors, lawyers, Army colonels, Navy captains, business executives, and professors of English, history, biology, chemistry, and physics. This piece of European snobbery never reached Grinnell, however, nor did it turn up in many of the thousands of small towns in the Midwest and the Far West. An extremely bright student, the one possessing the quality known as genius, was infinitely more likely to go into engineering in Iowa, Illinois, Michigan, or Wisconsin than anywhere Back East."
That's from this: http://members.forbes.com/asap/1997/0825/102.html . It's great.
If I could, I would move my start up to SV in a flash. Its not just the VCs there but also the angels, where else can you find engineers who are worth 7 figures and can comfortably work for free or even invest themselves?
But this is an almost exclusively US club if you currently have a start up. It takes years to get a visa and go that route unless you already have, I believe over $1.5 million funding, which somewhat defeats the purpose of the move which would be to raise money primarily.
So if you have a start up in London and are not a US citizen and do not already have millions in funding you simply cannot move to Silicon Valley.
So if you are not a US citizen get a job there for the visa (not at all easy, remember all of this years allotment of visas disappeared on the first day) and work on your start up on the side or get the funding and go.
But this is an almost exclusively US club if you currently have a start up. It takes years to get a visa and go that route unless you already have, I believe over $1.5 million funding, which somewhat defeats the purpose of the move which would be to raise money primarily.
So if you have a start up in London and are not a US citizen and do not already have millions in funding you simply cannot move to Silicon Valley.
So if you are not a US citizen get a job there for the visa (not at all easy, remember all of this years allotment of visas disappeared on the first day) and work on your start up on the side or get the funding and go.
or take a holiday there and aggressively pitch.. Also there is no funding minimum for instance for a US E2 visa.. but as the article suggests to me, the ycombinator startup fund might not be enough..
Also consider the following, the std. angel investment is $12k from ycombinator. That gives you 3 months, which is also about the minimum amount of time you can arrive on tourist visa.
Can you take that to get up and running and then move to silicon valley? If your idea is promising then you seem to be ok.. It doesn't seem that reality gets in the way here, either by immigration policy or the details of a ycombinator investment.
Also consider the following, the std. angel investment is $12k from ycombinator. That gives you 3 months, which is also about the minimum amount of time you can arrive on tourist visa.
Can you take that to get up and running and then move to silicon valley? If your idea is promising then you seem to be ok.. It doesn't seem that reality gets in the way here, either by immigration policy or the details of a ycombinator investment.
After having spent 7 years in BayArea and still struggling to get a US green card I gave up and moved to Waterloo Canada. I saw hundreds of my ideas going stale because according to immigration law I had to work with similar job profile and always getting paid. I could not even fund myself and work fulltime on my ideas.
I am surprised that the locational freedom that internet offers (I have hired people in India and elsewhere whom I may never meet) has not been embraced by investor community as much as I would have imagined. Hopefully that will change in future.
I am surprised that the locational freedom that internet offers (I have hired people in India and elsewhere whom I may never meet) has not been embraced by investor community as much as I would have imagined. Hopefully that will change in future.
If it's a mistake to start your startup anywhere but SV, given the choice, then why does YC do its summer program in Boston? This is not rhetoric, but a serious question.
Seed-stage startups are so mobile that it doesn't matter too much where YC itself takes place, so long as they get to demo to investors in the biggest markets.
Also, though SV has the most investors, Boston probably has the highest volume of hackers flowing out of its universities.
Robert is a professor at MIT and is not moving in the immediate future.
But I would want to have one foot in Cambridge even if it weren't for Robert. Cambridge is smarter than SV. The smart world and the startup world are adjacent, but not identical. We'd rather be half in the smart world and half in the startup world than just in the startup world all the time.
Also, though SV has the most investors, Boston probably has the highest volume of hackers flowing out of its universities.
Robert is a professor at MIT and is not moving in the immediate future.
But I would want to have one foot in Cambridge even if it weren't for Robert. Cambridge is smarter than SV. The smart world and the startup world are adjacent, but not identical. We'd rather be half in the smart world and half in the startup world than just in the startup world all the time.
While this might not actually be the reasoning, an advantage may be that motion reinforces a mission. Despite working on a web startup I do not have any internet at home -- I use public WiFi. This forces me to use the internet to get stuff done. It keeps me from surfing endlessly -- the occupational disease of every hacker.
Likewise, perhaps it makes sense to use Cambridge for early stage hacking, and SV for finding investors and building a business.
Likewise, perhaps it makes sense to use Cambridge for early stage hacking, and SV for finding investors and building a business.
Ah, looks like I saw this one coming :) http://news.ycombinator.com/item?id=62976
I have always enjoyed reading your essays, Paul. I don't necessarily always agree, but I'm not the one who has made such a success of it :-)
The two claims that "I'm British by birth. And just as Jews are ex officio allowed to tell Jewish jokes, I don't feel like I have to bother being diplomatic with a British audience." are so offensive that I initially thought that you must be joking, but on re-reading, I don't think that you were.
The Jewish claim is just pure racism; the British claim is slightly more subtle, in that it contains a hidden suggestion that IT in the UK is a de-facto joke.
I am not usually terribly sensitive about such things; I'm not Jewish, I am British, and whilst I could write an essay about what is wrong with the UK IT industry today (and not much about what it excels at), I do not concur that the state of the UK is one which (in most circumstances, though not yours, of course, Brother Paul) would necessitate diplomatic skills to discuss.
I am interested to read of your experiences. Ones prejudices are best kept to oneself.
The two claims that "I'm British by birth. And just as Jews are ex officio allowed to tell Jewish jokes, I don't feel like I have to bother being diplomatic with a British audience." are so offensive that I initially thought that you must be joking, but on re-reading, I don't think that you were.
The Jewish claim is just pure racism; the British claim is slightly more subtle, in that it contains a hidden suggestion that IT in the UK is a de-facto joke.
I am not usually terribly sensitive about such things; I'm not Jewish, I am British, and whilst I could write an essay about what is wrong with the UK IT industry today (and not much about what it excels at), I do not concur that the state of the UK is one which (in most circumstances, though not yours, of course, Brother Paul) would necessitate diplomatic skills to discuss.
I am interested to read of your experiences. Ones prejudices are best kept to oneself.
Getting a Visa is next to impossible.
Now imagine if your name is Mohammed (not that mine is)
Now imagine if your name is Mohammed (not that mine is)
All other things being equal, is Silicon Valley the best place in the galaxy to start and build a software or web services business? Hell yes. Will lots of startups that are started and built in Atlanta and Munich and London and Austin nonetheless be successful? Hell yes - but they should demo to investors in Silicon Valley.
Well, as a French, I'm not really willing to move to Silicon Valley:
1) dealing with immigration people in US Airports as a foreigner is a enormous risk by itself. The probability of a bad event is low, but the stake is very very high if it occurs : you have no law to protect yourself in the international zone, and international conventions are notoriously ignored in certain countries.
2) is fleeing your country a really great thing at all if your life is not at stake ?
3) is going where everybody goes to do what everybody does really smart ? Is being mainstream smart ?
But I know that this is not taking the easiest path nor is it doing everything I can do to reach success, since I would raise my success probability by simply moving to Bay Area.
But I know that this is not taking the easiest path nor is it doing everything I can do to reach success, since I would raise my success probability by simply moving to Bay Area.
Hm, is it just me or, is this the first of Paul's essay that contained little/no new content? I've definitely heard most of these points before...
Nobody likes moving, so this is an issue that people are going to grumble about no matter how sound the advice is, or how often it is repeated.
Nobody likes moving, so this is an issue that people are going to grumble about no matter how sound the advice is, or how often it is repeated.
Some of it seemed new to me. The reductio argument is new; the list of reasons not to move is new; the proposal for a startup founder visa is new; the comparison of SV and Boston investors is new, and particularly the simple explanation of the latter's conservatism; the point that startup hubs are markets is new, and in fact only occurred to me for the first time in the middle of writing this.
"I've definitely heard most of these points before..."
Yes, but not everyone's homepage is http://news.ycombinator.com/threads?id=pg
Yes, but not everyone's homepage is http://news.ycombinator.com/threads?id=pg
There's another element about SV that other places don't have. People.
Talent that is able to walk across the street and go to something that's better suited for them. Talent so that you can end up with the right team.
Also, leverage.
A $20 mil fund in Boston acts differently than a $20 in the Valley. But take the Valley mentality, double the fund size to $40 mil, and while the approach will still very, the dollar size of investment all of the sudden becomes very similar. Funds in the Valley are bigger, they have more cash to invest, and have a much higher risk tolerance than their counterparts on the East Coast
http://www.j-lp.com/blog/2007/10/move-to-silicon-valley.html
Also, leverage.
A $20 mil fund in Boston acts differently than a $20 in the Valley. But take the Valley mentality, double the fund size to $40 mil, and while the approach will still very, the dollar size of investment all of the sudden becomes very similar. Funds in the Valley are bigger, they have more cash to invest, and have a much higher risk tolerance than their counterparts on the East Coast
http://www.j-lp.com/blog/2007/10/move-to-silicon-valley.html
Hi Mr. Graham,
I have translated this essay to Traditional Chinese version at here: http://mclee.foolme.net/2007/11/blog-post_21.html
In case if you feel that is inappropriate, please let me know. :)
I have translated this essay to Traditional Chinese version at here: http://mclee.foolme.net/2007/11/blog-post_21.html
In case if you feel that is inappropriate, please let me know. :)
The dynamic you describe is "winner takes all". Expertise
attracts expertise, and face-to-face encounters are essential.
In finance it's been like that since 1300.
Fernand Braudel, in his lovely little book "La Dynamique du Capitalisme" argues that this is also the reason there has always been at any time exactly one financial centre in the world where all the big deals are done.
He lists:
Venice 1380 -- 1500 Antwerp 1500 -- 1555 Genoa 1555 -- 1621 Amsterdam 1621 -- 1780 London 1780 -- 1929 New York 1929 -- present
(For the future see http://www.theatlantic.com/doc/200507/fallows).
Maarten van Emden.
He lists:
Venice 1380 -- 1500 Antwerp 1500 -- 1555 Genoa 1555 -- 1621 Amsterdam 1621 -- 1780 London 1780 -- 1929 New York 1929 -- present
(For the future see http://www.theatlantic.com/doc/200507/fallows).
Maarten van Emden.
So suppose one were to move to the valley out of the blue. How long would it take to feel the effect (ie be socially connected or whatever it takes)? What are the monthly costs of living there?
My input from the Portugal: http://lists.paradigma.pt/pipermail/tce/2007-October/000128....
There are many factors to consider in evaluating the value of a move. Depending on the nature of your startup, it may be more or less valuable to make the move to the Valley.
Here's a few factors that seem relevant to that evaluation.
1. Access to capital
If your company has large upfront capital requirements, then being in a setting with VC's who aren't afraid to take a risk has obvious benefits. However, a lot of web 2.0 startups have relatively low starting costs. You can self-finance the development and launch of a product which attracts a rapidly growing userbase. The main cost isn't even monetary, its opportunity cost. With this done, attracting VC interest is a lot easier, regardless of where you are.
2. Access to talent
Naively, the Bay Area has a lot more talent than other locations and this makes it a better place to do a startup. Problem is, the competition for talent is a lot tougher. If you're a startup in a place with relatively few startups, you have a real shot at attracting the top programmers locally, because you're the only game in town. In the Bay Area you're competing against Google, Facebook and all the rest.
I'm in Waterloo, Canada, and this is evident locally. Waterloo has a terrific undergrad CS program - supposedly, its Microsoft's number one recruiting School - and lots of really talented developers. But there are relatively few Web 2.0 companies in town, which means that startups have (if they're willing to work at it) access to an amazingly talented pool of potential employees, and a real shot at hiring those people.
I don't think one even needs a top CS school locally. My background is as a theoretical physicist, and my observation is that at least in theoretical physics the quality of the top students is pretty much the same everywhere. I'd be surprised if there was much difference in CS. There will be more extraordinary programmers in the MIT CS program, but they will still be there at Podunk State University, and if you're careful and aim high, you'll have a real shot at getting those people onboard.
3. Culture
I don't mean art and a nice orchestra. I mean access to a "can-do" culture, full of sharp people who are plugged in, full of the latest news, insightful (and original!) analysis, and can act as role models, mentors, advisors, and so on. Really sharp criticism and suggestions are worth their weight in gold.
This is something where the Startup Hubs have a major advantage. It also seems to me perhaps the biggest advantage of the YC program - the dinners and other events. In places that are less of a Hub it seems to me that you need to consciously build a really wide network of people who can act in that role for you. This requires work anywhere, but it is a lot harder in somewhere without a startup culture than it is in the Valley.
4. Access to other companies
For some startups it's really important to have access to other companies for partnerships, distribution and so on. For others it's much less important. Obviously, in the former situation being in a Hub has a major benefit, while in the latter situation it is less so.
Here's a few factors that seem relevant to that evaluation.
1. Access to capital
If your company has large upfront capital requirements, then being in a setting with VC's who aren't afraid to take a risk has obvious benefits. However, a lot of web 2.0 startups have relatively low starting costs. You can self-finance the development and launch of a product which attracts a rapidly growing userbase. The main cost isn't even monetary, its opportunity cost. With this done, attracting VC interest is a lot easier, regardless of where you are.
2. Access to talent
Naively, the Bay Area has a lot more talent than other locations and this makes it a better place to do a startup. Problem is, the competition for talent is a lot tougher. If you're a startup in a place with relatively few startups, you have a real shot at attracting the top programmers locally, because you're the only game in town. In the Bay Area you're competing against Google, Facebook and all the rest.
I'm in Waterloo, Canada, and this is evident locally. Waterloo has a terrific undergrad CS program - supposedly, its Microsoft's number one recruiting School - and lots of really talented developers. But there are relatively few Web 2.0 companies in town, which means that startups have (if they're willing to work at it) access to an amazingly talented pool of potential employees, and a real shot at hiring those people.
I don't think one even needs a top CS school locally. My background is as a theoretical physicist, and my observation is that at least in theoretical physics the quality of the top students is pretty much the same everywhere. I'd be surprised if there was much difference in CS. There will be more extraordinary programmers in the MIT CS program, but they will still be there at Podunk State University, and if you're careful and aim high, you'll have a real shot at getting those people onboard.
3. Culture
I don't mean art and a nice orchestra. I mean access to a "can-do" culture, full of sharp people who are plugged in, full of the latest news, insightful (and original!) analysis, and can act as role models, mentors, advisors, and so on. Really sharp criticism and suggestions are worth their weight in gold.
This is something where the Startup Hubs have a major advantage. It also seems to me perhaps the biggest advantage of the YC program - the dinners and other events. In places that are less of a Hub it seems to me that you need to consciously build a really wide network of people who can act in that role for you. This requires work anywhere, but it is a lot harder in somewhere without a startup culture than it is in the Valley.
4. Access to other companies
For some startups it's really important to have access to other companies for partnerships, distribution and so on. For others it's much less important. Obviously, in the former situation being in a Hub has a major benefit, while in the latter situation it is less so.
> There will be more extraordinary programmers in the MIT CS program, but they will still be there at Podunk State University, and if you're careful and aim high, you'll have a real shot at getting those people onboard.
I don't think this is the case. I went to another Canadian university (Queen's), and in my opinion there were perhaps 2 or 3 first-rate programmers in the entire undergraduate program. I'd expect there to be 10x or more that number in a typical Waterloo class. Depressing, perhaps, but true in my experience. There's a strong clustering effect: the best programmers want to be wherever the other best programmers are.
It's interesting that a similar effect doesn't apply in theoretical physics...
I don't think this is the case. I went to another Canadian university (Queen's), and in my opinion there were perhaps 2 or 3 first-rate programmers in the entire undergraduate program. I'd expect there to be 10x or more that number in a typical Waterloo class. Depressing, perhaps, but true in my experience. There's a strong clustering effect: the best programmers want to be wherever the other best programmers are.
It's interesting that a similar effect doesn't apply in theoretical physics...
I don't know much about Queens (I just moved to Canada), so I'm not sure if this is the kind of comparison I had in mind. I was thinking of the comparison between a top regional University, where there may be 1-3 (typically) students graduating each year who could become theoretical physicists, while at MIT there will be dozens. Would you say Queens is a top regional University in Canada?
> If you're a startup in a place with relatively few startups, you have a real shot at attracting the top programmers locally, because you're the only game in town. In the Bay Area you're competing against Google, Facebook and all the rest.
Are the "top programmers locally" likely to be as good as the "top programmers" in SV? (There is some top talent outside SV, but it's not everywhere and SV has a critical mass in almost every domain.)
What does it say about a biz that can only attract/keep top talent when it's competing against the junior varsity? How will that biz fare against a biz that does attract/keep top talent when competing against top tech companies?
Are the "top programmers locally" likely to be as good as the "top programmers" in SV? (There is some top talent outside SV, but it's not everywhere and SV has a critical mass in almost every domain.)
What does it say about a biz that can only attract/keep top talent when it's competing against the junior varsity? How will that biz fare against a biz that does attract/keep top talent when competing against top tech companies?
"What does it say about a biz that can only attract/keep top talent when it's competing against the junior varsity? How will that biz fare against a biz that does attract/keep top talent when competing against top tech companies?"
Very True. Case study:
Examine the interface of the Blackberry, largely developed by U of Waterloo interns and graduates. Take a look at the iPhone, developed by Silicon Valley engineers. Which will win in the marketplace?
Very True. Case study:
Examine the interface of the Blackberry, largely developed by U of Waterloo interns and graduates. Take a look at the iPhone, developed by Silicon Valley engineers. Which will win in the marketplace?
I know that you're using the term "west-coast VC" to mean valley VCs, but it's probably important to emphasize that the valley is unique, even on the west coast of the US.
From what I can tell, VCs in Seattle are approximately as conservative as those in Boston. In this part of the country, it almost seems like your "fundability" is tied to your reputation as an ex-Microsoft employee....
From what I can tell, VCs in Seattle are approximately as conservative as those in Boston. In this part of the country, it almost seems like your "fundability" is tied to your reputation as an ex-Microsoft employee....
I'm a cofounder of a startup in the Los Angeles area (YellowBot in Burbank, CA). I believe that although your location has an impact on how well or how fast your company can make it, the people behind it has an even greater impact. The quality of people you choose is a much larger factor than your geographic location.
So true!
Coming from Cornwall (a rural part of the UK) I can't tell you how much we spend sending sales people to the cities for face-to-face meetings.
I liked the bit about VCs from Silicon Valley Vs Boston. I see London VCs, Parisian VCs, German VCs don't even get a sniff. Most amusing, and so very true. I think that may be more evidence for the argument.
monk.e.boy
Coming from Cornwall (a rural part of the UK) I can't tell you how much we spend sending sales people to the cities for face-to-face meetings.
I liked the bit about VCs from Silicon Valley Vs Boston. I see London VCs, Parisian VCs, German VCs don't even get a sniff. Most amusing, and so very true. I think that may be more evidence for the argument.
monk.e.boy
Paul comes off rather rude by not commenting on the contents of the rebuttal. Have you only been able to hear the first couple of sentences because you were in a rush, or could you tell the rest of the talk by the opening and didn't bother? It doesn't become very clear to me.
dudes! why you ask if you have to move to silicon valley?? That is such the wrong question! The reason is because they invest in people that say, hey, you know what, I'm going to put webcams on my head and broadcast it to the world!! I mean, if that works so will any other "conventional" silly idea... just make something that didn't work so well in version 1.0 and make it social or 2.0ize it.
Justin.tv is the youtube of the future.. Name one VC outside of Silicon Valley that would have invested in that? When I first heard about it I thought.. man that'll never work... I was so wrong! It's a webcam, on his head, that simple.
Imagine being a VC and getting this biz plan:
1) put webcam on head and broadbast to world. 2) ??? 3) profit!
I guarantee you that nobody probably knew (even the VC) how the hell they would make money at it..
Justin.tv is the youtube of the future.. Name one VC outside of Silicon Valley that would have invested in that? When I first heard about it I thought.. man that'll never work... I was so wrong! It's a webcam, on his head, that simple.
Imagine being a VC and getting this biz plan:
1) put webcam on head and broadbast to world. 2) ??? 3) profit!
I guarantee you that nobody probably knew (even the VC) how the hell they would make money at it..
SV would be the ideal. I've lived there, loved it, and found a huge melting pot of talent. But tech has to be grown everywhere - there are VC's everywhere, angels everywhere, talent everywhere. It still takes the right people with the right progression of ideas...anywhere.
..alex.
Rite Paul. I agree with you on every aspects. I just have some doubt. I operate in India and run my own startup with two other co-founders. We also tried to pitch to the silicon valley but found a lot of issues and we found it not worth enough. What will say in regards of the same.
I'm willing to bet NY VCs are not as conservative as Boston VCs, yet NY is no Silicon Valley.
Like they say "It is what it is" , the evidence is there to show that SV favors startups, if any one wants to do their startup in Newcastle-upon-Tyne , they are welcome to try.
What's your opinion about basing your start-up where the bulk of your customers are? For example, if you're gearing your product for use by the public sector, shouldn't you be based in the Virginia technology hub that supports Washington DC?
So how is Portland as far as starting a startup. I wanted to move to the valley, but it is somehow to damn expensive and I honestly do not like noddles, I am already skinny enough, SO how is portland?
I agree. You'll have to go where the funding is. Silicon valley is where the action is. If you are serious, you must be there.
This does not mean others will not be successful. But you are fighting the odds, really.
This does not mean others will not be successful. But you are fighting the odds, really.
Paul,
Great essay as always :)
"Seeming like they will fund you one day is the way investors say No."
We learned this the hard way - by expending our energy and enthusiasm on an investor who really was saying no. Hope the new startups remember this.
Praki
Great essay as always :)
"Seeming like they will fund you one day is the way investors say No."
We learned this the hard way - by expending our energy and enthusiasm on an investor who really was saying no. Hope the new startups remember this.
Praki
An interesting analysis would be to reduce this to actual numbers: what is the increase in likelihood that you'll be funded in SF vs. Boston?
How can that reduction occur without normalizing for the quality of the team and idea?
How can you quantify quality of people and potential of an idea?
How can you quantify quality of people and potential of an idea?
I suppose you could look at a number of successful companies, where they started out, and where they eventually got funding.
I'm pretty sure you'll see lots of companies starting outside SV, moving to SV to get funding, and then succeeding.
These numbers would be interesting.
I'm pretty sure you'll see lots of companies starting outside SV, moving to SV to get funding, and then succeeding.
These numbers would be interesting.
Unfortunately, there's a confounding variable: people know SV is a good place to start a startup (even if they aren't as sure as pg), so more startup starters will start up there, anyway.
Those that moved to SV compared to those that didn't is still an interesting metric.
I'd go much simpler: time from searching for funding to closing a round.
i'm not sure you could get an apples to apples comparison. each opportunity is too unique.
The main reason to move to a startup hub is that you have much more chances to succeed if you burned all the briges after you.
Google actually doesn't have better search results than Yahoo. They just do a better job monetizing each search.
A very well written essay.
http://www.renexcel.com
Would there be value in encouraging startups to move to Boston to eventually create another, rival hub?
It's not the start ups, but the investing circles that make the hub. Start ups can move pretty freely, but angels and VC's appear to be more set in one location. If you can convince gutsy angels to move from San Fran to Boston, or get Boston angels to be more bold with their investments, then Boston has a chance. Otherwise, it's not worth it for innovative start ups to stay in Boston.
paul, there seem to be two ways to measure the 'hubness' of cities: volume (ie. overall number of startups), and density (startups per-capita, or perhaps startups as a percentage of the economy). There may be other measures. Which do you think are the important ones?
surely it makes sense,however,it all depends,different models should suit sepecific circumstances,
http://blog.sina.com.cn/FrankieCHN I hope I can make kind friends in this hub,haha^^
http://blog.sina.com.cn/FrankieCHN I hope I can make kind friends in this hub,haha^^
surely it makes sense,however,it all depends,different models should suit sepecific circumstances,
http://blog.sina.com.cn/FrankieCHN I hope I can make kind friends in this hub,haha^^
http://blog.sina.com.cn/FrankieCHN I hope I can make kind friends in this hub,haha^^
I can't help but wonder if
Silicon Valley > Boston
a triumph of Berkeley-Stanford over MIT-Harvard?
Silicon Valley > Boston
a triumph of Berkeley-Stanford over MIT-Harvard?
great thinking...on a different note -just would like to know PG's perspective on kelly felix a.k.a. rich jerk and likes !!
The readers may be interested in "Regional Advantage: Culture and Competition in Silicon Valley and Route 128" by AnnaLee Saxenian, a professor at Berkeley:
http://www.amazon.com/gp/product/0674753402/ref=cm_cr_pr_pro...
The book was written in 1994, one year before the Netscape IPO, but even 13 years ago, the author concluded that Silicon Valley offered enormous advantages over Massachusetts for entrepreneurship. Two points in particular are worth noting:
1. Professor Saxenian paid particular attention to the (back then) highly successful minicomputer companies: Digital Equipment, Data General, Prime Computer, Wang. All of them were vertically integrated companies that attempted to do everything themselves -- R&D, product design, manufacturing, sales, and after-market service. The SV companies were more likely to focus on their core competencies and then network with other companies to provide the missing pieces.
2. Employment laws make a significant difference. Under California law, a non-compete contained in an employment agreement is void as a matter of public policy. In the employment content, California courts simply do not enforce them, and thus companies do not even bother to ask for a non-compete in California. Under Massachusetts law, a court of equity will consider enforcing a non-compete agreement if it is reasonable in terms of scope, duration and geography. I say "consider enforcing" because to a large extent, it depends on which judge decides the case; some judges are more sympathetic to the employer seeking to enforce such an agreement while others are more sympathetic to the employee who needs to earn a salary.
The upshot of this is that in California, labor is extremely mobile. People quit their jobs on Monday and start a new company or work for a new company on Tuesday, and there is nothing the former employer can do in terms of enforcing a non-compete clause. (I am ignoring intellectual property issues that may protect the former company.) Because the new employer know that California courts will not enforce non-compete agreements, it is willing to hire employees that would not be hired in Massachusetts, and investors are willing to fund start-ups that would not be funded in Massachusetts.
In Massachusetts, due to the legal uncertainty and the possibility that a non-compete will be enforced, lots of employees are not hired, lots of start-ups are not started, and lots of start-ups are not funded, that would be in California.
Simply put, Massachusetts could increase its competitive advantage (or more accurately, decrease its competitive advantage) by changing its law concerning non-competes.
One issue that Saxenian and Paul do not address is the quality of the business laws and its court system. Ceteris paribus, a state where business laws make sense and where the courts enforce contracts and handle business disputes quickly and fairly will have an advantage over other states.
The "gold standard" is Delaware. The Delaware Corporations code, for example, is clear, well written and is in almost cases unambiguous. The Delaware Chancery Court (a court of equity that hears all business disputes) is respect through the world for its smart judges who show no favorites, enforce reasonable agreements, and decide cases quickly. Their supreme court (Delaware is small enough so that all appeals go directly to the state supreme court) is equally well regarded. To some extent, companies outside Delaware can opt-in to the Delaware legal system by incorporating in Delaware, giving Delaware jurisdiction to corporate governance issues, for example.
Neither Massachusetts nor California can compare to Delaware. In comparing Massachusetts and California, I believe Massachusetts has the advantage. At the Superior Court level, at least in Middlesex and Suffolk counties (the only two counties with which I am familiar), the judges are very well regarded. Massachusetts has a ton of law schools who produce an excess number of lawyers who do not want to practice law. So when a judgeship opens up, a lot of very good, well educated lawyers apply, and the committee has its pick of the litter. At the appellate level, the judges are also well regarded.
A recent development in Suffolk county has been the establishment of a court -- called the Business Litigation Session ("BLS") -- whose sole mandate is to adjudicate business disputes. Like federal court, the BLS handles the entire case from the time it is filed to trial. Allan Van Gestel is the judge appointed to the BLS. He is highly experienced in business disputes and is very well respected by lawyers who litigate business disputes. So far, none of the other counties have create a BLS, even though everyone agrees the BLS has been quite successful.
In California, the court system is less well regarded. The caliber of the trial judges is very uneven. Appeals in California are often unpredictable -- California is such a large state that different appellate divisions in the state simply disagree with each other, and thus there is not the predictability there is in Massachusetts. And the California Supreme Court does not step in enough to decide the disagreements among the appellate divisions, again because California is such a large state that there are simply too many appeals to the California Supreme Court, a small fraction of which are accepted for review.
James Mitchell [email protected]
http://www.amazon.com/gp/product/0674753402/ref=cm_cr_pr_pro...
The book was written in 1994, one year before the Netscape IPO, but even 13 years ago, the author concluded that Silicon Valley offered enormous advantages over Massachusetts for entrepreneurship. Two points in particular are worth noting:
1. Professor Saxenian paid particular attention to the (back then) highly successful minicomputer companies: Digital Equipment, Data General, Prime Computer, Wang. All of them were vertically integrated companies that attempted to do everything themselves -- R&D, product design, manufacturing, sales, and after-market service. The SV companies were more likely to focus on their core competencies and then network with other companies to provide the missing pieces.
2. Employment laws make a significant difference. Under California law, a non-compete contained in an employment agreement is void as a matter of public policy. In the employment content, California courts simply do not enforce them, and thus companies do not even bother to ask for a non-compete in California. Under Massachusetts law, a court of equity will consider enforcing a non-compete agreement if it is reasonable in terms of scope, duration and geography. I say "consider enforcing" because to a large extent, it depends on which judge decides the case; some judges are more sympathetic to the employer seeking to enforce such an agreement while others are more sympathetic to the employee who needs to earn a salary.
The upshot of this is that in California, labor is extremely mobile. People quit their jobs on Monday and start a new company or work for a new company on Tuesday, and there is nothing the former employer can do in terms of enforcing a non-compete clause. (I am ignoring intellectual property issues that may protect the former company.) Because the new employer know that California courts will not enforce non-compete agreements, it is willing to hire employees that would not be hired in Massachusetts, and investors are willing to fund start-ups that would not be funded in Massachusetts.
In Massachusetts, due to the legal uncertainty and the possibility that a non-compete will be enforced, lots of employees are not hired, lots of start-ups are not started, and lots of start-ups are not funded, that would be in California.
Simply put, Massachusetts could increase its competitive advantage (or more accurately, decrease its competitive advantage) by changing its law concerning non-competes.
One issue that Saxenian and Paul do not address is the quality of the business laws and its court system. Ceteris paribus, a state where business laws make sense and where the courts enforce contracts and handle business disputes quickly and fairly will have an advantage over other states.
The "gold standard" is Delaware. The Delaware Corporations code, for example, is clear, well written and is in almost cases unambiguous. The Delaware Chancery Court (a court of equity that hears all business disputes) is respect through the world for its smart judges who show no favorites, enforce reasonable agreements, and decide cases quickly. Their supreme court (Delaware is small enough so that all appeals go directly to the state supreme court) is equally well regarded. To some extent, companies outside Delaware can opt-in to the Delaware legal system by incorporating in Delaware, giving Delaware jurisdiction to corporate governance issues, for example.
Neither Massachusetts nor California can compare to Delaware. In comparing Massachusetts and California, I believe Massachusetts has the advantage. At the Superior Court level, at least in Middlesex and Suffolk counties (the only two counties with which I am familiar), the judges are very well regarded. Massachusetts has a ton of law schools who produce an excess number of lawyers who do not want to practice law. So when a judgeship opens up, a lot of very good, well educated lawyers apply, and the committee has its pick of the litter. At the appellate level, the judges are also well regarded.
A recent development in Suffolk county has been the establishment of a court -- called the Business Litigation Session ("BLS") -- whose sole mandate is to adjudicate business disputes. Like federal court, the BLS handles the entire case from the time it is filed to trial. Allan Van Gestel is the judge appointed to the BLS. He is highly experienced in business disputes and is very well respected by lawyers who litigate business disputes. So far, none of the other counties have create a BLS, even though everyone agrees the BLS has been quite successful.
In California, the court system is less well regarded. The caliber of the trial judges is very uneven. Appeals in California are often unpredictable -- California is such a large state that different appellate divisions in the state simply disagree with each other, and thus there is not the predictability there is in Massachusetts. And the California Supreme Court does not step in enough to decide the disagreements among the appellate divisions, again because California is such a large state that there are simply too many appeals to the California Supreme Court, a small fraction of which are accepted for review.
James Mitchell [email protected]
Case in point -- my cousin wants to make movies. So he decided to move to LA and get a job as a bartender. He went to bartending school and then got a job at a bar that is frequented by producers and other movie industry folk. One day he served a drink to a producer, mentioned to the guy that he wanted to make movies, and is now working on a couple of movie deals. That could have never happened even if he continued to live in his native Orange County, only 40 miles away.