October 2007
After the last talk [blocked] I gave, one of the organizers got up on the stage to deliver an impromptu rebuttal.
That never happened before.
I only heard the first few sentences, but that was enough to tell what I said that upset him: that startups would do better if they moved to Silicon Valley.
This conference was in London, and most of the audience seemed to be from the UK.
So saying startups should move to Silicon Valley seemed like a nationalistic remark: an obnoxious American telling them that if they wanted to do things right they should all just move to America.
Actually I'm less American than I seem.
I didn't say so, but 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.
After my last talk [blocked], an organizer got up with an impromptu rebuttal—a first. I'd said startups do better if they move to Silicon Valley. In London that sounded nationalistic: an obnoxious American saying they should all move to America.
Actually I'm less American than I seem—British by birth, and like a Jew telling Jewish jokes, I don't feel I have to be diplomatic with this audience.
After a London talk, an organizer got up to rebut me. What upset him: my claim that startups do better if they move to Silicon Valley.
The idea that startups would do better to move to Silicon Valley is not even a nationalistic one. [1] It's the same thing I say to startups in the US.
Y Combinator alternates between coasts every 6 months.
Every other funding cycle is in Boston.
And even though Boston is the second biggest startup hub in the US (and the world), we tell the startups from those cycles that their best bet is to move to Silicon Valley.
If that's true of Boston, it's even more true of every other city.
This is about cities, not countries.
The advice isn't even nationalistic; it's what I tell US startups. Y Combinator runs every other cycle in Boston, and even though Boston is the world's second biggest hub, we tell those founders to move to the Valley. If that's true of Boston, it's truer everywhere else.
This is about cities, not countries.
It's the same thing I tell US startups. YC runs every other cycle in Boston, and we still tell those founders to move to Silicon Valley.
And I think I can prove I'm right.
You can easily reduce the opposing argument ad what most people would agree was absurdum.
Few would be willing to claim that it doesn't matter at all where a startup is—that a startup operating out of a small agricultural town wouldn't benefit from moving to a startup hub.
Most people could see how it might be helpful to be in a place where there was infrastructure for startups, accumulated knowledge about how to make them work, and other people trying to do it.
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.
The difference between cities is a matter of degree.
And if, as nearly everyone who knows agrees, startups are better off in Silicon Valley than Boston, then they're better off in Silicon Valley than everywhere else too.
I realize I might seem to have a vested interest in this conclusion, because startups that move to the US might do it through Y Combinator.
But the American startups we've funded will attest that I say the same thing to them.
And I can prove it. Few would claim a startup in a small agricultural town wouldn't benefit from a hub's infrastructure and fellow founders. But any argument that startups needn't move from London to the Valley equally proves they needn't move from smaller towns to London.
The difference between cities is a matter of degree. And if startups are better off in Silicon Valley than Boston, they're better off there than anywhere.
The opposing argument reduces to absurdity. The difference between cities is only degree, so if startups are better off in Silicon Valley than Boston, they're better off there than anywhere.
I'm not claiming of course that every startup has to go to Silicon Valley to succeed.
Just that all other things being equal, the more of a startup hub a place is, the better startups will do there.
But other considerations can outweigh the advantages of moving.
I'm not saying founders with families should uproot them to move halfway around the world; that might be too much of a distraction.
Immigration difficulties might be another reason to stay put.
Dealing with immigration problems is like raising money: for some reason it seems to consume all your attention.
A startup can't afford much of that.
One Canadian startup we funded spent about 6 months working on moving to the US.
Eventually they just gave up, because they couldn't afford to take so much time away from working on their software.
(If another country wanted to establish a rival to Silicon Valley, the single best thing they could do might be to create a special visa for startup founders.
US immigration policy is one of Silicon Valley's biggest weaknesses.)
If your startup is connected to a specific industry, you may be better off in one of its centers.
A startup doing something related to entertainment might want to be in New York or LA.
And finally, if a good investor 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. [2]
I'm not claiming every startup must go to Silicon Valley—just that, all else equal, more of a hub is better. Other things can outweigh it: founders with families shouldn't uproot them halfway around the world.
Immigration is another reason to stay; like raising money, it consumes all your attention. One Canadian startup we funded spent six months trying to move, then gave up rather than lose more time from their software.
If your startup is tied to an industry, you may want one of its centers. And if a good investor has committed to fund you where you are, stay; don't pass up a definite offer.
I'm not claiming every startup must go to Silicon Valley—only that, all else equal, more of a hub is better. Families, immigration, industry centers, or a committed local investor can outweigh moving.
In fact, the quality of the investors may be the main advantage of startup hubs.
Silicon Valley investors are noticeably more aggressive than Boston ones.
Over and over, I've seen startups we've funded snatched by west coast investors out from under the noses of Boston investors who saw them first but acted too slowly.
At this year's Boston Demo Day, I told the audience that this happened every year, so if they saw a startup they liked, they should make them an offer.
And yet within a month it had happened again: an aggressive west coast VC who had met the founder of a YC-funded startup a week before beat out a Boston VC who had known him for years.
By the time the Boston VC grasped what was happening, the deal was already gone.
Boston investors will admit they're more conservative.
Some want to believe this comes from the city's prudent Yankee character.
But Occam's razor suggests the truth is less flattering.
Boston investors are probably more conservative than Silicon Valley investors for the same reason Chicago investors are more conservative than Boston ones.
They don't understand startups as well.
West coast investors aren't bolder because they're irresponsible cowboys, or because the good weather makes them optimistic.
They're bolder because they know what they're doing.
They're the skiers who ski on the diamond slopes.
Boldness is the essence of venture investing.
The way you get big returns is not by trying to avoid losses, but by trying to ensure you get some of the big hits.
And the big hits often look risky at first.
Like Facebook.
Facebook was started in Boston.
Boston VCs had the first shot at them.
But they said no, so Facebook moved to Silicon Valley and raised money there.
The partner who turned them down now says that "may turn out to have been a mistake."
Empirically, boldness wins.
If the aggressive ways of west coast investors are going to come back to bite them, it has been a long time coming.
Silicon Valley has been pulling ahead of Boston since the 1970s.
If there was going to be a comeuppance for the west coast investors, the bursting of the Bubble would have been it.
But since then the west coast has just pulled further ahead.
West coast investors are confident enough of their judgement to act boldly; east coast investors, not so much; but anyone who thinks east coast investors act that way out of prudence should see the frantic reactions of an east coast VC in the process of losing a deal to a west coast one.
In fact, investor quality may be the main advantage of hubs. Silicon Valley investors are more aggressive. I've watched startups snatched by west coast investors from Boston ones who acted too slowly. I warned a Boston audience this happens yearly; within a month it happened again.
Boston investors admit they're more conservative. Some credit prudent Yankee character, but Occam's razor suggests something less flattering: they're conservative for the same reason Chicago investors are relative to Boston. They don't understand startups as well.
They aren't bolder because they're cowboys, but because they know what they're doing—the skiers on the diamond slopes. Boldness is the essence of venture investing: big returns come from catching the big hits, which often look risky early.
Like Facebook. Started in Boston, Boston VCs had first shot. They said no, so it moved to Silicon Valley and raised there. The partner who turned them down now says that "may turn out to have been a mistake."
Empirically, boldness wins. Silicon Valley has pulled ahead of Boston since the 1970s. If a comeuppance were coming, the Bubble bursting would have been it; since then the west coast has only pulled further ahead.
Investor quality may be the main advantage of hubs. Silicon Valley investors are more aggressive—not reckless, but because they understand startups. Boldness is the essence of venture investing, and empirically it wins.
In addition to the concentration that comes from specialization, startup hubs are also markets.
And markets are usually centralized.
Even now, when traders could be anywhere, they cluster in a few cities.
It's hard to say exactly what it is about face to face contact that makes deals happen, but whatever it is, it hasn't yet been duplicated by technology.
Walk down University Ave at the right time, and you might overhear five different people talking on the phone about deals.
In fact, this is part of the reason Y Combinator is in Boston half the time: it's hard to stand that year round.
But though it can sometimes be annoying to be surrounded by people who only think about one thing, it's the place to be if that one thing is what you're trying to do.
I was talking recently to someone who works on search at Google.
He knew a lot of people at Yahoo, so he was in a good position to compare the two companies.
I asked him why Google was better at search.
He said it wasn't anything specific Google did, but simply that they understood search so much better.
And that's why startups thrive in startup hubs like Silicon Valley.
Startups are a very specialized business, as specialized as diamond cutting.
And in startup hubs they understand it.
Hubs are also markets, and markets centralize. Even now, when traders could be anywhere, they cluster in a few cities. Whatever face-to-face contact does to make deals happen, technology hasn't duplicated it.
Walk down University Ave at the right time and you might overhear five people talking deals on the phone. Being surrounded by people who think about one thing is where you want to be if that's your thing.
I asked someone who works on Google search why it beat Yahoo. He said it wasn't anything specific—simply that they understood search so much better.
And that's why startups thrive in hubs. They're a very specialized business, as specialized as diamond cutting, and in hubs people understand them.
Hubs are also markets, and markets centralize—face-to-face contact still makes deals happen. Startups are as specialized as diamond cutting, and in hubs people understand them.
Notes
[1] The nationalistic idea is the converse: that startups should stay in a certain city because of the country it's in. If you really have a "one world" viewpoint, deciding to move from London to Silicon Valley is no different from deciding to move from Chicago to Silicon Valley.
[2] An investor who merely seems like he will fund you, however, you can ignore. Seeming like they will fund you one day is the way investors say No.
[1] The nationalistic idea is the converse: staying in a city because of its country. With a true "one world" view, moving from London to Silicon Valley is no different from moving from Chicago.
[2] An investor who merely seems like he'll fund you, you can ignore. Seeming like they will one day is how investors say no.
Two notes: the genuinely nationalistic idea is the converse, and an investor who merely seems like he'll fund you is saying no.
Thanks to Sam Altman, Jessica Livingston, Harjeet Taggar, and Kulveer Taggar for reading drafts of this.
Thanks to Sam Altman, Jessica Livingston, Harjeet Taggar, and Kulveer Taggar for reading drafts of this.
Thanks to Sam Altman, Jessica Livingston, Harjeet Taggar, and Kulveer Taggar for reading drafts.