Great one page article here from IEEE Spectrum about attempts to clone Silicon Valley and why they have generally failed. To cut a short story even shorter, it comes down to an entrepreneurial attitude, quality of life and history in the author’s opinion. I mostly agree except perhaps New York, Seattle and London should have got some sort of mention. Whatever, it’s certainly apparent from CrunchBase‘s daily funding round updates that San Francisco and New York are the locations that come up most consistently.
So, what do you need to create a great environment for high tech startups?
- A ready supply of talented and experienced people. This is really the history part (or critical mass if you like) – to grow a company fast you need to reduce the friction to hiring people. Relocation is not going to do it alone (too slow, too expensive) so they have to be there already. It’s really helpful to have an Apple or Google just down the road…
- World-class university with an entrepreneurial attitude (like a Stanford) to spin out new companies. A long time ago I used to work at Imperial College in London and, even back than (in the dark ages), the joke was that there were more companies run by members of staff than there were members of staff!
- A great place to live. I know from experience how tough it is to grow a company in areas which aren’t highly desirable places to live if you need to be able to relocate people to get the experienced hires that the company needs. This is also affected by another aspect of the critical mass problem. Most startups fail so if someone is going to relocate to an area, there’d better be other places to work nearby if (in all probability) it’ll be time for a new job in a year or two! One startup in the middle of nowhere stands no chance.
- Access to capital. Even today, the availability of capital for startups ends up being affected by distance from sources of funds. Capital is generally available where there is already a critical mass of companies. If you try to start a company outside of these areas, it can be very difficult or impossible to raise any significant amount of money.
- The absence of non-compete agreements. Non-competes make it harder for startups to grow and acquire experienced people. Startups really have to benefit from the experience of the previous generations of startups if they are going to be able to compete at a global level within the window of opportunity.
I think that the author probably should have included this last point in the comparison between Silicon Valley and New Jersey. New Jersey allows non-competes to be enforced. California doesn’t…
A final thought. This all refers to the type of startups that stand a chance of global scale. There’s always room for small startups addressing niche or hyper local markets. These have the luxury of more time and so can do things with a much smaller burn rate (i.e. fewer people). If all the startup needs is a few $100k to be self-sustaining then that’s probably possible almost anywhere. But they still need people, just not as many, and that can remain an obstacle.