Tuesday, December 16th, 2014
[ My fellow Accenture alum Mark Suster is a former startup founder and now a VC based out of Los Angeles. Hence he writes the fantastic tech startup blog Both Sides of the Table that’s a must read if you’re into tech startups. This recent piece particularly caught my eye as it’s relevant to so many cities’ startup scenes. Mark graciously gave me permission to repost it here – Aaron. ]
I was at a dinner recently in Chicago and the table discussion was about building great companies outside of Silicon Valley. Of course this can be done and of course I am a big proponent of the rise of startup centers across the country as the Internet has moved from the “infrastructure phase” to the “application phase” dominated by the three C’s: content, communications and commerce. But the dinner discussion included too much denial for my liking.
I think startup communities being simple cheerleaders doesn’t help anyone. Those of us outside Silicon Valley need to make an effort to effect change not just wish for it.
At the dinner some of those arguing that Chicago has everything it needs now that it has built: Groupon, Braintree, GrubHub and others and that it has “come along way” and “will never get the full respect it deserves just because it’s not Silicon Valley.” But I think this misses the point. I’m a very big fan of Chicago. I started my career at Andersen Consulting (now Accenture) so I went to Chicago many times a year for nearly 9 years. I then got my MBA at University of Chicago so I secretly pull for local entrepreneurs as long as they don’t make me visit in the Winter any more.
But no community can become complacent with the wins that it has. It’s not the great companies you build, it’s the silent killer of those that should have been build locally and weren’t. It’s the thousands of jobs that weren’t created but you don’t even know it.
Think about Facebook had it stayed in Boston. Could it have become the behemoth that it is today? Who knows. But I’ll bet the Boston community would take 50% of the success of Facebook built locally. And the truth is that successful startups beget more successful local startups, wealthy VPs who go on to build their next startups, etc. Even Mark has acknowledged moving wasn’t the be all, end all in this famous interview:
“If I were starting now, I would have stayed in Boston. [Silicon Valley] is a little short-term focused and that bothers me.”
Boston is still a great tech hub. But wouldn’t it want to be great PLUS have Facebook?
We have similar stories in LA and most people don’t know it. For example, Lookout is a mobile security company that was founded by three talented graduates of USC. They started their company in LA but a couple of years after raising capital from Khosla Ventures in the Bay Area they ended up relocating there. A few years later they announced $150 million in a funding round at $1 billion+ valuation and are ramping up jobs to secure their market-leading position. You could say the team would have gone North anyways. Perhaps – who knows? But I know with local funding and local support that’s certainly less likely.
And consider Snapchat – one of our hometown favorites as they’re based in LA (Venice Beach). Luckily for our community the founders decided they wanted to build their company in LA regardless of not having local funding from LA. That’s our great gain as Snapchat has also raised a lot of money at a monster valuation ($10 billion reported) and has been scooping up talented Stanford engineers and relocating them to LA. Locally we call it “the Snapchat effect.” The VPs of SnapChat will be LA’s great founders 5 years from now.
Silicon Valley is littered with startups where the founders were originally in LA. Klout was an LA company – sold for $200 million to Lithium. As was FarmVille (sold to Zynga) and many, many others.
Local capital matters. Local mentors matter.
That was my original idea behind Launchpad LA. I figured if we couldn’t fund every company locally we should at least embrace them as a community and show that we’re willing to mentor them whether they raise their money in town or not.
So what can a community do?
I often point out the story of when we raised our fourth fund a few years ago. I went to see several LP funds in Boston. At least twice I had conversations that went like this, “Yes. It’s true. Your fund performance has been great. But there’s also several great funds in Boston and while our first priority is to returns we have an equal responsibility to local funds and local jobs.”
LA public pension funds and endowments have historically been the opposite. I think government and community members need to understand that capital formation is an incredibly important part of economic revival. People often say, “Great entrepreneurs will build a community and the capital will follow.” I don’t see much evidence of that. I think it’s a combination of the two. It’s clear capital with no talent ends up having to travel to do deals. But talent with no capital is another word for migration.
And then there is public policy. Historically the City of LA has been hostile to startups. I’m reminded of LegalZoom who was founded in LA but moved it’s headquarters to Glendale and much of its operations to Austin, Texas. While LA was trying to impose archaic taxes on the firm and seemed to care less about its existence since it was a “startup” – the first lady of Texas welcomed them to Austin by picking up the CEO at the airport on his first visit there. It’s no wonder hundreds of jobs migrated. Luckily since then we elected Mayor Eric Garcetti who understands the importance of startups and of technology and venture capital on job creation.
But we still need more funds. No – I’m not worried about the competition. We’ll win our fair share of deals. But when you remember the Snapchat effect you see that I gain even from the deals we didn’t get to do. I’m guessing the future leaders of Lookout will build companies in the Bay Area.
Communities can make a difference. I wrote about the awesome efforts of Cincinnati to stimulate its startup community and the role of Paddy Cosgrave in Dublin, Ireland as well the entire Irish business community, the IDA, etc. who woo businesses to put their headquarters there. I also covered the impact of Brad Feld in Boulder or Fred Wilson in NYC as observed from my keynote on a trip to Seattle, which I felt could have a huge boom if its elder statesmen embraced startups a bit more.
Don’t get me wrong. Chicago has made strides. The Pritzker Family has been very active and the opening of 1871 as an entrepreneurial hub is a great example. But my conversations with countless Chicago entrepreneurs suggests it has similar issues to all non-Silicon Valley centers: not enough venture capital, too few tech angel investors, not enough talent for product management or engineering, not enough local tech powerhouses to drive local biz dev / keiretsu. I think this is true of LA, NY and many other tech communities so I’m not singling out Chicago.
My point is this … cheerleading isn’t enough. We need to help create local venture capital funds who may be national in investment strategy (as we are) but who will do more than their fair share of fundings locally (for us that’s 50%). Fund formation + local mentors + local talent = a shot at creating successes that drive the future job growth of our great cities.
This post originally appeared in Both Sides of the Table on November 15, 2014.
Tuesday, July 31st, 2012
[ Mark Suster is a former Accenture guy like me who left to become a serial entrepreneur and is now a partner in a Los Angeles based venture capital firm. He writes an excellent blog on the tech industry called Both Sides of the Table that draws on both his entrepreneurial and VC experience. I consider it a must-read for those interested in tech. A recent story of Mark’s caught my eye as it’s relevant to cities and comes from a bona fide investor, not urban booster, perspective. He graciously gave me permission to repost it here – Aaron. ]
Like many I read the headlines about Pinterest moving from Palo Alto to San Francisco and thought about the trend it portends. For those not familiar with the local geography, Palo Alto is the north end of what most consider “Silicon Valley” although nobody local calls it that. Palo Also is about 35 miles south of San Francisco.
Palo Alto is home to Stanford. It is the birthplace of Hewlett Packard. And Facebook. It is adjacent to Mountain View, home to Google. Further to the south are the legendary companies of Cisco, Apple, Intel, eBay, Yahoo!, Juniper and countless others.
Back in 2006/07 when I sold my company and then worked at Salesforce.com there were very few options in SF for technology folk to build their careers at big, growing companies.
Today there’s many. In addition to Salesforce.com (the 800 pound gorilla) there is also Twitter, Zynga and Square – just to name a few. And now Pinterest.
So why all the movements towards cities? It’s clearly more expensive for office space and living. In addition to higher rents many cities impose city taxes on local businesses. It’s clearly a complex topic without black-and-white answers.
Fred Wilson ponders this in his post “Cause and Effect”
Technology innovation doesn’t occur in a vacuum. It happens in a dialog with society. And sci-fi writers are but one example of the way society impacts technology.
I think that’s one of the reasons that many of the most interesting Bay Area startups are choosing to locate themselves in the city. And it is one of the reasons that NYC is developing a vibrant technology community.
Society is at its most dense in rich urban environments where society and technology can inspire each other on a daily basis.”
I’m sure there’s a lot of truth to that. I see it first hand in Los Angeles where given the growth of YouTube networks the worlds of art & technology are colliding. It’s becoming harder to distinguish tech companies from media companies.
Many “tech companies” now have green screens. And make-up artists. And costume & set designers. And sound engineers. And post production. And writers! And even … yes … actors.
I can’t say for sure, but it feels to me like the re-urbanization of technology companies is driven by a broader trend of the tech industry overall – cloud computing. In driving down the costs of building businesses it’s driving down the age of startup founders and thus they’re starting companies where young people want to live – in urban environments.
I’ve been meeting with LPs (those who invest in VC funds) over the past year and discussing trends I see in the market and where I think we need to be as a firm to be near to and meet the needs of our customers.
One of the major trends I’ve outlined is this movement of entrepreneurs (and as a lagging indicator venture funds) to more urban environments.
And it’s not just the movement from Palo Alto to San Francisco.
The same phenomenon is happening in many places.
- In Massachusetts companies (and VCs) have migrated from out by Waltham to Back Bay (Boston) or Cambridge.
- In LA companies used to be concentrated near Pasadena or in the San Fernando Valley. These days it’s Santa Monica and Venice. Not exactly “urban” in the way you think of SF or NY but certainly relative to the suburban communities of LA and at a minimum it’s where young people want to live / hang out
- In England they were all in The Thames Valley (45 minutes west of London) and these days they’re all near Shoreditch east of London
- I think NY has always – by definition – been urban. But there does seem to be huge startup energy around the Flatiron District / Union Square.
For those that aren’t aware of the broader technology shifts of cloud computing, the trend is described in a post I did about changes in the software industry.
The costs of building a company have gone down dramatically, from $5 million to get to launch in the late 90’s to $500,000 (or even lower) today for web companies.
As a result younger people are creating startups because they can. It’s far easier as an inexperienced 23-year-old to get $200,000 from somebody than $2 million or $5 million.
So we’ve seen an explosion in the number of startup companies and subsequently a huge burst in the number of incubators.
I think the urban tech renewal is happening for the same reason.
It’s not that young people wanted to live in Mountain View in the past. In fact, so many DID NOT that companies like Google & Yahoo! had free buses with wifi from San Francisco to their Palo Alto and Sunnyvale headquarters.
Young people want to live where the action is. They want to live amongst other young people. They want nightly restaurants, bars, dance clubs, karaoke, or whatever other late night activities are available to those with fewer encumbrances.
You know the story. You get older. You get married. You have a kid. Then another. Suddenly you feel the pull for a backyard and nearby parks. And a bigger house wouldn’t hurt so that when your mother-in-law is in town for 3 weeks it doesn’t feel like you see her quite so much.
So you move outside the city – even though you feel a strong pull to stay. It’s why many of the older executives at San Francisco startups live in Marin County and commute in. Or they do so from Burlingame, San Ramon or even Palo Alto.
I suspect the shift from the burbs to urban environments – or more specifically to places where young, single, technical startup people WANT to live – will continue into the future and will not decline.
And with startups so go VCs. Spark Capital, Flybridge, Founder Collective, NextView Ventures … all in Boston or Cambridge not west of the city.
In San Fran you find more recently established VCs like True Ventures, First Round Capital, Freestyle, Kii Capital and others.
And there has been a similar move from Sand Hill Road to Palo Alto itself with firms like SoftTech VC, Felicis Ventures, K9, Accel, True Ventures (other office) and Floodgate.
In NY you find the broader Flatiron / Union Square are home to USV (obviously), IA Ventures, First Round Capital, FF Ventures and the incubators General Assembly and TechStars.
I’m sure I’ve forgotten many who have moved or set up anew since I wrote the list in one sitting and with no research.
In LA the VC shift is clearly to Santa Monica / Venice, home of Rustic Canyon, Greycroft, Anthem and just about every incubator (Amplify, Launchpad, Mucker, Science).
GRP’s offices are near Beverly Hills. Our lease runs out in 2013. No prizes for guessing where our new offices will be located
This post originally appeared in Both Sides of the Table on July 10, 2012.