I think even a million dollars per startup may be necessary but not sufficient. You also need a culture - funding 30 all at once provides some level of a community. That's well and good, but would the accountants and lawyers in that city be as good as the ones in the Valley? No. So that money goes back to the Valley, too. And they have a gravitational pull that would make it more likely that a company would go back. Not for sure, but more likely.
So you'd have to make sure you had a rock-solid, streamlined process to make sure that the legal/accounting talent in the city (hell, white list them) knew the ins and outs of 83B elections, DE incorporation, how LLCs aren't appropriate for funded startups, and all that stuff that small business lawyers/accountants don't need, but are essential to not making it hard to get that 2nd round of VC funding.
And then you'd have to have the press. TC, VB, CNet, and whoever else can actually drive "mainstream" pickup are located pretty much in either the Valley or (to a lesser extent) New York. So your costs of getting press or going to conferences to network/"run into" partners and VCs is higher too.
Oh, and what about when the million dollars runs out? You need to have a local angel investor base that can give another million, or at least another half. People invest in what they know, for better or worse. And two hackers with laptops are going to be a lot more familiar in the Valley than anywhere else then you have to find a replacement for that infrastructure, as well - maybe you have to have the local business community have a co-investment fund or something.
The point is, I don't think any amount of money can create a culture conducive to the information-enabled software/internet companies we're talking about that even begins to approximate the Valley. Sure it can be done from elsewhere, but it's twice as hard. First thing JamLegend did when it finished the LaunchBox program was move west - and they had an awesome product with tons of favorable press. (The only counter I can think of is TipJoy, who moved east - but only after they presented to 30 angel groups out west who said no.[1])
As to a specific city I know well, I've been very vocal - there's no better place on earth to bootstrap an internet/software company than Chicago, but you'd be hard-pressed to find a city that's worse to try to raise funds in. (There are many that are as bad, but worse is a small set.) And if there aren't those support structures, then the founders will take their laptops and move west. Money alone can't solve that.
Oddly enough, Chicago (or, rather, Evanston,) already has "a first-rate university in a place where rich people want to live." (At least, for some definition of first-rate.)
There's also the University of Chicago (clearly world class) and a raft of other institutions - DePaul, UIC, Loyola, Chicago State, and IIT. And everyone who went to a Big Ten school ends up here for a short period of time. (Plus, we have a bar for pretty much every Division I-A school in the country.) Chicago has no trouble being attractive to young talent, and it's cheap, too.
All of the space that could be in this category is rendered unusable 9 months per year by the winters there. When you're on the ramen budget, I think climate is more important than most people realize. Enclosed temperature controlled space is brutally expensive even in the "cheapest" cities. I find that even when the space is afforded, being trapped in cars and buildings many months per year because it literally hurts to go outside has a huge impact on my productivity.
Compared to California, not so good. But heating is a lot cheaper in Chicago than in Boston, because the housing stock is newer and has some insulation.
Thanks for posting the link to that essay, it's one of PG's that I missed and I enjoyed it.
I like the observation that marginal space matters. That is one of the reasons why I left the Boston area, after staying there a while after school. I would add that other factors include "marginal time" and "marginal income" -- places where people work 80 hours a week, and places where rent is half your income and no one saves any money, are also unlikely to produce revolutionary startups.
You can heat a leaky garage in Chicago for less than it takes to rent a garage in balmy California. You will probably have to spend $100 on insulation -- get the rolls encased in plastic by Johns Manfield so you don't fill your workspace with itchy fibers -- and you will still have to wear a sweater in there. The garage door itself will basically be a seive, but there is this blue colored, flexible foam sheet product, that they use as a house wrap like Tyvek, that you can staple over it on the inside. If you really want to do a startup, a Chicago garage can be made "good enough".
Or better yet, if your startup does not involve hardware assembly, just rent a 3 bedroom house in some other part of the country for the cost of renting a garage California, and work inside.
I'm actually am much more productive in cooler environments, and I really enjoy fall and winter here in Boston. Heat drains my energy and makes me lazy.
My 2100 sq. ft. condo in Boston costs about $40/month to heat in the winter, but $350/month to cool in the summer. I look forward to the cool seasons.
You bother to cool your condo? The highs in Boston, per wikipedia, average 82F in the hottest month. That's room temperature. I have my thermostat set on 76F right now, and I wake up shivering many mornings. I guess I don't really have any content for this post except my surprise.
Typical comfortable room temperature is usually between 65 and 72 degrees. If it was 76F in here I'd be sweating and very uncomfortable. Anything over 74F-ish makes me physically uncomfortable and anything over 78F makes me feel drained of energy. Pretty much EVERYONE in Boston has A/C. In the summer it often gets over 90F and has very high humidity.
As to a specific city I know well, I've been very vocal - there's no better place on earth to bootstrap an internet/software company than Chicago, but you'd be hard-pressed to find a city that's worse to try to raise funds in.
I lived in Chicago for 7 years before I moved to the East Coast, and then finally to California. While Chicago does have it's share of great restaurants, a decent music scene and pretty good art scene. It suffers from a chronic second city mentality, which is--It's a pretty good city for being in the Mid-West, but if you're really good at something go to a first rate city liky New York, LA or San Fran. In 7 years, every really talented theater group, actor, artist or musician I knew ended up having to move to either New York or to California. There just wasn't enough going on to sustain those people in Chicago.
Chicago also has a huge meathead/jock culture. Just walk within 3 blocks of the bar district along Rush and Division on a weekend night. I'm 6'7" tall, 300 pounds, and I often worried about some drunk meathead picking a fight with me. All that to say, that it's not a really nerd friendly town.
If you do move there and you walk around at night, get a black leather jacket preferably with Chicago PD patches sown on it. (The Alley on Belmont and Clark sells them). Walk around with your right hand tucked under your left armpit. You'll look like you're packing heat, and the thugs/meatheads will leave you alone. At least that worked for me for several years.
Oh, and the winters really suck.
Say what you will, I can think of a half a dozen other cities I'd rather bootstrap in--Austin, Boston, Providence, New York, Portland, Seattle, Vancouver, Toronto, Boulder, San Diego.
The point isn't whether or not $1 billion in $1 million increments would work in Chicago - it's about where it would work anywhere, including the cities that you name. My argument wouldn't be any different if I said Tampa Bay, New Orleans, Atlanta, or some other city.
(New personal rule: stop making throwaway comments, especially w/r/t Chicago. People latch onto them like remoras.)
While not enough to leap the hurdle, what I like about big cities like Chicago is how spread out they are. That helps grow subcultures.
And while land mass doesn't create them, it does provide psychological space. A large (but not too large) space matched with good weather and transportation is perfect for cross breeding. You need to carve niches, ask evolution.
I realize a small city can grow a larger one, but some are too limited by location, but I'm not hip to which.
And you want startup cultures. Every city thinks they have a music scene. In some cities that's arenas, in others, ad-hoc clubs. You want rebels. But you want them in the outskirts not the capital. That comes later; it's demoralizing early on, save coup d'etats.
The problem with cities like New York (and Boston) is they have bad habits. Like human habits, they're mini-traditions, they give us expectations, then meet them. The set up is the comfortable feeling. But like candy bars, they taste great in the short run but kill you in the long. And they're addicting.
Boston's addiction is college, and New York's finance (and media). Those industries are going into permanent introspection within the next few decades. That's a while off, but it's still a bad play to have the next big thing near the really big thing it's going to outmode.
Media is badly wounded, but finance and education are still on their tour of duty. R&D and education are going to split eventually, and finance is just starting to get shaken up. There is vitality to sap, so I think we're too early for official sanction.
You set up the pins, we knock them down; That's a political game. We might avoid this with a rich patron. A rebellion can start with a dissatisfied insider.
And don't underestimate the second-rate mentality. I felt it as soon as I moved to Boston; And you can tell through the baseball fans. In New York, no one hates the Sox until they come to town. In Boston, they hate the Yanks year round ... and breed children to. It's surprising how far behind the runner up can be.
Another thing is that in New York you may have to look around longer to get a sense of everything, but in Boston, it's harder to abstract away the details. The city doesn't have to be that as huge. But we're looking for tightness; muscularity, not fat; Quality not quantity.
It's not often that I think Paul is flat out wrong, but this is a case. I agree with sachinag that it is culture. When the "contest" between SV and Route 128 started, it appeared that Boston had the edge. Slightly better in the university ranking and a vibrant electronics industry. The big difference was the corporate culture/climate. Boston was closed and secretative. Think DEC and Ken Olsen. SV was open and cooperative, even among competitors. Think Hewlett and Packard. Maybe even more important was Frederick Terman of Stanford who pushed industry/academic cooperation. The SV culture grew from that. An engineer could talk to his buddies at other companies. If you left HP to form a company, they were probably your first customer. My first customer in my first startup was a former employer. In SV the money came because of the successes.
Now SV has this huge infrastructure of talent and money. High tech angel investors invest in SV not in their own communities, because of the decision support here. One of the real difficulties in investing in Kansas City, for example, is winnowing out the 99 crappy ideas/teams to get the one that will succeed, and investors having confidence that they can do so.
The best approach for another area is to pick an industry with local advantages: new energy sources, manufacturing for wind or solar, biotech, robotics.
I think public funding of startups will fail, because problems with mindset. What a community can do is streamline the business permit process, build out the infrastructure like fiber, assemble a volunteer group of professional advisors, and promote the startup culture. A 10K grant to an entrepreneurs' club that promotes mixers and speakers for entrepreneurs, angels, and support types will probably help the climate more than $500K to some random startup.
It would be pretty straightforward to make a list of the most eminent Silicon Valley angels and from that to generate a list of all the startups they'd invested in. If a city offered these companies a million dollars each to move, a lot of the earlier stage ones would probably take it.
This seems like a highly effective way to kill startups. Never mind the whole "moving to a different city where you won't have many contacts" bit -- if a startup is still small enough to be able to move easily, throwing a million dollars at them is likely to give them too much of a runway.
The question is: is there something in silicon valley that makes startups more successful here? If there is, then the companies you fund will be working against competitors that have a significant advantage over them. I don't think a sample size of 30 is large enough to answer this question one way or the other. Therefore, while the initial prototype requires minimum investment, it likely will not give you the information you need to decide whether to continue with the program or not.
There definitely is. The question is whether a free million dollars would be enough to compensate or not.
It's interesting we're even unsure of that. It means we're at least considering the possibility that merely being in the Valley is worth a million dollars to an early stage startup.
It means we're at least considering the possibility that merely being in the Valley is worth a million dollars to an early stage startup.
Close, but not quite -- we're considering whether staying in the Valley is worth a million dollars. It might be that being in the Valley is worth far less than staying in the Valley simply because moving sucks so much... even if you're not "tied down", it's still a couple weeks of packing/travelling/looking for an apartment/unpacking/figuring out your way around a new city/etc which could be spent coding.
We're dealing with an investment group that has this (in a much much smaller scale) in mind. My major concern for them is that I'm not so sure it can be done on a smaller scale.
Do you think cities can do a small version of this and become not the next Silicon Valley but at least startup friendly?
I think access to capital is the first step, but access to employees is what would present the larger challenge. Sure, you could get a hundred or so new grads from your university every year, but how many hackers migrate to the bay every year? What's the turnover rate?
If you have a million in funding, you're probably going to want to hire some people to help you (you have enough money to shoot for the stars; moreover, ramen profitability seems both a waste and unable to recoup the investor's money). Hiring good people outside of SV, especially if you want to use interesting (read not java / ms) tools, is going to be a bit more of a challenge. Especially if there are 30 other startups in the area trying to do the exact same thing.
Good point. One of the things I love in Silicon Valley is that I can hire any profile I want. If my dream candidate must have worked 5 years at Google on search and then two years at Salesforce because that's what I need, I know there is someone out there that fits that criteria.
You can't replicate any of that stuff anywhere else. By definition, if you want to compete with Silicon Valley, you will want to hire some people from your competitors. So you have to be here as well. QED (any way around this dilemma, I'd love to hear).
You can refer to an article I wrote last year called "The limits of the Silicon Valley model". Unfortunately, it was in print only for an Indian magazine, I can't find a link to it.
I'm suspicious of the claim that there can be more than one silicon valley. With founders being more mobile and VC in... shrinkage (less willing to take risks setting up in new markets), the likelihood of any such concerted effort being possible is nil. After all, you're not going to get anyone outside the organizers to move from the valley in significant numbers, so I think the prospects for natural growth is limited.
I suppose what you say is true, but I don't see any reason to think such a transplant would ever outstrip the size/clout of the valley. And that's what it comes down to, is that with the big players already entrenched, and the weather so nice, no city will come close, even if the transplants do prove a boon.
I agree with you. I just wanted to consider what would be the optimal way to jumpstart a competitor. The chance of any city actually carrying out the plan I suggested is microscopic.
Which is itself an interesting point, because it shows how unlikely the Valley is to face significant competition in the foreseeable future.
Great article. But the fallacy in the comments is that most thought about domestic competitors only.
As an example, the French community in Silicon Valley has been wondering for years how to get Paris (or some other city) to start resembling Silicon Valley more. Many French politicians visit for a week and always ask that same question.
There could be a critical mass of French people living in Silicon Valley who would love to spend more time in Paris to advise and help the local startup scene, plus some political will to make something happen. Plus some rich American angels would love some special angel visa that would allow them to skip the lines at le Louvre :-)
But this plan doesn't address the general lack of positive thinking in Paris. As we (the French living here) often conclude, there is a reason we moved out...
Sure! Being non-American I read this essay this way too: Can you buy a Silicon Valley if you're not in US? There's little friction in moving to Silicon Valley if you're in the US, but much if you're outside of US.
The public generally looks askance at public funds being used for private benefits. Publicly funded incentives often are used to lure large corporate manufacturing facilities into town, but these generally are already very large and looking to employ thousands of locals.
It would be a hard sell to convince the voters that you should give $1 million of their money to three guys with some laptops that weren't planning to hire any more people for the next few years.
Agreed it would be hard to sell to the public. Perhaps if the following point could be more visceral:
"$1B invested in 50,000 startups would conservatively create 250,000 jobs immediately. If just 2% of those startups became wildly successful they would create 3 million to 5 million jobs."
Wouldn't you say the same thing for any public funding of private ventures, why does the volume matter?
I don't support the government-as-vc idea myself but not because of any job projection numbers (real or made up). I think science and technology funding like NSF is a better way for the government to get involved in long term value/wealth/job creation in this country. The outcomes of the efforts can be more easily shared by the shared public money put in, seems more ethical to me.
I think inviting 250,000 people to your city with three months of funding is going to have lots of unplanned side effects, many of which will occur three months after the initial funding date.
I used to work in a technology incubator in central Japan, and once you balled up all the support services, 100 teeny companies and a dozen that were decidedly unteeny added up to 3,000 jobs. It was one of the biggest things to ever happen to this town.
Its a good thing, too -- this region is otherwise extraordinarily dependent on a handful of ultimate consumers for manufactured goods. When a certain large car company has exports crater, those manufacturers get hit hard. The bank datacenter that they put here for cheap bandwidth and easy access to technical employees, on the other hand, won't shutter or lay off temps.
I won't tell you the total price tag but suffice it to say that if Japan got similar ROI on all their public spending, there would be articles here saying "Can I afford not to move to Nagoya?"
I think you're underestimating the difficulty of creating vibrant neighborhoods that smart young people want to live in. Merely transporting 30 startups worth of people into a new city wouldn't create that kind of environment if it didn't already exist. You need the artists and chefs and shop owners and activists that make up the rest of the community in order to create the right kind of community.
Of the two example cities, Portland could probably very easily become a startup hub without this plan to push it, whereas Detroit would probably fail at it, even with this plan.
They may actually have been better off in Tampa. They've ended up slowly and gradually creating something really excellent, and that suits their personalities very well. But they are unusual people (in a good way).
Can you elaborate on this? It sounds very similar to something I was saying about tarsnap recently -- that if I had been in San Francisco, I'd have launched tarsnap twice as fast and it would be half as good as a result; and that being in Vancouver gave me enough distance from the startup world that I could avoid getting carried away with hype -- but I might be reading more into your comment than is really there.
I think by the time the Wufooers moved back to Tampa they knew more about doing a startup than you do. That's partly due to their YC experience and partly because they really know and obsess about design and user experience. (There's a lot of overlap there.) Spending time around people in Silicon Valley who talk about those two things a lot would help you in that department. And promotion. And marketing.
Maybe you shouldn't listen to me since I've recently failed. But please do change some things you are doing, at least in the design area. I'd like to see you do well.
I know I'm judging your private beta product by its public face. But statements like this: http://news.ycombinator.com/item?id=360561 are also worrisome. UI and promotion aren't easy, nor 'easy'. They are hard and a lot of work.
(Boy, telling a Putnam winner he doesn't know enough about something makes you choose your words carefully. And then it makes you wonder why you don't always do that.)
Tarsnap is in public beta right now, actually -- you can go to the website, create an account, deposit some money, and start backing up your data within the next five minutes. :-)
If you read that link carefully, you'll note that I didn't say anything about promotion being easy -- and in any case, the scare quotes in "that's all "easy" stuff" should have been a tip-off that I didn't really mean that everything I mentioned would be easy. I was effecting the mathematician's habit of referring to any solved problem as "trivial" -- for all that there's a lot of work involved in creating a GUI, porting software to Windows, et cetera, those are all things which people have done in the past, whereas the core functionality of tarsnap -- secure snapshotted online backup -- required solving entirely new problems.
Oh no, getting a good user interface/experience for tarsnap is a new problem. Only if tarsnap were simply an better implementation of an existing utility would that not be true, and only then if you were happy with that utility's current interface.
First, they're working in a field most people overlook, where one can therefore grow slowly and gradually. Second, they're an extraordinarily tight and self-sufficient group. Most startups like to be around other startups, but the Wufoos don't seem to need it.
How much do you think that taxes and living expenses play into this? I know that both San Fran and Boston have some of the highest living expenses in the country, and while living in Florida isn't cheap, I would be surprised to find Tampa to be just as expensive (Miami, sure, but Tampa?).
Also, the tax rates for both personal and corporations are higher in CA and MA than in FL (and FL doesn't have a state income tax), and I can see the higher regulatory costs in CA and MA being highly unattractive.
This leads into a question I have: Why did Silicon Valley become this computer Mecca? Why not Boston? My guess is that the tax and regulations up through the late 60s/early 70s favored California (coupled with the nice weather) and what you are now seeing (as CA collapses into debt) is merely inertia. If I had to pick an area for another Silicon Valley to arise, it would be Austin.
I think taxes and the cost of living make zero difference, except possibly in NYC. Renting in Silicon Valley is not that expensive.
It's a very involved question why Silicon Valley has pulled ahead of Boston. People write whole books about it. I think the elaborate theories are probably mistaken, and that it's mostly due to a combination of historical accidents (Shockley Semiconductor specifically) and the quality of life in the Bay Area.
Who thinks Paul Graham's essays have jumped the shark? (I'm aware this will not be a popular opinion on this site.) Raise your hand and I will elaborate.
Sure, I'd be curious to hear why you think so. I'd be interested to see how it compares to the other explanations I've heard of this perennial phenomenon.
"Startup founders are mostly hackers, and hackers are much more constrained by gentlemen's agreements than regulations. If they shake your hand on a promise, they'll keep it. But show them a lock and their first thought is how to pick it."
I love this quote, and agree wholeheartedly. Hackers are typically some of the most honorable people I know, and when they say something, they mean it. Likewise, they're some of the most ingenious people I know. When it comes to taking something apart or putting it together, hackers can usually do it.
I think the way to do it is not to compete with silicon valley directly but follow the path of Singapore and they caymans in betting big on a niche. Rather than trying to be the best at everything like SV is, aim to be truly world class in just a few areas.
I think there's probably a dozen cities in the world that could be world leaders in cloud computing simply by offering great deals on data centers as long as research and development work is also being done there.
A city could leap to world class status for mobile/location based services by offering to buy every citizen a smartphone and then inviting startups to come experiment.
Really, cities sho:ld take the exact same advice startups take: find a niche and serve it well rather than trying to crack the mass market with some luke warm offering.
The Valley itself started out working on what was initially a fairly small niche. And whatever displaces it will probably do the same. But to do this deliberately, the city would have to pick the niche that's going to explode, and that would be really hard. The Valley didn't pick semiconductors; more like the other way around.
Some of the niches have gigantic potential. Iceland and California should have a huge lead in geothermal. Germany has a couple of leading companies in solar panels. Denmark in wind. China is at the top of the list in coal pollution; solving that puts them at the head of the class in clean coal. Twenty-first century manufacturing is up for grabs; MI and PA should be in the running.
My guess is that the way to get the rich, angel people somewhere else is to offer a better environment than SV, in the literal sense of the term. It seems, for instance, that Boulder has attracted a fair amount of angels, startups and the like, despite (or maybe because of) being a fairly small town in proportion to the bay area. For instance, if I made a pile of money, I would not live in the bay area (I don't live there anyway, so maybe I won't make a pile of money, either:-). After all, rich or not, stuck in traffic on 101 is stuck in traffic on 101.
I did a quick skim, but I didn't see any mention of the laws of the state for things like IP, employee mobility, etc. As I recall, MA is rather restrictive and so things like non-compete clauses have some meaning there. CA, on the other hand, ignores such things. I would think that the "business environment" is critical - too pro-management and the workers won't go and take their risks in that environment.
The comment re: NC/RTP is spot on. The natives are content, slow-going folks. The imports are more active, but the slow-n-easy environment probably slows them down eventually. The triangle's a bubble in the midst of a lot of farmers...
Meta: You've written quite a bit about what would it take to replicate a Silicon Valley. Is that merely an exercise to try and better understand startup ecosystems, or have you actually been asked for this kind of advice (by governmental institutions, I presume)?
Mostly I think about it as an abstract exercise, but we've had people from two European countries (Switzerland and Sweden) visit YC to learn about what we were doing. I had very interesting conversations with them.
I've been putting some considerable energy lately into trying to grow a startup culture in my area (Grass Valley, Sierra Foothills) out of thin air. To date that has involved launching a co-working space, founding a "solopreneurs" organization, and beginning to pitch the benefits of startup culture to local investors and shakers/movers.
I'm not looking to compete with Silicon Valley -- for reasons that you and others have pointed out, I don't think that's possible -- but I do think that we can create our own unique version of it. We're geographically isolated by two small arterial highways, there is a lot of scenic beauty and outdoor activities, and there is a strong push to localize products and services. There's also a healthy respect for technology here -- Atari was a prominent figure here back in its early days, Grass Valley Group engineers top-of-the-line video equipment, Spectrum Sensors & Controls builds various motors and potentiometers for government and high-tech applications, and the local cities are keen to attract more high-tech companies. For those reasons and others, I think there's a chance of incubating a small but successful startup environment here.
So although on the face of it what you wrote would suggest that it can't be done here, I think it also indirectly provides some support for it.
The idea is certainly worth trying, but I fear where this falls down is the most important kind of funding, which is publicity.
Tech media, bloggers and so on, they're all in the Valley, and they are very narrowly focused on local startups. They will hype the startups next door relentlessly and mostly ignore everyone else. Sometimes they will even ridicule or actively bully outsiders as astute techcrunch readers will have noticed.
Startup culture takes more than startups I'm afraid, but startups are certainly a start, so why not try?
Even if it were possible, I still don't think it a good idea. That money has to come from somewhere, and it comes from the bank accounts of people that planned to use it on something other than investing in startups. There's nothing that startups add to a community that I think is a priori better than other things that a community of people would have chosen voluntarily to spend its money on.
Some places fund startups, some don't. That's what comes from having free will and individual liberty. Other people may make different choices than we would, but it doesn't follow that we should force them to be like us. I suggest we should respect other peoples' autonomy.
It has long been the credo of the social planner that the common man is too stupid and too provincial to pursue his own happiness, and that he should be cajoled into doing what is good for him. That credo has been the prelude to a lot of well-intentioned misery. I understand that there are things which are "public goods" which we may wisely choose to produce with public dollars, but investing in private businesses doesn't strike me as one of those public goods.
I don't see the social value in taking a lot of money from private folks to spread a concentration of startups more evenly over the landscape.
I understand that Paul is pondering what can be done and not what ought to be done. I just don't think it is a good idea. If I want to live in an area with lots of startups, I'll move to Silicon Valley where people have voluntarily chosen to fund them.
Finally, Paul states that this is a good idea because municipalities already waste a lot of money on projects of dubious value, such as baseball stadiums. That's true, but it doesn't follow that those municipalities should spend that money on other projects of dubious value. Another response would be that they should leave people and their money alone.
Though PG specifically mentioned politics, I took away the message that any person or group with $30 million could do it, if they wanted. Is it likely that someone cares enough about a specific place to to altruistically transform it into Silicon Valley? Probably not (maybe in a seasteading future?), but nor is this politically feasible. So, it's just fun to think about.
That is a very interesting idea. I didn't think of that. You could do the 30-startup experiment with private money. And what pressure it would put on the city if it succeeded.
Thanks for this idea. I just added a paragraph to the essay mentioning it.
That's a great use of crowdsourcing for your editing. I wonder how that could work in a more automated and scalable way. I'm thinking something similar to Etherpad, but with feedback rather than actual edits, like if people could leave comments and suggestions inline, with some kind of HN-style upvoting and troll-flagging. Then the originating author could cherrypick the best suggestions into being actual edits. Something like Wikipedia but more reader-friendly, without infinite levels of backwards revisions.
Or that could be stupid in practice, maybe a handful of close associates with honest feedback is way better than taking all comers.
I've actually considered this as a startup idea, except they would be actual news articles about local events or occurrences. Instead of interviewing witnesses to a local house fire or bank holdup the witnesses would just log on and add their witness accounts to articles, and people could attach pictures and videos as well (hey, everyone has a camera phone these days). Of course everything (articles, witness accounts, pictures and videos, etc) would all be user moderated and up or down modded, so if someone posts an account that seems less then verifiable then it could get downmodded. The user base would also act as editor, so people can suggest spelling/grammatical changes and other users can up or down mod specific changes.
It would require an enormously involved user base but imagine getting news reports directly from the people seeing it happen.
Is it likely that someone cares enough about a specific place to to altruistically transform it into Silicon Valley?
There should be a quite large pool of people that have spare $30 million [1].
Creating new Silicon Valley sounds like a much better vanity project than, for example, space tourism (one trip is $20 - 28 million).
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[1] It seems like there is ~95,000 people in the world with net worth $30 million or more (out of which 1,125 are billionaires with accumulated wealth of $4.4 trillion).
Give more money to the VC industry in California because they're the only players capable of picking winners? Where is the evidence the VC industry in California is even competent?
From the outside California looks like its waking up from a ten-plus year orgy of mal-investment enabled by a mountain of easy credit driven by irrational international capital flows. I understand that Paul's role is encouraging investment, but this is disastrous advice for cities. Give away a million bucks? Talk about welfare capitalism. A much better approach would be a matching funds program for local ventures.
Neither the CPU nor the router were invented in the last 10 years Paul, and the retreat to hardware makes for a weak case since new FABs are generally financed by banks and corporate bonds rather than venture capital. Neither my router nor CPU were produced in the United States, although that is beside the point.
My point was that IPO and M&A activity are highly correlated with stock market performance. I can't run a regression analysis linking exit opportunities to international capital flows because there are no statistics on international investment in US stock markets, but it hardly seems radical to point out that the VC boom of recent years has been fueled significantly by the stock market boom. If strategic investment decisions were the primary driving force behind the success of the industry the industry should not be facing such a bad liquidity crisis right now.
And perhaps this is harsh, but I don't see a lot of competence in the investment decisions which have been made in my own industry so I find your argument unconvincing. A lot of startups are competing against other startups and most funded companies in my space are disasters. But they all love AdSense, which means that as these companies flame out my ad-spend is going down and life is getting much nicer. Your suggestion that public policy should involving giving significant sums of money no-strings-attached to groups that seem responsible for major capital misallocation and band-wagon investment behavior seems beyond unjust. It seems crazy.
I'm not sure what the n = 1 Google argument is supposed to accomplish - is boo.com relevant too? These are single data points in an argument about aggregate investment quality and the only meaningful statistic is aggregate ROI now. I think it's interesting you're jumping back to the late 90s again, because if you had a stronger argument vis-a-vis the quality of VC investment over the last few years, I really don't think you'd need to go there.
You could be absolutely right. There could be a lot of fantastic companies just sitting in VC portfolios making profits and waiting for the market to turn in order to maximize their exits. That is true. But it's also true that owning profitable companies does not generally incite the sort of liquidity crisis that seems prevalent in the industry right now.
I'm not saying you're wrong. I'm just saying there's very little evidence that the people you're proposing get a massive windfall in the form of a $30 million turn at the roulette table know what they're doing. And some of what they're doing hurts people who are competent and profitable. So in my industry, I don't think the word incompetent is really that strong. They could be making money, they're not. YMMV.
Interesting timing for the essay, since starting March 1st New York City seems to be attempting this exact experiment (I know there is already at least one HN thread post about it already).
To be fair, convincing laid-off quants to stay in the city and form startups isn't quite the same as trying to get SV #2. The city probably wouldn't mind falling into PG's footnote #1 trap, because in the worst case the program would be an alternative to paying unemployment benefits with a free option should someone hit a jackpot.
I can't think of a single major US city (san francisco bay area included) that, if it came to a popular vote, would likely choose the start-up fund over a stadium.
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[ 3214 ms ] story [ 364 ms ] threadSo you'd have to make sure you had a rock-solid, streamlined process to make sure that the legal/accounting talent in the city (hell, white list them) knew the ins and outs of 83B elections, DE incorporation, how LLCs aren't appropriate for funded startups, and all that stuff that small business lawyers/accountants don't need, but are essential to not making it hard to get that 2nd round of VC funding.
And then you'd have to have the press. TC, VB, CNet, and whoever else can actually drive "mainstream" pickup are located pretty much in either the Valley or (to a lesser extent) New York. So your costs of getting press or going to conferences to network/"run into" partners and VCs is higher too.
Oh, and what about when the million dollars runs out? You need to have a local angel investor base that can give another million, or at least another half. People invest in what they know, for better or worse. And two hackers with laptops are going to be a lot more familiar in the Valley than anywhere else then you have to find a replacement for that infrastructure, as well - maybe you have to have the local business community have a co-investment fund or something.
The point is, I don't think any amount of money can create a culture conducive to the information-enabled software/internet companies we're talking about that even begins to approximate the Valley. Sure it can be done from elsewhere, but it's twice as hard. First thing JamLegend did when it finished the LaunchBox program was move west - and they had an awesome product with tons of favorable press. (The only counter I can think of is TipJoy, who moved east - but only after they presented to 30 angel groups out west who said no.[1])
As to a specific city I know well, I've been very vocal - there's no better place on earth to bootstrap an internet/software company than Chicago, but you'd be hard-pressed to find a city that's worse to try to raise funds in. (There are many that are as bad, but worse is a small set.) And if there aren't those support structures, then the founders will take their laptops and move west. Money alone can't solve that.
[1] http://www.masshightech.com/stories/2008/09/08/weekly7-Y-Com...
http://www.paulgraham.com/marginal.html
All of the space that could be in this category is rendered unusable 9 months per year by the winters there. When you're on the ramen budget, I think climate is more important than most people realize. Enclosed temperature controlled space is brutally expensive even in the "cheapest" cities. I find that even when the space is afforded, being trapped in cars and buildings many months per year because it literally hurts to go outside has a huge impact on my productivity.
I like the observation that marginal space matters. That is one of the reasons why I left the Boston area, after staying there a while after school. I would add that other factors include "marginal time" and "marginal income" -- places where people work 80 hours a week, and places where rent is half your income and no one saves any money, are also unlikely to produce revolutionary startups.
You can heat a leaky garage in Chicago for less than it takes to rent a garage in balmy California. You will probably have to spend $100 on insulation -- get the rolls encased in plastic by Johns Manfield so you don't fill your workspace with itchy fibers -- and you will still have to wear a sweater in there. The garage door itself will basically be a seive, but there is this blue colored, flexible foam sheet product, that they use as a house wrap like Tyvek, that you can staple over it on the inside. If you really want to do a startup, a Chicago garage can be made "good enough".
Or better yet, if your startup does not involve hardware assembly, just rent a 3 bedroom house in some other part of the country for the cost of renting a garage California, and work inside.
My 2100 sq. ft. condo in Boston costs about $40/month to heat in the winter, but $350/month to cool in the summer. I look forward to the cool seasons.
I lived in Chicago for 7 years before I moved to the East Coast, and then finally to California. While Chicago does have it's share of great restaurants, a decent music scene and pretty good art scene. It suffers from a chronic second city mentality, which is--It's a pretty good city for being in the Mid-West, but if you're really good at something go to a first rate city liky New York, LA or San Fran. In 7 years, every really talented theater group, actor, artist or musician I knew ended up having to move to either New York or to California. There just wasn't enough going on to sustain those people in Chicago.
Chicago also has a huge meathead/jock culture. Just walk within 3 blocks of the bar district along Rush and Division on a weekend night. I'm 6'7" tall, 300 pounds, and I often worried about some drunk meathead picking a fight with me. All that to say, that it's not a really nerd friendly town.
If you do move there and you walk around at night, get a black leather jacket preferably with Chicago PD patches sown on it. (The Alley on Belmont and Clark sells them). Walk around with your right hand tucked under your left armpit. You'll look like you're packing heat, and the thugs/meatheads will leave you alone. At least that worked for me for several years.
Oh, and the winters really suck.
Say what you will, I can think of a half a dozen other cities I'd rather bootstrap in--Austin, Boston, Providence, New York, Portland, Seattle, Vancouver, Toronto, Boulder, San Diego.
(New personal rule: stop making throwaway comments, especially w/r/t Chicago. People latch onto them like remoras.)
And while land mass doesn't create them, it does provide psychological space. A large (but not too large) space matched with good weather and transportation is perfect for cross breeding. You need to carve niches, ask evolution.
I realize a small city can grow a larger one, but some are too limited by location, but I'm not hip to which.
And you want startup cultures. Every city thinks they have a music scene. In some cities that's arenas, in others, ad-hoc clubs. You want rebels. But you want them in the outskirts not the capital. That comes later; it's demoralizing early on, save coup d'etats.
The problem with cities like New York (and Boston) is they have bad habits. Like human habits, they're mini-traditions, they give us expectations, then meet them. The set up is the comfortable feeling. But like candy bars, they taste great in the short run but kill you in the long. And they're addicting.
Boston's addiction is college, and New York's finance (and media). Those industries are going into permanent introspection within the next few decades. That's a while off, but it's still a bad play to have the next big thing near the really big thing it's going to outmode.
Media is badly wounded, but finance and education are still on their tour of duty. R&D and education are going to split eventually, and finance is just starting to get shaken up. There is vitality to sap, so I think we're too early for official sanction.
You set up the pins, we knock them down; That's a political game. We might avoid this with a rich patron. A rebellion can start with a dissatisfied insider.
And don't underestimate the second-rate mentality. I felt it as soon as I moved to Boston; And you can tell through the baseball fans. In New York, no one hates the Sox until they come to town. In Boston, they hate the Yanks year round ... and breed children to. It's surprising how far behind the runner up can be.
Another thing is that in New York you may have to look around longer to get a sense of everything, but in Boston, it's harder to abstract away the details. The city doesn't have to be that as huge. But we're looking for tightness; muscularity, not fat; Quality not quantity.
Now SV has this huge infrastructure of talent and money. High tech angel investors invest in SV not in their own communities, because of the decision support here. One of the real difficulties in investing in Kansas City, for example, is winnowing out the 99 crappy ideas/teams to get the one that will succeed, and investors having confidence that they can do so.
The best approach for another area is to pick an industry with local advantages: new energy sources, manufacturing for wind or solar, biotech, robotics.
I think public funding of startups will fail, because problems with mindset. What a community can do is streamline the business permit process, build out the infrastructure like fiber, assemble a volunteer group of professional advisors, and promote the startup culture. A 10K grant to an entrepreneurs' club that promotes mixers and speakers for entrepreneurs, angels, and support types will probably help the climate more than $500K to some random startup.
This seems like a highly effective way to kill startups. Never mind the whole "moving to a different city where you won't have many contacts" bit -- if a startup is still small enough to be able to move easily, throwing a million dollars at them is likely to give them too much of a runway.
(Not a rethorical question, and I have no idea about the answer.)
It's interesting we're even unsure of that. It means we're at least considering the possibility that merely being in the Valley is worth a million dollars to an early stage startup.
Close, but not quite -- we're considering whether staying in the Valley is worth a million dollars. It might be that being in the Valley is worth far less than staying in the Valley simply because moving sucks so much... even if you're not "tied down", it's still a couple weeks of packing/travelling/looking for an apartment/unpacking/figuring out your way around a new city/etc which could be spent coding.
We're dealing with an investment group that has this (in a much much smaller scale) in mind. My major concern for them is that I'm not so sure it can be done on a smaller scale.
Do you think cities can do a small version of this and become not the next Silicon Valley but at least startup friendly?
If you have a million in funding, you're probably going to want to hire some people to help you (you have enough money to shoot for the stars; moreover, ramen profitability seems both a waste and unable to recoup the investor's money). Hiring good people outside of SV, especially if you want to use interesting (read not java / ms) tools, is going to be a bit more of a challenge. Especially if there are 30 other startups in the area trying to do the exact same thing.
You can't replicate any of that stuff anywhere else. By definition, if you want to compete with Silicon Valley, you will want to hire some people from your competitors. So you have to be here as well. QED (any way around this dilemma, I'd love to hear).
You can refer to an article I wrote last year called "The limits of the Silicon Valley model". Unfortunately, it was in print only for an Indian magazine, I can't find a link to it.
I suppose what you say is true, but I don't see any reason to think such a transplant would ever outstrip the size/clout of the valley. And that's what it comes down to, is that with the big players already entrenched, and the weather so nice, no city will come close, even if the transplants do prove a boon.
Which is itself an interesting point, because it shows how unlikely the Valley is to face significant competition in the foreseeable future.
As an example, the French community in Silicon Valley has been wondering for years how to get Paris (or some other city) to start resembling Silicon Valley more. Many French politicians visit for a week and always ask that same question.
There could be a critical mass of French people living in Silicon Valley who would love to spend more time in Paris to advise and help the local startup scene, plus some political will to make something happen. Plus some rich American angels would love some special angel visa that would allow them to skip the lines at le Louvre :-)
But this plan doesn't address the general lack of positive thinking in Paris. As we (the French living here) often conclude, there is a reason we moved out...
It would be a hard sell to convince the voters that you should give $1 million of their money to three guys with some laptops that weren't planning to hire any more people for the next few years.
"$1B invested in 50,000 startups would conservatively create 250,000 jobs immediately. If just 2% of those startups became wildly successful they would create 3 million to 5 million jobs."
http://news.ycombinator.com/item?id=497559
I don't support the government-as-vc idea myself but not because of any job projection numbers (real or made up). I think science and technology funding like NSF is a better way for the government to get involved in long term value/wealth/job creation in this country. The outcomes of the efforts can be more easily shared by the shared public money put in, seems more ethical to me.
Its a good thing, too -- this region is otherwise extraordinarily dependent on a handful of ultimate consumers for manufactured goods. When a certain large car company has exports crater, those manufacturers get hit hard. The bank datacenter that they put here for cheap bandwidth and easy access to technical employees, on the other hand, won't shutter or lay off temps.
I won't tell you the total price tag but suffice it to say that if Japan got similar ROI on all their public spending, there would be articles here saying "Can I afford not to move to Nagoya?"
Of the two example cities, Portland could probably very easily become a startup hub without this plan to push it, whereas Detroit would probably fail at it, even with this plan.
(although I am saddened by the weather part, being in Madison, WI where we have an emphatic yes to the other criteria)
How would the evolution of Wufoo differ if they had be in the valley instead of Tampa?
Maybe you shouldn't listen to me since I've recently failed. But please do change some things you are doing, at least in the design area. I'd like to see you do well.
(Boy, telling a Putnam winner he doesn't know enough about something makes you choose your words carefully. And then it makes you wonder why you don't always do that.)
Tarsnap is in public beta right now, actually -- you can go to the website, create an account, deposit some money, and start backing up your data within the next five minutes. :-)
statements like this: http://news.ycombinator.com/item?id=360561 are also worrisome. UI and promotion aren't easy, nor 'easy'. They are hard and a lot of work.
If you read that link carefully, you'll note that I didn't say anything about promotion being easy -- and in any case, the scare quotes in "that's all "easy" stuff" should have been a tip-off that I didn't really mean that everything I mentioned would be easy. I was effecting the mathematician's habit of referring to any solved problem as "trivial" -- for all that there's a lot of work involved in creating a GUI, porting software to Windows, et cetera, those are all things which people have done in the past, whereas the core functionality of tarsnap -- secure snapshotted online backup -- required solving entirely new problems.
Also, the tax rates for both personal and corporations are higher in CA and MA than in FL (and FL doesn't have a state income tax), and I can see the higher regulatory costs in CA and MA being highly unattractive.
This leads into a question I have: Why did Silicon Valley become this computer Mecca? Why not Boston? My guess is that the tax and regulations up through the late 60s/early 70s favored California (coupled with the nice weather) and what you are now seeing (as CA collapses into debt) is merely inertia. If I had to pick an area for another Silicon Valley to arise, it would be Austin.
It's a very involved question why Silicon Valley has pulled ahead of Boston. People write whole books about it. I think the elaborate theories are probably mistaken, and that it's mostly due to a combination of historical accidents (Shockley Semiconductor specifically) and the quality of life in the Bay Area.
Interesting. I wonder how much the state of California could get away with soaking Silicon Valley without killing the goose that laid the golden egg.
"Startup founders are mostly hackers, and hackers are much more constrained by gentlemen's agreements than regulations. If they shake your hand on a promise, they'll keep it. But show them a lock and their first thought is how to pick it."
I love this quote, and agree wholeheartedly. Hackers are typically some of the most honorable people I know, and when they say something, they mean it. Likewise, they're some of the most ingenious people I know. When it comes to taking something apart or putting it together, hackers can usually do it.
I think there's probably a dozen cities in the world that could be world leaders in cloud computing simply by offering great deals on data centers as long as research and development work is also being done there.
A city could leap to world class status for mobile/location based services by offering to buy every citizen a smartphone and then inviting startups to come experiment.
Really, cities sho:ld take the exact same advice startups take: find a niche and serve it well rather than trying to crack the mass market with some luke warm offering.
Hot, smart, friendly Asian women.
The comment re: NC/RTP is spot on. The natives are content, slow-going folks. The imports are more active, but the slow-n-easy environment probably slows them down eventually. The triangle's a bubble in the midst of a lot of farmers...
I've been putting some considerable energy lately into trying to grow a startup culture in my area (Grass Valley, Sierra Foothills) out of thin air. To date that has involved launching a co-working space, founding a "solopreneurs" organization, and beginning to pitch the benefits of startup culture to local investors and shakers/movers.
I'm not looking to compete with Silicon Valley -- for reasons that you and others have pointed out, I don't think that's possible -- but I do think that we can create our own unique version of it. We're geographically isolated by two small arterial highways, there is a lot of scenic beauty and outdoor activities, and there is a strong push to localize products and services. There's also a healthy respect for technology here -- Atari was a prominent figure here back in its early days, Grass Valley Group engineers top-of-the-line video equipment, Spectrum Sensors & Controls builds various motors and potentiometers for government and high-tech applications, and the local cities are keen to attract more high-tech companies. For those reasons and others, I think there's a chance of incubating a small but successful startup environment here.
So although on the face of it what you wrote would suggest that it can't be done here, I think it also indirectly provides some support for it.
Tech media, bloggers and so on, they're all in the Valley, and they are very narrowly focused on local startups. They will hype the startups next door relentlessly and mostly ignore everyone else. Sometimes they will even ridicule or actively bully outsiders as astute techcrunch readers will have noticed.
Startup culture takes more than startups I'm afraid, but startups are certainly a start, so why not try?
Some places fund startups, some don't. That's what comes from having free will and individual liberty. Other people may make different choices than we would, but it doesn't follow that we should force them to be like us. I suggest we should respect other peoples' autonomy.
It has long been the credo of the social planner that the common man is too stupid and too provincial to pursue his own happiness, and that he should be cajoled into doing what is good for him. That credo has been the prelude to a lot of well-intentioned misery. I understand that there are things which are "public goods" which we may wisely choose to produce with public dollars, but investing in private businesses doesn't strike me as one of those public goods.
I don't see the social value in taking a lot of money from private folks to spread a concentration of startups more evenly over the landscape.
I understand that Paul is pondering what can be done and not what ought to be done. I just don't think it is a good idea. If I want to live in an area with lots of startups, I'll move to Silicon Valley where people have voluntarily chosen to fund them.
Finally, Paul states that this is a good idea because municipalities already waste a lot of money on projects of dubious value, such as baseball stadiums. That's true, but it doesn't follow that those municipalities should spend that money on other projects of dubious value. Another response would be that they should leave people and their money alone.
Thanks for this idea. I just added a paragraph to the essay mentioning it.
Or that could be stupid in practice, maybe a handful of close associates with honest feedback is way better than taking all comers.
Later Mark
There should be a quite large pool of people that have spare $30 million [1].
Creating new Silicon Valley sounds like a much better vanity project than, for example, space tourism (one trip is $20 - 28 million).
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[1] It seems like there is ~95,000 people in the world with net worth $30 million or more (out of which 1,125 are billionaires with accumulated wealth of $4.4 trillion).
http://en.wikipedia.org/wiki/Millionaire
http://en.wikipedia.org/wiki/Billionaire
From the outside California looks like its waking up from a ten-plus year orgy of mal-investment enabled by a mountain of easy credit driven by irrational international capital flows. I understand that Paul's role is encouraging investment, but this is disastrous advice for cities. Give away a million bucks? Talk about welfare capitalism. A much better approach would be a matching funds program for local ventures.
All around you. The cpu of the computer you used to make this comment, and the routers by which it got here, to start with.
My point was that IPO and M&A activity are highly correlated with stock market performance. I can't run a regression analysis linking exit opportunities to international capital flows because there are no statistics on international investment in US stock markets, but it hardly seems radical to point out that the VC boom of recent years has been fueled significantly by the stock market boom. If strategic investment decisions were the primary driving force behind the success of the industry the industry should not be facing such a bad liquidity crisis right now.
And perhaps this is harsh, but I don't see a lot of competence in the investment decisions which have been made in my own industry so I find your argument unconvincing. A lot of startups are competing against other startups and most funded companies in my space are disasters. But they all love AdSense, which means that as these companies flame out my ad-spend is going down and life is getting much nicer. Your suggestion that public policy should involving giving significant sums of money no-strings-attached to groups that seem responsible for major capital misallocation and band-wagon investment behavior seems beyond unjust. It seems crazy.
You could be absolutely right. There could be a lot of fantastic companies just sitting in VC portfolios making profits and waiting for the market to turn in order to maximize their exits. That is true. But it's also true that owning profitable companies does not generally incite the sort of liquidity crisis that seems prevalent in the industry right now.
I'm not saying you're wrong. I'm just saying there's very little evidence that the people you're proposing get a massive windfall in the form of a $30 million turn at the roulette table know what they're doing. And some of what they're doing hurts people who are competent and profitable. So in my industry, I don't think the word incompetent is really that strong. They could be making money, they're not. YMMV.
http://www.nytimes.com/2009/02/19/nyregion/19bankers.html
To be fair, convincing laid-off quants to stay in the city and form startups isn't quite the same as trying to get SV #2. The city probably wouldn't mind falling into PG's footnote #1 trap, because in the worst case the program would be an alternative to paying unemployment benefits with a free option should someone hit a jackpot.
I loved the essay, but this line alone was worth the time it took to read it!