Location Wars

“We’ll only invest in you if you move to SF.”

We were wrapping up a great pitch in the super cool office of one of those VCs you frequently see referenced in TechCrunch when this little grenade went off. Of course we’d considered relocation before—the access to funding and talent alone are hard to ignore—but this statement seemed so final. It trumped everything else. It had become “fund policy,” regardless of business type, customer location, industry, or anything else. 

And at the moment, we have a lot of other things worry about. 

For context...

I’m the co-founder of an enterprise technology startup in Cincinnati, Ohio, called Astronomer. My co-founder and I both have experience starting tech companies, and our small team of seven is fairly seasoned when it comes to tech startups. But Astronomer is young. Officially launched in May 2015, we’ve built and deployed a first version of the product, seen solid growth, gone through a top startup accelerator program in NY/SF called AngelPad and raised a nice chunk of angel capital. While we’re making good progress, we’re still very early—like “the bones in our skull haven’t fully hardened yet” early.

We like Cincinnati. Most of the team is either from the area or has been residing here for many years. It’s a great, growing city with access to several Blue Chip companies, significant investment into its growing startup ecosystem (e.g. Cintrifuse, three great accelerators, state incentives and several venture funds and angel groups), and even a few days of nice weather each year! All things being equal, I think we’d be happy to build Astronomer here.

Of course, all things aren’t equal.

There’s a lot to consider. Along with building and trying to sell our product or service, we’re dealing with:

  • Extreme cash flow issues
  • Recruiting talent (on “vision”)
  • Finding customers
  • The delicate dance of managing advisors and investors
  • The chaos of trying to lay a foundation of processes, rhythms and culture

From talent pool to customer type to cost of living, location impacts all of these in dramatic ways.

So, since we at Astronomer are currently working through this decision, I thought I would chronicle our journey a bit…and process by pen.

But before I go any farther, I should probably point out that I don’t have any personal vendetta against San Francisco or the Bay Area. In fact, my roots directly trace back there for generations and I still have a lot of family in SF and Berkley.

History of the West 

Ok, before we can assemble a pros and cons list, we need to address the mythological land of brilliant engineers, budding entrepreneurs and (bubbling?) venture capital: Silicon Valley. The newest generation of last-name-only celebrities, like Zuckerberg, Andreessen and Musk call it home. But how did we get here? What is Silicon Valley and how did it rise to such prominence?

Actually, the area was pioneering tech long before it was called Silicon Valley. Here’s a brief timeline of some key events that have shaped SV and SF into what it is today.

Note: The unabridged history of the valley is fascinating, and I highly recommend reading up on it. I’ve put some resources at the bottom of this post.

  • 1848: The Gold Rush established a critical character trait of the area: “Opportunism.” Entrepreneurs and adventurers flocked to the area with hopes of fast (though not easy) wealth. For most, it was an “all-in” proposition—risk everything for a shot at radical success. Vast fortunes are made and lost over months and years (vs. decades), and incredible risk is commonplace.
  • 1898: As American ships were returning to SF from fighting the Spanish-American War, they sent the first-ever wireless telegraph to SF—which centered, coincidentally, around getting a victory party started. A few years later, San Jose set up the first national radio station with regular programming, which eventually led to the establishment of a global radio network. The Bay Area was already becoming a hotbed of tech innovation.
  • 1956: Nobel prize winning physicist, William Shockley, moved to Mountain View and set up Shockley Semiconductor Laboratory to commercialize the process of using silicon for transistors. Shortly thereafter, he left Shockley Labs and started Fairchild Semiconductor (and later, Intel.)
  • 1957: Things in the area really began to heat up when the Soviets successfully Sputnik’d the US during the Cold War. Eisenhower greenlit NASA, which turned to Fairchild Semiconductor to turn on the hustle. By 1964, they had produced over 100,000 integrated circuits for NASA.
  • 1950s: Enter Frederick Terman, professor and eventual Provost, and From mentoring Stanford grads William Hewlett and David Packard, to setting up the Stanford Research Institute (which played a foundational role in birthing the Internet via ARPANET), Terman’s contributions are critical in understanding why Stanford has been (and continues to be) the bedrock of the Valley’s rapid growth.
  • 1972:  With the growing concentration of fast-growing and highly lucrative technology companies, the now famous VC, Kleiner Perkins, sets up shop on Sand Hill Road and venture capital formally hits the scene.
  • 1974: Intel releases the Intel 8080, the first real microprocessor.
  • 1975: The first meeting of the Homebrew Computer Club sees attendance from the likes of Wozniak and Jobs.
  • 1980: Apple IPO’s for $1.3bn and crystalizes the Bay Area as the dominate location for technology and venture funding.

From there, the virtuous cycle of talent to funding to success was firmly in place. Obviously, the Valley’s growth wasn’t without hiccups, but the growing gravitational pull of the area had become exponential. (Interestingly, exponential gravity expansion tends to lead to rather disturbing outcomes.)

Why does this history matter?

These forces of talent, network and funding are extremely significant and highly correlated to success. Their genesis helps us understand why and, more importantly, if they can be replicated elsewhere. A culture of opportunism and risk-taking is an important factor in attracting the right kind of talent to launch a successful tech startup. A critical mass of talent paired with an ecosystem designed to connect that talent leads to invaluable “serendipities” (like bumping into your next co-founder at a meetup)—which, though often overlooked, are at the core of all tech success stories. And finally, access to the right funding means talent can aggressively focus on R&D and building their technology at rates impossible in conventional business.

As we consider location, these forces must be considered for any given option. Evidence supports that it’s possible to launch hugely successful tech companies outside of the Bay Area (e.g. Groupon in Chicago, Amazon/Microsoft in Seattle, Etsy in NYC, etc.), so I believe these forces exist elsewhere as well. The question for each location option is “to what degree?” And what about the other forces underlying success? Things like industry expertise in the area, local cost of doing business, access to and ease of transportation and local attractiveness for recruitment?

Ok, so I’m clearly talking myself into more questions than answers. But it’s important to know what to ask, and why. If I continue exploring this, I'll dive into concrete options, and look at pros and cons. Either way, can't wait to see how it all shakes out! 

Sources:

 


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