For founders starting companies outside the Bay Area, the thought of moving to the Bay will flicker across every single founders brain at one point or another. You’ll hear about all the latest financings, exits, accelerators, and the list goes on. However, relocating one’s team, penetrating a geographic region entirely unknown, and suffering at the hands of an insane cost of living can be pretty strong deterrents. What’s a founder outside the Bay Area supposed to do!?
Access to Talent
When considering talent for your startup, a good place to start is looking for major academic institutions that have the core skill set that you need to recruit. For example, skill sets in data science are in ultra high demand and may be difficult to attract to a region that does not have it fostered at a local academic institution. You can also look at the tech scene within the geographic you are targeting, maybe there isn’t a major academic institution, but perhaps you have a wealth of local tech talent in industry.
The other consideration is your overall cost basis. Salaries in the Bay Area are outrageous. A recent article featured a software developer at Twitter making $160,000 / year and barely making ends meet. So while Silicon Valley may have the strongest tech scene in the country, and top tier institutions like Stanford and UC Berkeley, your cost basis is instantly doubled for salaries alone (not even factoring in rent). Moreover, retaining talent is competitive, expensive, and turnover in the Bay can be high. Having turnover in key employees early in your organization can be cataclysmic to the potential success of your startup.
So, when considering moving to the Bay you should consider the following. Can you retain the talent on your team from a competitive standpoint? Are you ready to double your cost basis at a minimum? Salaries will obviously double, but so will your OpEx and your own personal cost of living. Essentially, you’re getting a lot less for a lot more. With that said, there’s plenty of talent – so if those factors bid well for you, maybe the stars are beginning to align for your transition to the Valley.
Access to Customers
Being able to attract and retain customers/users is the most variable consideration depending on the core business you are running. If you have a B2B solution, you absolutely have to prioritize having access to your customer-base. This is critical for your success especially in the discovery phase. You need to have an intimate relationship with your early customers to understand every detail about the value your solution provides, and more importantly, how you can scale it to users at a national, and even global scale. For Skycision, this resulted in splitting our operation between Pittsburgh PA and the West Coast – accessing Carnegie Mellon’s talent pool for a fraction of the cost of West Coast startups, with a Business development office in the Bay enabling us access to customers and capital.
In any kind of business, you should consider relocation with your customers as a top priority.
Access to Capital
Raising money to scale your solution presents the biggest hurdle of launching your startup outside the Bay. When assessing this factor it’s important that we start with the understanding that there is a fundamental disconnect of how investors view opportunities on the West Coast, and how they view opportunities across the rest of the country (maybe with the exception of New York).
West Coast Fundraising
West Coast investors care about rapid growth and ability to scale. In any kind of software business, your Month over Month (MoM) growth metrics are deemed sacred. If you have a compelling solution and are growing rapidly, capital will find you and it will be the least of your concerns.
The supply of capital in the Valley is higher, and investing in unproven technology companies with market potential is not a foreign concept. You’ll encounter dozens of entrepreneurs who have exited and are now active angels, as well as the proliferation of funds at every stage.
While the supply of capital is greater, so is the demand. You must be confident in your capability to stand out amongst the other thousands of startups that are also raising capital. If you’re differentiated and have the proof points, you should be able to attract the necessary capital, but forming the right relationships will be key. You may want to target an accelerator to help you penetrate the market to build your regional repertoire and expand your network.
East Coast Fundraising
East Coast investors (minus NYC) approach financing your business differently. Capital is not as abundant in emerging hubs of innovation and they know that. As a result, they want to know the money they put into your business can get you to cash flow positive. In these situations, rapid growth is not the priority, the long term sustainability and longevity of your business are. Investment comes slower and the checks are typically smaller.
The low cost basis these cities operate at compared to the Valley are their largest value proposition, and you will likely find yourself dozens of local advocates that are in your corner that legitimately want you to succeed. So, while you may have a lot of advocates cheering you on, you may be tough strapped to find anyone in that community willing to write a check.
You have to look at that local market from a capital standpoint and make the decision if there is enough capital there to get your business to the point where you can raise a round of more than $2M. At that large seed / Series A point in time, you can attract capital from outside of the region if your company is compelling enough. However, if you can’t get financed through the foundational phases through local VC or Angel capital, then you should very seriously consider relocating (doesn’t even have to be to the Valley).
Identify the major points of consideration you and your team should discuss before making the long term commitment. It’s easier to start outside Silicon Valley, but when considering scale, you will either have to attract capital to you, or consider relocation or splitting the operation in the long term.