Can You Buy a Silicon Valley? Maybe.

http://www.paulgraham.com/maybe.html

by mqt • 17 years ago

124 127 17 years ago

sachinag3• 17 years ago

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.

[1] http://www.masshightech.com/stories/2008/09/08/weekly7-Y-Com...

jibiki• 17 years ago

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.)

sachinag3• 17 years ago

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.

iamelgringo• 17 years ago

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.

sachinag3• 17 years ago

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.)

jackchristopher• 17 years ago

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.

russell2• 17 years ago

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.

Hexstream• 17 years ago

Typos: Goverment, tradional.

pg19• 17 years ago

Thanks, fixed.

asdflkj• 17 years ago

Also: "I just wanted to explore what it take if one did." is missing something.

cperciva5• 17 years ago

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.

euccastro3• 17 years ago

The "not many contacts" part is addressed, according to the OP, by moving no less than ~30 startups in one batch.

cperciva5• 17 years ago

It's useful to have contacts other than people working at other startups.

sgman• 17 years ago

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.

pg19• 17 years ago

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.

cperciva5• 17 years ago

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.

thingsilearned• 17 years ago

Great insights as usual PG.

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?

mattj• 17 years ago

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.

alain940402• 17 years ago

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.

s_baar• 17 years ago

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.

pg19• 17 years ago

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.

alain940402• 17 years ago

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...

jacoblyles4• 17 years ago

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.

timf4• 17 years ago

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."

http://news.ycombinator.com/item?id=497559

jacoblyles4• 17 years ago

Sure. You could make numbers up and hope they are true. Just be sure the homeless shelters are well-funded for when the money runs out.

patio11• 17 years ago

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?"

albertsun• 17 years ago

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.

timf4• 17 years ago

I thought the second to last paragraph said something much like what you are saying: "It will be easier in proportion to..."

(although I am saddened by the weather part, being in Madison, WI where we have an emphatic yes to the other criteria)

prakash• 17 years ago

Wufoo seem to have rooted themselves in Tampa on $118k, but they're an extreme case.

How would the evolution of Wufoo differ if they had be in the valley instead of Tampa?

pg19• 17 years ago

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).

cperciva5• 17 years ago

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.

ssanders82• 17 years ago

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.

pg19• 17 years ago

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.

Zak• 17 years ago

Elaborate first, else your post is merely a "vote up if..." type post that adds nothing useful to the discussion.

slvn• 17 years ago

just maybe

pbrown• 17 years ago

Tangent:

"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.

shalmanese• 17 years ago

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.

pg19• 17 years ago

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.

russell2• 17 years ago

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.

davidw• 17 years ago

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.

onetime• 17 years ago

Honestly, Silicon Valley has one killer asset that is hard to match.

Hot, smart, friendly Asian women.

jleyank• 17 years ago

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...

euccastro3• 17 years ago

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)?

pg19• 17 years ago

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.

thaumaturgy• 17 years ago

Thank you for writing this.

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.

fauigerzigerk• 17 years ago

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?

jacoblyles4• 17 years ago

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.

michaelkeenan• 17 years ago

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.

pg19• 17 years ago

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.

bd• 17 years ago

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).

-----

[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

trevelyan3• 17 years ago

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.

pg19• 17 years ago

Where is the evidence the VC industry in California is even competent?

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.

trevelyan3• 17 years ago

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.

leelin• 17 years ago

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).

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.

pchristensen• 17 years ago

"It depends what your city values. If what you want is football, spend the money on the stadium."

I loved the essay, but this line alone was worth the time it took to read it!

pg19• 17 years ago

Oops, just deleted it.

gcheong• 17 years ago

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.

budu3• 17 years ago

I agree with you. Selling the idea of a billion dollar startup mecca to their constituents would be a though sell for any politician.

netcan2• 17 years ago

"Rent Seeking"

Say this works out in a big way & 2-3 cities take up this $30m challenge. The essay suggests $1m to move a startup, which suggests that having a startup in your city is worth (more then) a million. Why not offer them a million to stay (or half a million if they'll take it)?

What if the cities start bidding against each-other for the 'best' startups (assuming they end up with some mechanism for choosing the best ones). What if start-ups form specifically to take advantage of this scheme? What if angels/VCs that happen to rank highly on this list have all their investments get poached & presenting it as a benefit of taking their 1/4 million?

The perverse incentives, gaming & such might make this impossible to implement as a large scale government/municipal scheme.

pg19• 17 years ago

Picking startups based on the investments of eminent angels would protect against most gaming. They're not going to change their investment criteria based on what's happening downstream of them.

yummyfajitas• 17 years ago

The ability to get government funding increases the success probability of various startups. What happens downstream will affect success rates.

I.e., if flagsfororphans.com goes well, VC's win. If it gets into trouble, the possibility of future government funding may let the VC's recoup some of their investment.

This makes VC's prefer flagsfororphans.com to satanictitleinsurance.com, which obviously does not have the same possibility of government funding.

brucehoult• 17 years ago

Every time you write an essay on this general topic I sit here wondering: Has he looked at Wellington, New Zealand?

Beautiful city that people want to live in, lots of people living downtown, good university, a community with several very successful technology companies that are a source of angel investors and advisors e.g. Weta Digital (Lord of the Rings etc) and TradeMe (online auction site that beat eBay in NZ and sold for $750m).

Dilpil• 17 years ago

Moving to new Zealand is a pretty big deal.

xenoterracide• 17 years ago

@detroit HEY!! no you're totally right except detroit is right next to Ann Arbor, which is actually one of the bigger tech startup area's in the nation, or so I've been told... I don't think downtown detroit could be an SV, but I think you could turn part of metro detroit into one. If you could somehow avoid all the morons and corruption...

netman21• 17 years ago

Ann Arbor is actually a great supporting argument to PG's essay. It has the University, walkable neighborhoods, diverse culture, and a complete lack of willing investors. Case in point: Arbor Networks. It moved to Boston at the behest of its investors even though the founders still live in Ann Arbor.

Ever take a Monday morning flight from Detroit to San Francisco? First Class is packed with frequent flyers that have to fly to SV every week. Not only does SV attract startups, it sucks the brain power and experience out of other cities.

yef3• 17 years ago

"The organic way to do it is to establish a first-rate university in a place where rich people want to live."

Obviously not the case. We can just go down the list of top universities and look at the ones that are in desirable places that aren't Silicon Valley. We can even have a laugh at all the names people came up with, like Silicon Alley, Silicon Hills, etc.

One very important reason is that the tech talent in the top tech hubs is old-growth, and recycles between all the different tech companies. And it's huge. Funding 1,000 startups for just 5 years still seems very, very small compared to the existing ecosystem in Silicon Valley, let alone the logistics of finding enough of them, vetting, competing with other funds, etc.

pg19• 17 years ago

I did go down that list. See the second section of http://www.paulgraham.com/siliconvalley.html .

yef3• 17 years ago

Right, that's exactly my point. None of those places can really compare with the size and power of Silicon Valley. The fact that there's only one Silicon Valley is proof enough. The rest are smaller tech hubs. So there must be some other factor working in favor of Silicon Valley.

subhash2• 17 years ago

When a good startup compares two funding offers, it does not automatically pick the one that gives the highest valuation. It has to consider the other intangibles like VC advice, contacts, good PR etc. Given this, a city offering just money is like a loser VC who's really desperate. Why would a good startup want to take that?

pg19• 17 years ago

Because they need the money. There are plenty of really good startups who struggle to raise money.

It would be better than taking money from a loser VC, because you wouldn't be stuck with the loser VC on your board afterward.

subhash2• 17 years ago

You seem to be considering only cities in the US because it doesn't seem practical to ask startups to move across countries, especially if they are very different. As a corollary, a city might benefit instead by exploiting the local peculiarities to espouse a startup culture.

For example, in the city I live in, it's perfectly acceptable to live with your parents all your life. And that's a perfect fit for lowering living costs. There is also an obsession to live in or close to your hometown, which might force college grads to start up instead of working for a big company in a big city. There is a strong sense in society of admiring entrepreneurship as opposed to employment because of a (convoluted) communistic ideal. There is a lot of investment money readily available from expatriates from the Middle East that they cannot use in their country of residence.

This might mean that there is a different route to becoming Silicon Valley and it is all the more difficult to determine because it is not generic.

YuriNiyazov• 17 years ago

Quite prolific lately. Clearing out the buffer?

ivankirigin• 17 years ago

I think this essay also describes a way to get a good number of intelligent people to move to a new country based on an island or seastead. While starting a good university is hard, the new country, probably small, supports the other suggested criteria for a startup hub.

The feedback of the system would be excellent too, as the companies that move to the new country would hire people that are interested in freedom and startups.

The startups would have a particular advantage after moving, in no regulations or taxes to deal with. They'd only need to pay rent (depending on how property taxes, currency, and private property work on the seastead).

Considering the numbers described here, there must be thousands of people who could bankroll both the infrastructural parts and the social parts like this.

quantumhobbit• 17 years ago

When PG said the next startup hub should be like San Francisco, I thought of New Orleans. Not for any objective reason but just because when I think of bizarre tolerant cities I think of those two. If you doubt New Orleans' tolerance you've never been to Bourbon Street. And they both have streetcars. Not that the Big Easy would be suited to a Tech Startup, it is the perfect place for musical startups. http://en.wikipedia.org/wiki/Musician%27s_village

I think that certain cities inspire or attract creativity and weirdness. It just doesn't have to be tech-related. Any other examples of weird city + creative pursuit?

r00k• 17 years ago

Another typo: "bring in a thousands startups"

rms• 17 years ago

Pittsburgh's Alphalab has a stuck in Pennsylvania provision because they are funded by the state of Pennsylvania and ultimately their goal is to create jobs in the state of PA. If you leave, you have to pay back the $25k.

edahan4• 17 years ago

By all measures, the RTP area of North Carolina should be growing startups and growing massively large companies with the best of them.

UNC, Duke, NC State + dozens of smaller colleges/universities within a one hour drive provide a very well educated work force.

An existing network of colleges exist within a several hour drive (Wake Forest, etc.)

The financial center (hopefully things will return to at least "functioning") of Charlotte is a day trip in a car. Washington D.C., Atlanta and New York are airplane day trips and Boston, Chicago and Miami are overnight trips away. Attracting constant attention from traditional VC funds is not a problem.

There is a strong base of both Tech and Life Sciences companies in RTP. This base can provide everything from internal skunk works within these companies to employees leaving to create startups.

The weather ain't all that bad - for the East Coast.

So - what is the real problem - it isn't money.

The problem can be found in passivity, complacency and parochialism.

I was once told (by a Silicon Valley born and bred person), "everyone has their prejudices - but these folks (around RTP) actually let that get in the way of making money." The Silicon Valley is not filled with folks singing "Kumbaya" - but it is filled with folks who are more than willing to put aside whatever personal feelings they may have if there is a buck to be made.

One of the most prominent venture capitalists in the RTP region once said (in private) that all the "entrepreneurs" around here are hoping that one day they can afford a nice beach house on the Coast, instead of . . . . being entrepreneurs.

Nope - RTP is an example - it isn't only about the money.

It's really about the people.

BUT - money for seed/startup development is essential.

Funding startups shouldn't come from the government - it should come from a For Profit Seed/Startup fund that works with, supports and Compensates the Seed Infrastructure (incubators, tech transfers, economic development agencies). The Seed Infrastructure should not concentrate on being landlords, academicians or civil servants. The Seed Infrastructure should concentrate on sourcing, screening and providing post Seed investment oversight for companies that will ultimately be worthy of traditional Series A investments.

And remember, this Seed Infrastructure is, for the most part,already funded by local/state governments, academia and corporate sponsorships.

The idea of simply throwing money into a broken system won't work. The idea of expecting the traditional VC stage of the Risk Investing industry to innovate or nurture is fallacious. Regardless of what Alan Patricof said in his NYTimes article - VCs don't nurture. VCs provide growth capital for those Seed/Startup enterprises which have reached a level of traction and validation.

Thomas Friedman was even more delusional with his idea of giving 20 VC firms $1 billion each to generate innovation. All you are going to get by giving VCs $20 billion is somewhere between $2-$2.5 billion in management fees for the VC firms.

I do not know how you can generate an "entrepreneur" mentality in a short time - after all, even the success of Noyce and Friends took a while to take hold after they left Fairchild to start Intel.

But, I do know the way to start - please read (and feel free to comment) - http://www.slideshare.net/ElliottDahan/start-fund-feb2009

Elliott Dahan The Growth Group elliott(a)thegrowthgroup.com

tom4370• 17 years ago

As a MS grad of the UNC CS department who has spent time working with researchers at both Duke and NC State, it's interesting to me to think about why we don't have a thriving startup culture. I certainly know people who have gone through those programs, stayed in the area, and are interested in startups (as both founders and places to work).

My perspective (which clearly can't cover all the students in those programs or hackers in the area) is that a small number of successful (ie, more profitable for the founders than taking a job with IBM, Fidelity - before the layoffs, NVidia, SRA, SAS, or one of the other, non-tech focused companies in the area that suck up tech grads) would go an extremely long way in jump-starting a startup culture.

Heck, I wonder if semi-decent mentorship for founders from people who actually got something out-the-door would be more helpful than just having some VC opening the checkbook. I always think of SV as kind of nirvana, where joining a startup with some decent chance of being successful is much more a normal story than it would be here in RTP. I think a big part of the lack of a startup culture here is that people create interesting software, but then kind of sputter out on getting it in front of people. Maybe RTP has the tech talent to be a startup hub, but lacks a local and cutting edge,technically-driven customer base? Or the critical mass of like-minded founders is what we desperately need as pg speculates in his essay? Certainly the focus at the big three universities isn't on startups . . .

All that said, in my peer group, several people have gone on to work at small, startup type companies in RTP. But it seems like the common story here for hackers who "make" it are ones that seem to involve consulting for one of the bigger companies in the area or maybe less commonly developing software in 1 or 2 man shops on a custom basis (ie, roll-your-own ERPs and whatnot) for comfortable income.

I think RTP is getting closer to being more startup-oriented, but we (the area and hackers in it) need to be more driven in becoming entrepreneurs. But I don't hear hackers in RTP say anything about being satisfied with a nice beach house . . . I'm not defending the RTP hackers too strongly here because I do think we are missing some critical piece of what a startup culture needs but I'm not sure we can chalk it up to "passivity, complacency, and parochialism."

I would love to hear other thoughts from HN readers in RTP or with connections to it (ie, did you do school here and head to SV?).

edahan4• 17 years ago

Tom4370 - you write - "Heck, I wonder if semi-decent mentorship for founders from people who actually got something out-the-door would be more helpful than just having some VC opening the checkbook." . . . .Yes !

The CED should have offered this hands-on mentorship program for entrepreneurs. And I am not talking about another conference or speaker series or fraternity mixer.. . . .very disappointing.

And "yes" - there is a very strong talent pool of techie folks, business folks and support folks (one of the nicest people I know is actually a Lawyer - Fred Hutchison).

As for "customer base" - 2 points - RTP, depending on your sector has a strong customer base. But,the necessary proximity of the customer base is more dependent upon what you ar doing, who can introduce you, etc.

And finally, my comments about "passivity, complacency, and parochialism" were not directed at just the entrepreneur base - if anything, it was directed at the VC base, the Incubator base and the Mentorship base you mention in your comment above.

Entrepreneurs will be entrepreneurs and work hard and innovate and . . . . . only if the rest of the Seed Community around them gives them a good reason to be Entrepreneurs.

edahan4• 17 years ago

tom4370 - just noticed your queston to me about going to school there -

I graduated from UNC. My middle brother graduated from UNC. My oldest brother attended law school at UNC. My nephew graduated from UNC. My niece graduated from UNC. I have been in SV for about 30 years now.

And, even if Carolina does beat Georgia Tech by 30 points, I am still very, very concerned about this on again / off again defense from Carolina. And, don't blame it on Ginyard being out.

The heartbreak

velshin• 17 years ago

@netcan, well said. Economic incentives that only serve their intended purpose are rare!

jf781• 17 years ago

Great stuff Paul. Welcome to Silicon Valley.

edahan4• 17 years ago

Folks seem to be constantly confusing the Seed stage of the Risk Investng industry with the traditional VC stage. They are differnt.

The point for this conversation is that the VC stage does not create jobs or innovate. The VC stage provides growth money, business development contacts and a network for team building.

Innovation and initial job creation (which is then expanded upon during the VC stage) is created during the Seed stage.

Please review the powerpoint - The START Fund - http://www.slideshare.net/ElliottDahan/start-fund-feb2009

Please review interview from VC Experts - http://vcexperts.com/vce/news/buzz/archive_view.asp?id=642

And - the last thing anyone should hope for is having the People's money go to VCs. Scary thought.

The People's money is already helping to support a good Seed Infrastructure of Incubators, Academia, Tech Transfers and Economic Development Agencies. The People's money should continue to go to the Seed Infrastructure.

Private money should go to investing in worthy portfolio companies of this existing Seed Infrastruct5ure. And, this private money should be investing on a For Profit basis

or• 17 years ago

How do you define what is and what is not a 'Silicon Valley'? that is, when would you declare such an experiment as a success? It has to be some measure which is not only scale - for otherwise a small scale (30 start-ups) pilot could never be considered a success. For example, Route 128 in Boston and RTP both have start-ups and other IT companies yet in a smaller number than SV. What is it precisely that they are lacking and would have made them 'smaller SVs'? I recall seeing a statistics saying that Israel has the largest number of start-ups per capita in the world. Yet it is far too small to have a 'critical mass' for being able to compete with SV. In that sense, can the Tel-Aviv - Herzelia area be considered as a successful 'small SV'?

evertb• 17 years ago

Paul, very interesting essay, especially seeing that I (and others) are trying to do something similar in Limerick, Ireland to counter the unemployment due partially to the redundancies announced by Dell and the knock-on effect it has on the local economy. Limerick has a good infra-structure for an effort like this; it has a very good university, an institute of technology, an international airport and is located very centrally. Whats more it has a good innovative and entrepreneurial culture. What's important is not so much the investment by larger funds but rather the very early stage investments. These will enable a good idea to be developed into a product or service tied into a company that has all the right ingredients to grow by raising larger amounts of funding and expanding it's management team. The availability of early stage funding will also create a culture of innovation, creativity and entrepreneurship. Apart from the money there should also be hands-on support and a culture of networking and sharing of experience as well contacts. We're trying to create exatly this through the GreenHouse (www.greenhouselimerick.com) and I am amazed by the support that we have received by individuals and the private sector. Would love to have a chat with you sometime as there are a lot of parrallelels between Ycombinator and our plans here in Limerick.

Evert Bopp.

ntoper• 17 years ago

Actually France is almost doing what you describe. They do an almost full tax exemption on startup during 8 years (provided you fill a lenghty and time consuming application).

They also give easily between 50K to 100K 'no string attached' (provided you use them for R&D)

The drawback is you need to fill a lot of paperworks, meaning it's useful for startup with revenues.

These are some of the reasons why my startup decided to stay in France.

As opposed to what you say, they fund the good and the bad and let the market decides.

Nico

kurisutein• 17 years ago

I think we can do this in Los Angeles.

With the way the broadcasting of television and the availability of content online is evolving I think there is great opportunity to distribute this information more efficiently.

In LA we have the producers, the actors, the funding, the networks, the nice weather, good schools, mobility, the mindset - there are so many angles to pitch this to start ups. Could the available options in this city lower the costs for start ups.

Theres opportunity in the distribution of music, video...all of entertainment. Theater, fashion, - are reality shows still a big hit? How about a website that consolidates a bunch of reality shows - even home grown.....

Maybe this posting will get deleted because i went on a tangent?! - thank you for the inspiration Mr. Graham.

StephanF6• 17 years ago

Why is more government always the only answer to solving a problem? Looking at all the other attempts to create a Silicon Valley that have pretty much failed and they were all government sponsored. It seems obvious that government can't solve that problem either. With all the social networking capability now it should be easier to find other hackers, founders, and angels in any city of sufficient size. We need a facebook for founders to bring all of this together. Though getting the funders to notice might be an issue.

dutchkabuki• 17 years ago

I love all of pg's essay, but this one is a startlingly superficial, and naive, commentary on a topic that has been thought about for +20 years. Also, I think pg has become too focused on the types of companies he funds ("ramen consumer web 2.0 companies") and he thinks this is applicable to broader issues. it isn't.

donaldc• 17 years ago

There is no way that money alone would be sufficient to recreate a Silicon Valley. Of course, it would help, but some of the other obstacles are daunting.

* Non-competes. Within the U.S., California is by far the state least inclined to enforce non-competes. This happened as a historical accident, well before Silicon Valley arose. Getting another jurisdiction to adopt a similar attitude toward non-competes would involve, not money, but politics, which is far messier and more uncertain. The existing large companies in a given state generally perceive, rightly or wrongly, that it is in their interest to have non-competes enforced as vigorously as possible. This, in turn, has two effects detrimental to competing with Silicon Valley: (1) employees often can't go off and start a competing company in their area of expertise without a two-year waiting period, and (2) the really ambitious among them may get around this by moving to California (often Silicon Valley), where their non-competes are unenforceable, thus furthering the Valley's lead.

* Specialized insfrastructure. Whatever a hardware or software computer startup needs, it has access to in the Bay Area. Legal services, financing, management expertise (useful as a startup gets bigger), and above all the hardware and software engineers skilled in even the most arcane (but sometimes needed) technologies. This sort of infrastructure cannot simply be bought, it must be grown.

* Many of the metro areas that conceivably might be able to make a run at competing with Silicon Valley (i.e. those that are not economic basket cases) already have a different industry that is their specialty, and have no good incentive to try and supplant that industry for a clone of Silicon Valley. And without the other industry being supplanted, it's unlikely that the density of computer/web startups will even approach that of Silicon Valley.

With all this to overcome, one billion dollars doesn't seem anywhere near sufficient.

Silicon Valley will eventually be rivalled by a metro area that specializes in something related but not quite head-on to what Silicon Valley does. For example, it's conceivable that Seattle, with its focus on more consumer-oriented software and web companies (such as Amazon), could gradually ooze its way into having a bigger share of the more purely web-based startups (such as Google). But that's very different than trying to create a Silicon Valley rival from nothing.

MikeGale• 17 years ago

It's not a fixed place that interests me.

In a world where on-line places are still a failure I'd love to see the rise of "online places" full of people who you can have a useful, short conversation with.

Not hordes of people you "meet" once or twice but small and vibrant and you talk fairly often. People you go out of your way to meet physically, even when they are on the other side of the world.

Places like that can be dispersed over the planet and might incubate some interesting business.

amitu• 17 years ago

In India, the city that most qualifies the requirements if Mumbai(Bombay). It has got an IIT, and well rich people love to live here.

Banglore, Hyderabad, even Pune and New Delhi belt are seen as thriving IT cities of India largely because of the government incentives to companies offering to setup shops there. The employees all hated that those places. A lot of batch mates of mine went to Banglore or Delhi and preferred Bombay to live, but big companies are not around.

I guess what is lacking is success stories.

trent• 17 years ago

'Do you have good weather? Do people live downtown, or have they abandoned the center for the suburbs? Would the city be described as "hip" and "tolerant," or as reflecting "traditional values?" Are there good universities nearby? Are there walkable neighborhoods? Would nerds feel at home?'

All the above sounds like Richard Florida and his Creative Class stuff. Not sure I buy into it all, but guess where he lives now... http://en.wikipedia.org/wiki/Richard_Florida

Ennis• 17 years ago

This is very good. Thank you Paul. There is a city in Ontario called Waterloo. I think it fits the characteristics you've laid out. Unfortunately this is Canada and big money moves slowly here. My university exports the greatest number of graduate hires to Microsoft. I am at a loss what it would take to jump start this place. If you have any ideas I'm all ears!

messel• 17 years ago

Instead of trying to reinvent the Nile, why not focus on the features that make it ripe for farming? Fertile soil and easy transport of goods. Can that be done artificially? If so can it be done virtually? It could take a never ending supply of money to sustain another Silicon Valley. Look at Dubai Internet City.

Can You Buy a Silicon Valley? Maybe.

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