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In the 1990s, Silicon Valley in the San Francisco area of California became synonymous with tech startups. As the birthplace of companies like Google and Apple, drawing from talent pools at schools like the University of Berkeley, investors, venture capitalists, programmers, and entrepreneurs all worked together to create a new kind of industry.
Many areas around the country have begun to catch up, creating tech based startup incubators and working to make business ownership easier to access, but many people still believe that moving to Silicon Valley is necessary if a tech company is really going to take off. What should entrepreneurs expect to find when they move to Silicon Valley? There’s both good and bad to be found there.
Many small businesses struggle to get adequate capital through traditional means, and that problem can be magnified for tech startups. Banks want to see a history of tried and true business success before they lend out money, while tech startups often operate on the cutting edge of industries. They are innovating fresh new ideas, which means that they may be gambling as much on instinct as they are on hard evidence.
In Silicon Valley, however, there is an entire culture of venture capitalists and angel investors who have experience in what takes a tech startup from a concept in someone’s spare room to a multi-billion dollar company. With the fresh focus on Unicorn businesses, those which have the potential sell for a billion dollars or more, investors know that taking a risk is a necessity.
By taking a business to Silicon Valley, an entrepreneur is moving to a culture that knows how to make tech work. They may find more mentor possibilities than they would anywhere else.
Tolerance towards failure
In other industries, a failed company can mean that getting any capital towards a future business is somewhere between difficult and impossible. In Silicon Valley, there is a cultural appreciate for calculated risk, and a general understanding that many startups don’t succeed in the long term. As long as an entrepreneur can clearly articulate what went wrong, and what they’re planning to do to avoid that issue in the future, investors might be quite willing to give the company a second chance.
Entrepreneurs sometimes make the mistake, however, of assuming that investors will take crazy risks. While risk taking is appreciated and rewarded, those risks are still based on careful research and considered possibilities.
Broad talent pool
Because of the number of colleges in the area, as well as the knowledge that the San Francisco area is a place to go when a programmer or designer wants to work on the cutting edge of tech innovation, the talent pool in Silicon Valley is incredibly deep and broad. Whatever speciality an entrepreneur needs to make their business a success, they will likely be able to find someone in the area.
More overhead costs
Silicon Valley isn’t all upsides, unfortunately. Businesses in the area often pay substantially higher overhead costs than they would in Denver, Colorado, or Raleigh, North Carolina. This can show up in a variety of ways, from higher real estate costs for businesses to bigger salary expectations for employees. Businesses may find that they struggle to make ends meet for their businesses in Silicon Valley, simply because everything is so expensive.
Higher overall cost of living
For entrepreneurs who want to live where they work, Silicon Valley can be prohibitively expensive. The barriers to home ownership are considered some of the worst in the country. Investors in the area have many stories of hopeful entrepreneurs who moved to Silicon Valley without any money to their names and ended up failing, not because their ideas weren’t good, but because they didn’t have enough capital to keep them afloat until they could get their business off the ground.
Investors are often asked if entrepreneurs should move to Silicon Valley in order to make their business a success. The answer is, as it is in so many business topics, that it depends. With web hosting, freelancing, and the nearly instant speed of communication, no one absolutely has to move to Silicon Valley in order to start their own business. A perfectly successful tech company can be created almost anywhere in the world.
Entrepreneurs who move to Silicon Valley to start their business, however, may have an advantage over other business hopefuls because of their ability to meet with people face to face. If those sorts of soft skills are in an entrepreneur’s wheelhouse, being in the area is probably a good move. If someone already knows that they pitch better over email, then relocating to the Bay Area may be much less urgent.
Feature image: Patrick Nouhailler via Flickr.