October 2007After the last talk I gave, one of the organizers got up on thestage to deliver an impromptu rebuttal. That never happened before.I only heard the first few sentences, but that was enough to tellwhat I said that upset him: that startups would do better if theymoved to Silicon Valley.This conference was in London, and most of the audience seemed tobe from the UK. So saying startups should move to Silicon Valleyseemed like a nationalistic remark: an obnoxious American tellingthem that if they wanted to do things right they should all justmove to America.Actually I'm less American than I seem. I didn't say so, but I'mBritish by birth. And just as Jews are ex officio allowed to tellJewish jokes, I don't feel like I have to bother being diplomaticwith a British audience.The idea that startups would do better to move to Silicon Valleyis not even a nationalistic one.[1]It's the same thing I say tostartups in the US. Y Combinator alternates between coasts every6 months. Every other funding cycle is in Boston. And even thoughBoston is the second biggest startup hub in the US (and the world),we tell the startups from those cycles that their best bet is tomove to Silicon Valley. If that's true of Boston, it's even moretrue of every other city.This is about cities, not countries.And I think I can prove I'm right. You can easily reduce theopposing argument ad what most people would agree was absurdum.Few would be willing to claim that it doesn't matter at all wherea startup is—that a startup operating out of a small agriculturaltown wouldn't benefit from moving to a startup hub. Most peoplecould see how it might be helpful to be in a place where there wasinfrastructure for startups, accumulated knowledge about how tomake them work, and other people trying to do it. And yet whateverargument you use to prove that startups don't need to move fromLondon to Silicon Valley could equally well be used to prove startupsdon't need to move from smaller towns to London.The difference between cities is a matter of degree. And if, asnearly everyone who knows agrees, startups are better off in SiliconValley than Boston, then they're better off in Silicon Valley thaneverywhere else too.I realize I might seem to have a vested interest in this conclusion,because startups that move to the US might do it through Y Combinator.But the American startups we've funded will attest that I say thesame thing to them.I'm not claiming of course that every startup has to go to SiliconValley to succeed. Just that all other things being equal, themore of a startup hub a place is, the better startups will do there.But other considerations can outweigh the advantages of moving.I'm not saying founders with families should uproot them to movehalfway around the world; that might be too much of a distraction.Immigration difficulties might be another reason to stay put.Dealing with immigration problems is like raising money: for somereason it seems to consume all your attention. A startup can'tafford much of that. One Canadian startup we funded spent about 6months working on moving to the US. Eventually they just gave up,because they couldn't afford to take so much time away from workingon their software.(If another country wanted to establish a rival to Silicon Valley,the single best thing they could do might be to create a specialvisa for startup founders. US immigration policy is one of Silicon Valley's biggest weaknesses.)If your startup is connected to a specific industry, you may bebetter off in one of its centers. A startup doing something relatedto entertainment might want to be in New York or LA.And finally, if a good investor has committed to fundyou if you stay where you are, you should probably stay. Findinginvestors is hard. You generally shouldn't pass up a definitefunding offer to move.[2]In fact, the quality of the investors may be the main advantage ofstartup hubs. Silicon Valley investors are noticeably more aggressivethan Boston ones. Over and over, I've seen startups we've fundedsnatched by west coast investors out from under the noses of Bostoninvestors who saw them first but acted too slowly. At this year'sBoston Demo Day, I told the audience that this happened every year,so if they saw a startup they liked, they should make them an offer.And yet within a month it had happened again: an aggressive westcoast VC who had met the founder of a YC-funded startup a weekbefore beat out a Boston VC who had known him for years. By thetime the Boston VC grasped what was happening, the deal was alreadygone.Boston investors will admit they're more conservative. Some wantto believe this comes from the city's prudent Yankee character.But Occam's razor suggests the truth is less flattering. Bostoninvestors are probably more conservative than Silicon Valley investorsfor the same reason Chicago investors are more conservative thanBoston ones. They don't understand startups as well.West coast investors aren't bolder because they're irresponsiblecowboys, or because the good weather makes them optimistic. They'rebolder because they know what they're doing. They're the skierswho ski on the diamond slopes. Boldness is the essence of ventureinvesting. The way you get big returns is not by trying to avoidlosses, but by trying to ensure you get some of the big hits. Andthe big hits often look risky at first.Like Facebook. Facebook was started in Boston. Boston VCs had thefirst shot at them. But they said no, so Facebook moved to SiliconValley and raised money there. The partner who turned them downnow says that "may turn out to have been a mistake."Empirically, boldness wins. If the aggressive ways of west coastinvestors are going to come back to bite them, it has been a longtime coming. Silicon Valley has been pulling ahead of Boston sincethe 1970s. If there was going to be a comeuppance for the westcoast investors, the bursting of the Bubble would have been it.But since then the west coast has just pulled further ahead.West coast investors are confident enough of their judgement to actboldly; east coast investors, not so much; but anyone who thinkseast coast investors act that way out of prudence should see thefrantic reactions of an east coast VC in the process of losing adeal to a west coast one.In addition to the concentration that comes from specialization,startup hubs are also markets. And markets are usually centralized.Even now, when traders could be anywhere, they cluster in a fewcities. It's hard to say exactly what it is about face to facecontact that makes deals happen, but whatever it is, it hasn't yetbeen duplicated by technology.Walk down University Ave at the right time, and you might overhearfive different people talking on the phone about deals. In fact,this is part of the reason Y Combinator is in Boston half the time:it's hard to stand that year round. But though it can sometimesbe annoying to be surrounded by people who only think about onething, it's the place to be if that one thing is what you're tryingto do.I was talking recently to someone who works on search at Google.He knew a lot of people at Yahoo, so he was in a good position tocompare the two companies. I asked him why Google was better atsearch. He said it wasn't anything specific Google did, but simplythat they understood search so much better.And that's why startups thrive in startup hubs like Silicon Valley.Startups are a very specialized business, as specialized as diamondcutting. And in startup hubs they understand it.Notes[1]The nationalistic idea is the converse: that startups shouldstay in a certain city because of the country it's in. If youreally have a "one world" viewpoint, deciding to move from Londonto Silicon Valley is no different from deciding to move from Chicagoto Silicon Valley.[2]An investor who merely seems like he will fund you, however,you can ignore. Seeming like they will fund you one day is the wayinvestors say No.Thanks to Sam Altman, Jessica Livingston, Harjeet Taggar, and KulveerTaggar for reading drafts of this.Comment on this essay.
