By Locating Your Start-Up in Silicon Valley, Are You More Likely to Succeed?

New York venture capitalist Fred Wilson, in a blog post and in a private email, asked the question:

Does starting a company in Silicon Valley increase your chances of success?

Here’s what I would ask Fred: Are you more likely to succeed in the finance world if you’re located in New York City? I would strongly argue yes. You can be equally or more successful than a New York finance person if you’re based in Chicago, San Francisco, Los Angeles or anywhere else. However, due to the congregation of finance-resources in New York City, your chances of success improve there.

The counter-argument is that by going to a smaller pond you aren’t fighting for finite resources. In other words, chances for success improve if you’re a big finance fish in San Francisco than a medium size fish in New York City. It’s a somewhat compelling line of thinking, but not ultimately persuasive: To maximize your chances of succeeding in finance or law, you should go to New York City.

To maximize your chances of succeeding in a movie or acting career, you should go to Burbank or Los Angeles.

The analogy carries over to start-up technology and the Bay Area. It’s the biggest pond in the world. Your chances of succeeding increase due to the sheer volume of resources and networks. Here’s an example. I’m now living in Boulder, CO and engaging in the entrepreneurship scene here (after 5 years engaging in the SF tech scene). There’s tons happening here and it’s a great place to do a start-up. But it’s a small ecosystem. A start-up here won’t be exposed to the same range of ideas and people as in the Bay Area and won’t have access to the same amount of capital or talent. Moreover, the ecosystem seems unipolar in the sense that influence and power is concentrated in the hands of fewer people, whereas in the Bay Area it’s more distributed. This hardly precludes success in Boulder, but it makes it a tad more challenging.

Now, someone should not choose where to live and start their business on the basis of maximizing possible professional success alone. I haven’t met a single person in Boulder who moved here to “Give their start-up the best shot”. They’re here for quality of life, for skiing, for a low cost of living. And by the way, they also run a tech company. I haven’t met a single investment banker in San Francisco who’s there to “try to become king of the hill in i-banking”. They’re there because San Francisco is the most beautiful city in the world. I think this is fantastic — quality of life should trump all.

But if you’re a person who doesn’t care about those other factors — like 20-somethings who don’t have a family to raise — you might end up choosing your geography based solely on maximizing your possible professional success. And that’s why many work-driven tech entrepreneurs end up in the Bay Area, and end up creating some of the world’s most prominent technology companies.


My friend David Cohen, of ColoradoStartUps.com, says:

So don’t pack up and move to Silicon Valley just yet. If it’ll work there, it’ll work here too.

I would say that is probably true. But this is probably more true: if it won’t work in Silicon Valley, it won’t work here too. Given that most start-ups fail, do you think there are failed start-up entrepreneurs who ask themselves, “I wonder if this would have gotten off the ground if we did it in the Valley.” Probably, just as there are SF-based investment bankers who probably ask themselves, “I wonder if I would be partner already if I were based in New York.”

11 Responses to By Locating Your Start-Up in Silicon Valley, Are You More Likely to Succeed?

  1. krishna says:

    Environment does act as a catalyst and Silicon Valley is proof enough for tech startups for the reasons outlined.

    Then you should also explain the Buffet paradox and why he never thought of moving to NYC ; in particular his affinity for Nebraska, Omaha and teaching the entire Wall Street wannabes more than a thing or two in Finance, Trading and the art of stock picking.

    I think success may be influenced to a large extent by the ecosystem, but is definitely location agnostic.

  2. fred says:

    i’m not sold by these arguments.

    it may well be that the best place to go if you want to be a finance professional right now is shanghai, not NYC.

    success is often a function of supply and demand, not raw supply.

  3. Ben Casnocha says:

    Fred — Maybe in the future the best finance professionals will be in Shanghai, but that’s the FUTURE. (I was in Shanghai a few months ago and it’s definitely far away.)

    Do you really believe that a finance professional at the top of his game should be in Shanghai and not NYC?

    Maybe in the future Silicon Valley will lose its edge for start-up tech (probable), but that’s the FUTURE.

    On supply and demand, I think Silicon Valley has the most supply and the most demand.

  4. I think you’re talking about *tech* startups, not startups in general. How many great restaurant chains have come out of the Valley? Why isn’t Wal-Mart based there? Federal Express?

    Sure, the Valley is great for tech startups (and tech is huge and lucrative sector), but you have to be clear about whether the *kind* of startup you’re doing is more likely to succeed in a given location.

    My company does publishing, and there isn’t anything out of Silicon Valley that especially impresses me in that industry. And our editorial focus is on outdoor/extreme sports, in which Boulder is virtually the center of the universe, so we IMO have a definite advantage being based here over Silicon Valley.

    Also, re: finance in Shanghai – read Mr. China. One of New York’s most successful investment fund managers got bored after conquering New York and tried China in the early 90s. He was a pioneer and at the top of his game at the time, and now he has the arrows in his back to prove it. :)

    Shanghai is a long way from New York, but so was Hong Kong at one time. New York is still the undisputed king, but regional exchanges are much stronger than in the past, especially in the wake of Sarbanes Oxley.

  5. Ben Casnocha says:

    Derek — I agree that the KIND of start-up does matter. I was referring to tech. I also agree that the kind of tech start-up matters — running a company with a focus on the outdoors is logically located in Boulder. But this is probably more the exception than the rule.

  6. krishna says:

    Fred,

    That’s vintage VC talk (“have a china strategy or you are doomed”)and befits a business which needs sourcing of parts/materials/operations at the world’s low cost manufacturing backend that is China.

    For Finance, you need a democratic govt., an autonomous Central Bank that believes in sound economic principles/practice ( and clearly insulated from inward looking political mandates), a soundly administered monetary policy ( no artificially depressed currency) and an all powerful Judiciary which can knock down hurriedly drafted, ill-conceived legislations / Govt.diktats in the interests of equity & carriage of justice.

    In all these counts China fails miserably ( look at their artificially undervalued currency that gives its exporters an unfair advantage – do you still wanna put your dollars in there ?).

    India stands head and shoulders above China in all these counts. A 60 year history of vibrant democracy ( no history of military coup/civil war), an independent Central Bank, A much respected, powerful judiciary, Fully developed / effectively regulated capital market with efficient Trade & Settlement systems ( all screen based and T+1 settlement), deep n’ wide institutional and individual investor base and, and, and abundant availability of high end financial talent ( most of them having had stints in US / London markets and those who’ve never been are natural geniuses ).

    Full disclosure : I live in Mumbai, India and am an I-Banking pro.

  7. Chris Yeh says:

    Ben and I chatted about this topic before he posted, and could boil down my thoughts to a single sentence:

    “Wishing doesn’t make it so.”

    We may wish that the world were fair, that it was just as easy to build a high-tech startup in our hometown as in Silicon Valley, but the fact is that it is not.

    The Buffett paradox does not invalidate the fact that New York is the capital of finance any more than Buffett’s amazing performance invalidates the general value of the efficient markets hypothesis. Six-sigma exceptions do not invalidate a rule of thumb.

    Fred’s “supply and demand” argument is true on some levels, but the fact is that in the case of clusters like New York for finance and publishing, and Silicon Valley for tech startups, supply and demand continually reinforce each other in a virtuous circle.

    To some extent, one can also make a “big fish/small pond” argument; this may help your ego, but I suspect that the smaller fish in a big pond tend to do better, lifted by the rising tide.

    On a side note, I tell all the entrepreneurs that I advise that if they want to make money, they should move to Manhattan and work on Wall Street. The expected value is higher, with much lower variance.

    Ultimately, I can understand why people believe things like, “Silicon Valley is not a better place to start my company.” It’s unpleasant to contemplate the unfairness of the world. It’s inconvenient to move one’s family. But these seductive false beliefs are ultimately self-defeating–maybe not for everyone (after all, companies started in New York do succeed, just as great investors do arise in Omaha [though even the great Buffett studied at Columbia, natch]) but for the majority.

    Life is unfair, folks. All men are not created equal. Nice guys do sometimes finish last. And the best place to start a high-tech startup is Silicon Valley.

  8. Wes says:

    Absolutely, I’ve been comtemplating going down to school in the bay area. but for me, that money I’m using for a down payment for an investment property, although I may move down there after school.

    !! Silicon valley is really where I should be…. and just haven’t decided yet to go down there, not atm. Good article ben, keep it up.

  9. Wes says:

    Absolutely, I’ve been comtemplating going down to school in the bay area. but for me, that money I’m using for a down payment for an investment property, although I may move down there after school.

    !! Silicon valley is really where I should be…. and just haven’t decided yet to go down there, not atm. Good article ben, keep it up.

  10. xs3npwerzy says:

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