STARTUP

Bay Hype: The Pros and Cons of Starting a Company in Silicon Valley

The Bay is no doubt one of the best places for startups, but it comes with a cost.

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BY Andrew Medal - 13 Jul 2017

PHOTO CREDIT: Getty Images

We tend to think of Silicon Valley as the mecca of the tech world.

Young entrepreneurs, starry-eyed by the bright lights of the Bay Bridge think to themselves, "If I can make it here, then I can make it anywhere."

Well, I hate to break it to you, but that's simply not the case. In fact, in 2011, Silicon Valley saw, for the first time, more people leave the area then they brought in. With skyrocketing rent, a culture not everyone can break into, and the persistent fear of being too small a fish in such a big pond, people are losing their fervent enthusiasm for the startup capital.

Believe it or not, this change has actually had some pretty positive effects on the rest of the startup ecosystem. We've seen more and more companies across the country exit at over $1 billion, leading to a better stream of investment in other cities.

It's true that Silicon Valley is still one of the best places to launch a company, hands down, but the rest of the tech world is starting to give it a run for its money. And before you book your team's next flight to SFO to follow your entrepreneurial dreams, here are a few factors you should consider.

The Valley is still the Valley

Let's face it, Silicon Valley is still Silicon Valley. Like referring to the film industry as Hollywood, no other place holds the same tech reputation. Hell, they even named a hit TV show after it; can any other metonym really claim that title?

Obviously, there are a lot of benefits to having your startup located in the epicenter of tech. On Angel List alone, there are over 18,220 investors, and that's not counting the numerous folks that have invested outside the network. Quite simply, people start companies here because it's the place they feel offers the best shot of building a network and gaining funding.

However, with an average of 51 new companies starting in the valley every month, there's some stiff competition. That's not to say you can't launch a startup, get funding, and become a self-sustaining company, but those cases are few and far between. After all, part of what makes the bay area so exciting (and nerve racking) is the quest for the elusive unicorn.

We have this general belief that unicorns (companies with a $1 billion evaluation funded by private equity) can only exist in the valley, and as such, the money only flows through there. In yet, this is part of what makes the Bay Area so toxic.

The Valley is (unfortunately) still the Valley

From the recent outings of gender inequality in VC culture to, quite simply, the overall environment of the rich helping the rich, Silicon Valley might be nearing the end of its reign as the premiere place to start a company.

For starters, the culture needs a facelift. Yes, it's been said time and time again, but the world of tech is changing, and if the movers and shakers Valley doesn't take note and stop acting as if the whole world revolves around the region, they soon could be left in the dust.

Second, the area has become one of the most expensive in the world, which requires larger and larger investments for founders and their teams just to stay afloat. Off the bat, this puts companies in a position to grow and scale quickly, which could mean a lot of startups are doomed before they start.

And finally, while considered a hub for innovation, the Bay can hold a confirmation bias for what they think is the next big thing. It's this repetitious behavior of getting overhyped on what's the talk of the town, with some investors overlooking some great companies so they can say they invested in whatever's trending. This isn't necessarily smart investing, but rather just putting your name on something to talk about at networking events and cocktail parties.

Granted, not all of the valley is like this, but other places around the country have started to figure out what Silicon Valley is doing right and start applying it to themselves.

Don't leave your heart in San Francisco

I was recently reading a piece on medium by Olin Hyde, CEO of LeadCrunch, on how he was inspired by the San Francisco networking community, and how he wanted to establish one in his home base of San Diego.

Hyde decided to start a network called The Tribe, which is essentially a dinner party for successful startups in his community to help each other grow. Using a strict set of criteria for who can join, the goal isn't necessarily to just seek investment but to form a sense of unity in a 'strength in numbers' type model. Which, if you're looking to raise capital in your city, is one of the first steps you need to take.

It's not enough to just have a network, but a quality network, one with goals that align and traction/growth strategies that are sound. This also helps educate those in the community that could be venture capitalist, as big challenge in growth is having people understand that investing in a startup isn't exactly like playing a high-stakes poker game. I expect to see more communities like this spring up around the country in the next few years.