July 13, 2014
While the debate of NYC vs. Silicon Valley has been covered in numerous articles, it is important to revisit it in light of some recent shifts in US venture capital activity. Venrock’s Nick Beim notes that New York has been the fastest-growing technology startup ecosystem in the US over the past 10 years and currently ranks 2nd in the country behind Silicon Valley.
During a recent US expansion exploration tech trip with eight growth-stage German companies, the question arose repeatedly: where should you startup in the US, NYC or Silicon Valley?
As a European company, where you decide to set up shop in the US is directly related to a number of factors – proximity to current/future investors, personal networks, industry synergies, location of potential customers, access to talent, and lifestyle choices. Here is the case for the two largest US venture capital markets – NYC and Silicon Valley – and why an EU company may need to choose rather carefully.
Proximity to investors
It might be the preference of early-stage investors that an EU company stay an arm’s length away or, more likely, close to wherever they have a network of relationships. But it’s less about current investors than future ones. While startups are young, they most likely have aspirations to grow. In that respect, thinking strategically about where you will get growth funds is critical and should factor into the location chosen.
While Silicon Valley is awash in VC funds and their generous valuations, it is quite limited with respect to the B2B industry. For those in social, enterprise software, programmatic tech ecommerce, great. In media, publishing, fashion, real estate, education, design, health care, travel, and service-oriented ecommerce, then it’s NYC. The importance of proximity to industry is underestimated. Much more important are the network effects (think riding the elevator with a potential partner) and the ability to immediately capture and integrate industry trends and know-how. And lastly, with the bullish outlook in US corporate venturing, the next check for an expanding company could come from a strategic corporate partner rather than a standard VC.
Next, where the bulk of potential users or customers are based is another factor. Whether in B2B or B2B2C, this is important. The ability to round up your user or customer base is a defining one. While digital reigns, local reach is critical. In that sense, the closer a company is to the customer base, the easier it is to engage the community and thus grow them exponentially. If the paying customers are in NYC, then perhaps it’s not the wisest choice to be in the Bay area. Likewise, if they are in LA, then it’s probably better to be on the West Coast.
Where prospective talent is concentrated is always a factor to consider. Typically, the big US cities have no problem attracting world-class talent. Silicon Valley is known to have the best growth hackers and developers. For European startups, it’s usually the case that there’s already quite strong and reasonably priced developer teams at home. Keep them there! It’s probably not the best idea anyway to recruit developers in the Valley. As this HBR article notes, be ready for competition and sticker shock. Sales are much more important for expanding startups since product-market fit has already been met. In that sense, the best people might not be on the West Coast but on the East Coast.
Costs & lifestyle
Both Silicon Valley and NYC have outrageous living and office rent costs. Much depends on personal preferences. Do you want to have the view of a bay window in San Francisco or an alley in NYC? Cost for a one-bedroom apartment will run about $3,000 in both places. Office-wise, monthly cost per square foot in up-and-coming districts (and rising fast) is about $3 in SF and $4 in NY.
There’s much more to consider, though, since costs are similar. While both are cosmopolitan, you need to think about your preference for big crowds and 24/7 action (NY), tiny apartment spaces (NY, although Brooklyn and the outer boroughs make up for it), a sleepier pace (SF), vertical living/breathing (NY), less diversity (SF), a relaxed business vibe (SF), a direct business culture (NY), a preppy vibe (NY), four seasons with brutal winters (NY), a competitive ecosystem (SF), living and breathing tech (SF), and diverse industries/interests (NY – people might not always care that you run a startup). At the end of the day, it’s a personal preference.
While all of these factors should be considered, they cannot be judged in isolation. Weigh them all and prioritize them as they relate to your expanding business, and good luck!
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