How to build a company outside of The Valley
I am in Spain at the moment, sussing out a bunch of European startups at Innovate Europe. This morning at the University of Zaragoza Business School (located in perhaps the windiest city on earth), Technorati Founder David Sifry and August Capital VC David Hornik held forth on what it takes to build a global tech company.
Much of what they said you will have already read in Business 2.o stories. One interesting topic though, was how do you build a tech startup if you are not an entrepreneur in Silicon Valley? More specifically, if you are an entrepreneur in Zaragoza,Spain - a city of 700,000 or so, that is not a particular hotbed of startup activity. The answer both men gave could be applied to any place that doesn’t have the deep ecosystem of people and funding that exists in Silicon Valley.
One option, of course, is to move yourself and your company to Silicon Valley, Boston, London or some other locale that has a strong startup ecosystem in place. "You can do that," Hornik says, "but you always run the risk of destroying the company when you move."
If you decide to stay in a place where there is less of a startup ecosystem, the main focus of your planning and execution, Hornik says, ought to be on building a business that can sustain itself on its own as quickly as possible - rather than waiting for some funding to come ahead of your product development. If you are in a conservative funding environment, and if you are outside Silicon Valley or a handful of other places you are, it will take longer to get a term sheet in hand. Building a company that doesn’t depend on getting a fast infusion of cash for survival is your best shot at building a company that has a chance at getting big. "And the thing that VCs love more than anything, is funding a company that doesn’t need our money," Hornik says.
That doesn’t mean a little funding doesn’t help. If you can’t get the money you need close to home, you need to develop relationships with VCs and entrepreneurs in places where they can help you. Hornik gave the example of Feedburner, whose CEO is a rabid networker in Silicon Valley, even though he and his company are based in Chicago. His connections in the Valley made it easy for him to raise money for his company in Chicago.
There is also the big fish/small pond dynamic. If you build this successful startup outside of a place where 1,000 other startups are blooming, you become The Man or The Woman. "Once you become the best, most focused startup in an area you will find that all of the sudden funding sources, other entrepreneurs and the local press want to help," Hornik says.
Technorati’s Sifry agrees that there are advantages to building a company outside of the usual places. "You need to find a way to build a startup in whatever environment you find yourself," he says. That means looking at all kinds of funding options, other than straight-up venture capital. It might be local angels, or some sort of public/private partnerships. But find a way to make it work.
"Focus on solving a really important problem, and something you are passionate about," Sifry says. "And make sure you keep your integrity. You will find this is a very small world, and if you cut corners or do something that is less than ethical word gets around. You may start five or six companies in a lifetime, but you only have one reputation."