Just a few years ago, if you wanted to do something big, you needed to go to Silicon Valley. It meant frequent flights or moving your company to San Francisco to raise money from Bay Area VCs.
Times are changing, and these geographical barriers are beginning to break down. Waterloo has another unicorn with Kik. Toronto has become a hub for the blossoming machine intelligence market. And VC money is rolling into NYC: NYC companies received 5.95 billion in financing in 2015 (with 395 deals).
At Version One, we’ve always been geographically agnostic, with investments ranging from SF to Halifax, Edmonton to NYC. Over the past month, I’ve spent a lot of time in NYC, Toronto, and Ottawa for board meetings, conferences, meetings with our founders, re-connecting with co-investors, and meeting new entrepreneurs.
A few years ago, Boris wrote that something special was happening in the Toronto-KW corridor (for those of you non-Canadians, that would be like SF and the Valley). After this month’s travels, I truly believe that these east coast ecosystems are more vibrant than ever.
Yet, having a vibrant ecosystem to seed early stage startups is one thing. There’s still considerable debate on how possible it is to build big companies outside the Bay Area.
If we try to dissect the magic of Silicon Valley, I think there are five key factors at play:
- Great schools. The Bay Area has powerhouses like Stanford and UC Berkeley for sourcing talent.
- Great senior talent. You’ve got a great number of senior level talent in engineering, sales, marketing, etc. running around the Bay Area.
- Great value-add capital. The Bay Area is home to smart and strategic investors that contribute far more than just dollars.
- Great exits. Success stories increase everyone’s drive and expectations. In addition, with giants like Intel, Google, Apple, Facebook in their backyard, Bay Area startups are more visible for acquisition.
- Great collective ambition, which is driven by a healthy underlying economy (much more on this below…)
Points #2, #3 and #4 are part of a cycle that continues to be reinforced over time. This means that building a big company in a less mature ecosystem requires #1 and #5 at a minimum. The first point on schools is pretty self-explanatory. For example, the University of Waterloo is a top-ranked engineering school known for cutting edge research in quantum physics and nanotechnology. But what about collective ambition?
The Power of Collective Ambition
One of my favourite Paul Graham essays is on Cities and Ambition. It’s an oldie but goodie that I highly recommend reading or re-reading. In essence, he writes that every city has a collective drive:
Great cities attract ambitious people… In a hundred subtle ways, the city sends you a message: you could do more; you should try harder. The surprising thing is how different these messages can be.
For example, Graham describes that the “message” of NYC is to be richer; of Boston (Cambridge), to attain knowledge; of LA, to be famous; of DC, to boost your network; of SF, to live better; of the Valley, to be powerful (though he argues that this message is now the one in SF considering all companies are moving up the peninsula).
He also goes on to write:
What cities provide is an audience, and a funnel for peers. These aren’t so critical in something like math or physics, where no audience matters except your peers, and judging ability is sufficiently straightforward that hiring and admissions committees can do it reliably.
It’s in fields like […] technology that the larger environment matters. In these the best practitioners aren’t conveniently collected in a few top university departments and research labs—partly because talent is harder to judge, and partly because people pay for these things, so one doesn’t need to rely on teaching or research funding to support oneself. […] It helps most to be in a great city: you need the encouragement of feeling that people around you care about the kind of work you do, and since you have to find peers for yourself, you need the much larger intake mechanism of a great city.
It really takes a village to build a company. Ambition and talent are not unique to the SF Bay Area; my travels over the past month proved this over and over. However, it is important to recognize the advantage of a stronger force driving the collective population to grow together. If you’re not in one of these major metropolises that Graham wrote about (say, Seattle, Toronto, Chicago, Boulder…), what’s your city’s collective drive? What are your peers and environment pushing you to be or do?
I believe you can build a great company anywhere, as long as you have a stream of talent and collective drive (regardless of what the driving force of that ambition is, and it’s probably driven by the underlying industry in the area). Going forward, every time we meet a company that is not from an area we’re familiar with, I’ll ask myself “what’s the collective ambition of this city?” because every startup needs the support of its surroundings while we can’t physically be there.