At a morning panel today at the SXSW Interactive conference, titled "Ditch the Valley, Run for the Hills", a great debate was struck between Penelope Trunk of Brazen Careerist and others on the panel, as she argued the high cost of living demanded by Silicon Valley and San Francisco pretty much excluded anybody from starting companies, unless they were 20-something single males. She argued the Valley's "coolness" and access to capital might not deliver enough benefits for shoestring startups trying to get off the ground. The issue of Valley costs was compounded by comments from Mike Maples of Hyper 9, who added his concerns that the state's financial struggles could see dramatic impact the standard of living many of us have taken for granted.There is no question that over the last few decades, the Valley has gotten a disproportionate share of venture capital. In fact, Maples quoted a recent study that showed 90 percent of venture returns in the last 30 years went to companies founded within 10 miles of either Stanford University or MIT in Massachusetts. And panelist Robert Scoble, now of Rackspace, said the contributing reasons that the Valley attracted startups were three major factors, namely:
- Access to Capital (Drive Sandhill Road, see 10 VC firms and get your money)
- Scalability of Web sites (Access to people who have done it before)
- Tech press (From Mike Arrington and TechCrunch to other tech blogs)
Trunk, who is based in the Un-Valley, in Wisconsin, most directly said the process simply isn't doable for people who can't accept risk to their foundation, be it food or rent:
"There is an elephant in the room, about startups," she said. "You are starving and it is super scary, unless you have a trust fund or a previous successful company. In this economy it is very scary. We would have gone under in Silicon Valley because rents are high and there is no safety net in the Valley. Thunk how you can sustain yourself with food and rent before getting your business model."She later added that only eight percent of companies seeking venture funding are from women, but most are from 20-something men who are single.
Maples, based in Austin, said he recently has been investing in local startups nearby Austin, partly because he would prefer not to travel, but he also voiced concerns about the viability of the Valley, given state budget problems.
"There is also the growing problem of local government," he said. There's a good chance the California government will go bankrupt. The services you take for granted now may not be there two to three years from now, be it education for kids, highways, police and fire support. The nice things you want could progressively change, and that's not true in Texas."Issues in the Valley don't mean that the San Francisco Bay Area isn't attractive to new companies, of course. The Valley, offering access to capital, people, press and experience, can be an incredible pull. Scoble mentioned Loic LeMeur's Seesmic as one example of a company that moved from Europe to San Francisco and embraced the culture that enabled you to take risks, and fail. Noting that he himself had participated in three startups that have experienced failure, Scoble said Europe entrepreneurs aren't celebrated for their attempted success, but only for their actual success. And many of the panelists cited statistics showing that the venture capital-funded startup was a rarity, and the exception.
"In the valley, failure is accepted, and almost celebrated," Scoble said.As with most topics here at the conference, the conversation also turned to Twitter. Could Twitter have been started or funded if it hadn't started in San Francisco? Almost universally, the answer was no. Maples even reminded us, "Twitter was a mistake."