With the majority of venture capital and tech talent located in Silicon Valley, it has become something of a Mecca for entrepreneurs all over the world, drawing founders on regular pilgrimages with the hope of coming back with a new idea, a new co-founder, or new round of funding.
Looking at the Billion Dollar Startup Club, many of the most valuable tech companies have their headquarters, innovation centers or at least a satellite office in the Valley. However, the importance of being in the Silicon Valley depends on what kind of startup you are building and what stage you are in.
Before you relocate to the city with one of the highest costs of living in the country, think through these questions:
What Stage is Your Startup In?
For very young startups, the Silicon Valley is an ecosystem of early adopters who can become your company’s first customers and give you valuable feedback for validating your idea. Fellow entrepreneurs love to support each other and it’s common to find great advisors that can accompany you throughout your journey. If you want to get to product-market-fit with constant customer feedback and mentorship as fast as possible, being in the Valley can be a boost to your early evolution. However, it’s not necessary to move to the Valley only for customer development. I’d even argue that doing so somewhere else might be a better choice for some entrepreneurs.
Since the Silicon Valley is made of tech-savvy and highly enthusiastic people, the feedback can sometimes be irritating and not reflecting the market. If you’re skeptical and want to test with more down-to-earth groups of people, you're absolutely better off starting somewhere more indicative of the rest of the country. Especially for bootstrapping startups, living in the Silicon Valley can cause an immense burn rate due to the high living expenses. If you need time for customer validation operating in pre-product-market-fit stage can make more sense in cheaper areas. Presence in the Valley becomes more necessary once you’re in the growth stage.
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Angel Investors, VCs and startups are well connected in the Valley and if you already happen to have a venture-backed startup among your customers, attracting potential investors can get easier. Investors in the Valley tend to be more risk-loving and invest money faster, more often, and in bigger amounts than elsewhere.
Growing companies that need to outcompete other players or enter new markets are more likely to get funding from qualitative investors in the Silicon Valley. Without attracting funding in the Silicon Valley, Uber and Airbnb would have never reached their current scale. But then again, does every startup need Venture Capital?
Next, What Type of Business are You Building?
Does your startup try to disrupt a giant industry with potentially many competitors entering soon?
Does your startup need staggering R&D budgets to develop the product, like a biotech firm might?
Does your startup need to reach global scale to break even?
Or alternatively, does your startup serve a niche market without the necessity for extreme growth to become successful?
Most startups aren't trying to become the next unicorn business but, rather, focus on specific industry problems that need a better solution, but don't demand the state of the art. This type of solution doesn't demand a vast amount of venture capital for success nor constant press mentions in the tech press. But it also doesn't preclude you from building a $20 million/year revenue business.
Since today's entrepreneurs often value freedom and lifestyle more than financial gains, starting your startup in cities beyond the United States or Europe can be a great option. Other influences on the location decision are state-dependent regulations, necessity to build market entry capabilities, industry or proximity to industrial companies.
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Being in Silicon Valley can be important for capital-intensive global startups, but less important for niche-focused business solving problems that are quick to profitability. With technology hubs rising all over the world, the importance of being located in the Valley will decrease even more in the future. In the end, choose a city not only for its inherent advantages but also because you can imagine living there for the next few years as you build your business.