How important is it to be in Silicon Valley? In a way, the answer is simple: it’s very important. From expert advice to capital to talent, no place on the planet is better for entrepreneurs keen on changing the world. However, it’s a mistake to accept this simple, straightforward answer without pressure testing it. After all, if you don’t understand why something is true, you don’t really understand much at all - and if you're moving to California with no money, strongly reconsider.
Silicon Valley on the Move
There are many reasons Silicon Valley produces the most aggregate value, regardless of whether measured on Wall Street or in the private markets. First, start with investors themselves - by which I mean angel investors and venture capitalists.
Not only have investors crafted a set of remarkably good litmus tests for making funding decisions, they have also refined a set of best practices for growing startups. This is not to say that Silicon Valley investors are perfect, or even as good as they could be at what they do - but the level of the venture capital game in Silicon Valley is among the best in the world.
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Builders, Bakers, and Big Business
Here’s a metaphor that may shed light on the nature of the best practices that have been cultivated in the Valley: bakers need ovens to practice their craft. Without ovens that are reliable, baking simply isn’t possible.
Proprietary Practices
In this metaphor, Silicon Valley investors are bakers. But unlike bakers in other parts of the world, they have developed their own “proprietary ovens” based on decades of “baking”. These “ovens” (best practices, really) are designed to de-risk as many aspects of the technology development cycle as possible based on rich, nuanced cross-discipline data about what works and what doesn’t. In other words, investors in the Valley have an unfair advantage: namely, the deep knowledge that can only be amassed by doing lots of deals across the entire innovation spectrum.
Endless Capital
This unfair advantage leads to a second weapon Silicon Valley has at its disposal: a practically endless amount of capital. Why, you ask, does Sand Hill Road control so much money? Limited Partners - or LPs -understand that venture investing is a risky endeavor, and that’s precisely why they prefer to write large checks to investors who have the best possible chance of identifying and funding the next Google or Facebook.
Tight Sales Channels
Third, consider the commercial relationships that must develop between startups and larger, more established companies. All startups need to execute against sales and business development goals. The timeframes are tight because each investment round has milestones built in that help future investors measure the talent of the team as well as the company’s growth. And so, the sheer concentration of technology companies in Northern California makes it a great place to cement commercial relationships efficiently.
Failing to Learn
Fourth and finally, Silicon Valley supports failure. What exactly does this mean? If you build a company that fails, or a company that gets sued into oblivion, you career will not be over. If you built great relationships with investors and did everything in your power to execute against your mission, you won’t be branded as a failure. In fact, it’s likely you’ll get another chance to build something great.
Know what to expect: Read the latest psychology on entrepreneurial failure & success
Moving Your Startup
In a nutshell, Silicon Valley is a particularly good place to build a company because:
First, SV investors have an unfair advantage,
Second, growth capital is readily available,
Third, geographic concentration has verifiable benefits for startups themselves,
Last, reasonable risk-taking is culturally supported.
Yet this doesn’t mean you can’t build a great, world-changing company elsewhere. If your team is truly excellent and has good reasons for resisting a move to the Valley, think very carefully before forcing everyone to move here. After all, without an amazing team you won’t get very far — even if your zip code is 94105. And this leads us to a strange truth: Silicon Valley may be the best place to nurture startups, but it may not be the right place to pursue your mission.