Like many of you, I'm what you would call a crazy entrepreneur: I'll download and try out pretty much every app, sign up for every beta and give almost everything a chance. If you've got a good idea, we go out to lunch to find out more. And though I haven't lived in Silicon Valley my whole life, I've learned a few things about how this city works over lunches with founders with ideas both crazy and pretty amazing - many being funded left and right.
In the good days, I've read stories of how venture capitalists are battling angel investors for founders and their ideas, and how Yuri Milner is giving each Y Combinator startup $150,000. And sometimes, we even see companies like Instagram being purchased for $1 billion. But the gold rush couldn't last forever, and now we're on the other end of the cycle: with technology investing cooling down dramatically.
Big buyouts and big investments become news for this exact reason: they're rare. Though we all still think we've got million dollar ideas and a way of pulling them off way better than the Instagrams of the world, for some, it's enough to start them off on the journey to Silicon Valley. We paint a picture in our minds that Silicon Valley is the only place to start a company and get big funding. But is it true?
Ask the Experts: Where Should I Start My Business?
Earlier this year in San Francisco, during TechCrunch Disrupt, I had a chance to ask Paul Graham, the co-founder of Y Combinator, a simple question: where I should start my company if I wanted to get funding? He didn't skip a beat - Silicon Valley is the best place to start a company, he said.
When I listen to these discussions, as do many others, I often think that Silicon Valley is the only option we have. And I had enough: because of this, the costs, and sometimes even the culture, I ended up moving out of the Silicon Valley area.
Of course, that didn't last long: once I knew what Silicon Valley was good for, and the business I'm now building was a good fit for it, I brought the Due.com team back to to the Bay Area.
Coming to Fundraise? Have the Right Idea
I did this even though I had a few great ideas (that I thought) were all worth millions. Of course, here's a word of advice: one big fundraising mistake is to think VCs want to invest in million dollar companies in the first place. No - if they don't see your company as being valued over $1 billion in the next couple of years, investment is rare to come by. And all the more so now that Unicorn technology investments have been in trouble.
Investors, they want big ideas - ideas that have the potential of becoming billion dollar businesses, here colloquially called Unicorns, and helping them get big returns. The thought is, even if the business doesn't break the stratosphere to a $1 billion valuation, it'll still land somewhere interesting, usually in the $100s of millions. If you or your company doesn't fit into this scenario, there isn't really a good chance you or your business are going to get the type of funding that you see many companies getting in Silicon Valley.
You need a killer idea if you're going to move out to Silicon Valley. Want to know if you've nailed it? Ask for feedback - not from friends, but from strangers. A great strategy is to ask people at startup events, or even in the middle of the street. Kindly request a minute from 50 strangers, explain what you're building, and see what they say. Don't convince them, and don't fear they'll steal it (they won't) - just listen. If the larger majority of people think it's a good idea and want your product right now, and some are even willing to pay, you might have something fundable. Might.
Ready to Move? Here's What NOT to Do
Even with all the opportunities here, you still meet some examples of entrepreneurs being idiots on their move to Silicon Valley. Just the other day, I went to lunch the other day with someone that left his wife and 2 children behind for 6 months and moved out here. He has virtually no money in his pocket.
His plan? Knock on investors' doors, and be welcomed in with open arms - ignoring that this is grounds for a harassment suit. He quickly found out venture capital meetings are handled through appointments, which must usually be pre-approved. But the worst part of it all was the idea: hearing the pitch, it seemed like he hadn't run the project by anyone else before. It wouldn't raise a $1 even in a frothy fundraising environment.
Why risk moving out here, especially with little to offer, for a project without any validation or traction, and at the great cost to your family? Having a startup idea doesn't absolve you of your responsibilities, and an idea itself is almost never fundable. Come here with something, and don't leave the most important things behind.
Another person I met was a man living in the back of his car. He left his wife and kid at home and ventured up to the Valley and has been living out of his car for the past couple months. He showers at a local 24 Hour Fitness and eats spam for all I know. While I don't condemn any entrepreneur that does this, I do think it is very foolish. We always here stories of the entrepreneur that gave up everything and made it big. This is rare and most likely isn't the case for you. I think it's amazing and my hat tips off to the people that can make that work, but for the majority of people out there, fortune and fame isn't going to be your outcome. If you are convinced that this is your strategy for coming to Silicon Valley, make sure to have someone on your team with some credibility behind them. Angels are much more likely to fund A+ teams with B ideas, then A+ ideas with B teams.
What You Should Do Before Moving to Silicon Valley?
When I moved out to Silicon Valley, I had enough money in my bank account to hold myself over for two years without a job. Luckily in addition to this I had and have a job that I can live wherever I want to in the world. It pays all the bills and I still haven't dipped into my two year savings. I work on my startups on the side and bootstrap everything as much as possible. Everything is expensive out here. The average smaller house in Palo Alto where I live is around $3K/month. Keep in mind that is to rent, and it's not even nice house. It's a ghetto house in an ok neighborhood. If you don't have money in the bank, you're going to fail before you can even start. Have at least enough money to give you 6 months of breathing room. This will give you enough cash to give your startup a fair chance in the startup world of Silicon Valley.
Have a good startup idea. Make sure it's scalable and people want it, you want people out there that can't live without it. Don't be the entrepreneur that leaves what little he has and gives up everything without any solid idea. Don't be the guy that leaves home without any plan of what he's going to do once he's out here either. If you have a killer idea and want to take it to Silicon Valley, have a plan. Give yourself at least 6 months worth of cash that you can us to live on without a dime coming in. Don't plan on getting meetings with VC's and Angel Investors unless you have introductions or meetings planned with them. VC's get 1000's of emails daily, so don't plan on sending them an email and getting an apt the next day, or ever.
If you have a good idea, build it out. It's so cheap now days to start a company. There are many hosting companies like Amazon, Rackspace and NetHosting that give startups free hosting for a year to help them get going. These help take your major startup costs down to zero + human capitol. You can now launch your startup via Facebook, Twitter, and LinkedIn as well as get coverage from companies like TechCrunch. Get traction to your startup, you'll almost never get an investor without it. Get to know people who know Investors and can make introductions. Once you start getting traction, have those people make the connection between you and the investors. Get funded and build a great company. Silicon Valley is a great place to start a company and a perfect environment to for a startup. Learn from the mistakes that other startups have made. Here's to making startups that change the world!