I live in Oshkosh, WI. We had Steve Case come to Green Bay last year, but it seemed mostly pomp, and he only invested in a single business that was a sure thing anyway.
I've been developing animation software for 2 years, and am set on getting profitability without help, mostly because this is probably necessary anyway, but also because it'll send the message to other folks in town that they don't need an external 'go-ahead' to start a business that works.
I think part of the reason VC money isn't working as well in the valley, is that people are more obsessed with raising money than they are with making their business work.
There's a certain uncomfortable fatalism that comes when you take the mindset that no one is coming to save your business. Not now, not ever. It's the same feeling you get when you have a software bug, and you can't look up the answer on google, because you're so deep into your own territory, that the question wouldn't make sense to anyone else.
I welcome money, and I welcome interest, however, I think some people just need to steel themselves and launch without help.
Some people need money, and other people need to just do it. That goes for every area, but in the Midwest, sometimes we get this "we need to copy the big cities" mentality, and I want to stop that, since 99% of the time, no one is coming to the rescue, even if I'd like to see more companies coming in, and lowering that %.
> I think part of the reason VC money isn't working as well in the valley, is that people are more obsessed with raising money than they are with making their business work.
The other question one has to ask as a VC is what distinguishes a given metro from the 50 other options, and it seems unlikely that a clear winner will emerge. Instead you'd likely get a peanut butter spread of investment and investors. The difference isn't that valley companies are less focused on funding rounds than outside the valley. It's that outside SV, when it comes to raise the series B, a startup has likely already fully tapped their local VC market.
Any rational actor would at least prefer to have the option of taking VC money later, even if they intend to bootstrap.
> Some people need money, and other people need to just do it. That goes for every area, but in the Midwest, sometimes we get this "we need to copy the big cities" mentality
Well, startups still have to compete for talent. When you look at big cities, they have a lot of things working in their favor. They favor new immigrants by providing reliable public transit and walkable downtowns so a car and driver's license isn't mandatory. They have several major employers, which makes the social and individual impact of a layoff less severe.
You're right that it's not something you can depend on, but these are also conditions a lone bootstrapping entrepreneur can't just will into existence. Even if you're successful, that success means more opportunities for growth and there will come a time when your needs and the political status quo conflict. Especially in college towns typically opposed to new development, happily leeching rents off heavily indebted students. That building proposal to hold 5,000 employees? Zoning not approved as out of character. The housing annex developers need to build housing for your new hires? Didn't pass the ballot measure. The public transit your H1-Bs need? Dismissed by the City Council.
Smaller city in the Southeast, but I explain it to entrepreneurs I consult with as "Assume no one is going to give you any funding and tell me what your development plan looks like." Most people are dead in the water right there and someone needs to be honest and tell them to move, find another idea or find different people to collaborate with.
Speaking truth to entrepreneurs is not a welcome activity when entrepreneurialism becomes more of a religion than an economic alternative to employment.
Honestly, this story has been repeated multiple times in the New York Times and other publications.
When you see that happening，it reeks of PR. The fingerprints are there - someone wants you to think that Silicon Valley VC are acting differently.
Reading the article, more red flags. This is a whole lot of deliberate signaling and posturing. Smells like PR, walks like PR, flops around on the dock like freshly caught fake news PR.
So why would prominent Silicon Valley VC engage highly placed PR services who can plant their self serving fake news into the New York Times (if you believe the New York Times is above this, I have very bad news for you)?
Answer: Politics.
These Bay Area VCs want one thing: Special government privileges from desperate middle American cities. Like Jeff Bezos, they want cities to beg for their money. Tax cuts, tax breaks, free real estate, special privileges, pork, tax incentives.
These articles are becoming common because this is a campaign to influence local politicians in these states, prepare the groundwork for later stages in their campaign.
Just reading this, it stinks so highly of signaling, the fakeness of the quotes are so over the top. The quotes have this fake “oh gee, we are just these crazy VCs who never thought of middle America before, what is a milk shake? How do I milk a cow?” Quality to them they cannot possibly be real.
Who is going to pay for all the special privileges these VCs are going to get from state and local governments? Hint: Tax payers.
The real title of this article should be: “Silicon Valley VCs identify dumb yokels in middle America willing to subsidize their future bullshit.” That’s the truth.
I was with you until you unveiled the villain; that doesn't seem plausible to me. Stories about SV migrating to other areas—often the Midwest, in fact—have been around for years. Usually it's regional politicians trying to attract tech investment.
Where I'm from, they call it 'diversifying the economy' and have been trying for 30 years. They build 'innovation centres' too. And send the mayor on trips with 'delegations'.
As others have pointed out, the other big factor—growing recently, perhaps—is that 'Silicon Valley' means clicks, so 'journalists' do it.
Alternative theory: journalists are lazy, and if a story gets a decent response in one outlet, they all crap out a similar story until they reach a point of diminishing returns.
That’s a good link, but it relates more to stories which disappear and resurface periodically, wherefore the term “Submarine” in the title. When it’s just a brief flurry of activity that isn’t tightly focused (Such as the NYT’s pushing Instapots) I’d bet on pure laziness.
The comeback of the Midwest via tech is not a new story.
Very quick googling shows these articles, but I remember many more stretching as far back as 2009 when I first started reading tech news. (Edit, see cousin post above for even more!)
It looks like it appears in big reputable sources like Forbes/Nytimes first and then trickles into other national news sources this time. I would bet if you did some more detailed analysis on the older archived this pattern would hold up.
SV relies on dense loci of talent in order to function, Chicago is really the only city that has this. The melting pot of ideas, poaching, engineering etc is a huge reason for its success.
While I understand SV is looking increasingly unattractive for cheap big bets, I don't think this will play out like these firms expect.
It's not about the money, it's about the culture that SV cultivated. And while parts of it are toxic, other parts of it are enormously successful and notoriously hard to replicate.
It also doesn't help that every state in the midwest has been slashing educational budgets and in some states has enacted almost a war on education. I think the attitude of "SV toxic culture" is ironic, after having grown up in the midwest and seen horrible racism, anti-intellecutalism, anti-free speech measures, and all others kinds of issues.
>It also doesn't help that every state in the midwest has been slashing educational budgets and in some states has enacted almost a war on education.
Yeah, uh, this is going to end badly; I left the central valley for the anti-intellectual culture. It's a long term problem, and I don't really see how you combat it.
Educational funding, I think, might even be a trailing indicator of this; If your culture doesn't value learning... you have a much bigger problem than just underfunded schools.
I think this point is something that's often missed in the political dogma on education.
At least by PISA scores many of the countries now beating us spend substantially less on education than we do. For instance Vietnam is now ahead of the US in math and science. In fact, they're 8th in the world in science. Their purchasing power parity GDP/capita is $6,925 ($2,305 nominal) and a total of 6.6% of that goes to education. That's $450/capita, parity compensated. In the US we spend 5.6% of $61,687 per capita which is $3455/capita - north of 700% greater than Vietnam's spending, parity adjusted. You can't just spend your way to people valuing and embracing education.
- [1] Convenient listing of the 2015 PISA results
- [2] List of nations by percent of GDP spent on education, one click away from conversion to parity adjusted $/capita
Same here. I grew up in the midwest and left it for political reasons. While I do detest the progressive echo chamber, the alternative seems to be far worse in many ways.
Under the veneer of charming and can do spirit lies an under current of some of the worst America has to offer. Opposition to freedom of speech, opposition to education and free thought, racism... the list goes on.
I think this article just shows how little these VC West coasters know about the midwest.
Jesus! Where did you live in the mid-west? I lived in Western Michigan for 4 years and never encountered what you did. If anything, I found the political climate much more balanced and respectful.
It's gotten worse and worse over the years. It used to be a tolerant place to live but over a few decades it has turned into a pretty negative area. But this isn't just Ohio, the entire region has turned angry, xenophoic and inward. It has grown increasingly conservative and self destructive in many ways.
I'm not sure it's really even a political problem, except to the extent that all values problems are political problems. It's just that if your kids get beat up for being good at math... well, your society is going to fall behind.
I would argue that there's also another issue at play in this particular topic, or trope. We've created this weird dichotomy in society where people pretend that children must choose if they want to be a 'math nerd' or a 'jock.' I'm not really sure that comes from and it's never been my experience. I competed in mathematics events at a national level, was on the chess club, and also wrestled varsity and enjoy weight training. And I never experienced anything except friendliness and respect, even as a certainly somewhat weird 'outsider' having swapped schools multiple times.
The ancient Greeks, who helped develop much of the foundation of modern technology and society, emphasized the relevance of strength in mind and body, and I think that's something that we've increasingly lost. And that's ironic since if you look at many examples of stereotypically 'mental' enterprises, you'll find people who follow this tend to populate the top. Imagine, if you don't know, what the chess world champion must look like. He earned his grandmaster title at 13 years old, and has been playing seriously since he was a child. Here [1] is a picture of him, Magnus Carlsen.
I think it's about values, not about physique. You can be big and nerdy and while being big can stop the most physical manifestations of social ostracization, my observation is that isn't the most painful part.
I mean, I think the other part you are missing is that a lot of us who grew up as "nerds" are socially... wrong in ways that are less socially accepted than violence. I don't think being on a sports team would solve that problem.
so first? go read what Paul Graham wrote about this[1] It does a good job of explaining US school culture. but Graham was far more functional than many.
I mean, in general terms, 'nerds' often don't have the social skills expected of others their age. Sometimes, it's like Graham says; it's just a matter of practice. Other times it's that we just don't have the same background or aptitude for navigating emotions; we didn't have that same ability to conform. I mean, usually it's a combination of those things; conforming in the way the other students do is harder than it is for most people, so you rebel from them the way you rebel against your parents, only your peers don't have the depth of understanding, the patience, and the duty of care your parents have.
And it was more brutal than Graham makes it out to be, because as a teen, it feels like that is just how the world is. For me, my escape was that I got an IT job in high school... it was like heaven. For two hours a day after school, I was treated like a human being with valuable skills, and people put up with my minor social transgressions because they expected a little bit of acting out from a kid.
Really, I think that's most of the difference between a 'nerd' and a regular troubled child; the nerd has an outlet, a haven, and a future. A nerd can withdraw into books rather than just snowballing the behavioral problems. (though, to other students, reading books is seen as a behavioral problem. Still, at least in my school career, if you just wanted to read during recess hours, there was almost always a friendly teacher who would let you eat lunch and read in their class, if you were quiet.)
But, my point, I guess, is just that there are plenty of American children who are smart and study and do sports and are popular.... people like what TangoTrotFox describes further up this thread. People who are socially skilled enough that they know, for example, that you don't read in front of other people. Those people aren't properly 'nerds' - they're just smart. Most of us would have been those people if we could have... but we lacked the social aptitude.
But I'm still not being terribly specific. I guess a lot of that is that it's embarrassing and painful... but I think my peers would have described me as mean and arrogant.
That is inherently a political problem, in my eyes. Politics and culture are intertwined. The culture of the region has to change, but it's unclear if anyone really wants to change. Maybe when the money is attached to being studious things might be different.
Sadly the midwest sees education and educated people as at best, an inconvenience, and at worst, a threat.
The Midwest sees educated people as an inconvenience or a threat?
Goddamn. Where did you get that idea from? Clearly you have no idea what you’re talking about.
The problem is that it’s stagnanted over here. NAFTA destroyed the way of life for a lot of mid-westneners. Made people poor. Made want. Destroyed the mechanisms, the entry level, manual jobs, that people used to pull themselves up by.
Municipalities got into a vicious cycle of loss of tax base feeding into loss of services feeding into even more loss of tax base.
For starters, to get an idea of what’s going on over here, I’d recommend you watch both Detropia and Flint Town. Get a little taste of reality and see the people you’re trying to crap on. Everyone here, everyone sees that value and importance of education. Every parent, even in the most down-trodden neighborhoods with the worst schools, wants this for their children. Again, loss of tax base, loss of jobs, increased violence.
Assuming you live on one of the coasts, you’ll get yours. Just wait until the underfunded pension systems finally blow.
Can’t believe I just read such a level idiocy on HN.
> The problem is that it’s stagnanted over here. NAFTA destroyed the way of life for a lot of mid-westneners.
Neoliberal international trade without adequate internal redistribution of gains (which was going on long before NAFTA, though NAFTA was a particular example) broadly was doing that for quite a long time, but the problem is.more on the lack of redistribution end than the open trade end (you do want to avoid a race to the bottom on labor, environmental, etc., standards, but in aggregate terms trade is a net gain and losing that gain without doing anything about internal distribution isn't going to do many people any good — as Trump's tarriffs may soon demonstrate tangibly.)
> Everyone here, everyone sees that value and importance of education.
That might be true of your neighborhood; it's clearly not generally true as demonstrated by the outcomes of elections in the Midwest at every level.
> Again, loss of tax base, loss of jobs, increased violence.
Sure, economic dislocation and it's side effects may be why culture war topics leveraging cultural resentment directed both at “coastal elites” and both higher education and the people that have it is a winning way for local elites to line up political support between policies they feather their own nests.
I can’t answer for everyone in the Midwest, but from what I saw, no one trusted HRC. And if you were paying attention, it was revealed that politics “is like making suasage,” and that “you have to have a public position and a private position.”
And yes, I still hear a lot of resentment about NAFTA, which is strongly associated with the first Clinton administration. No one trusts that family. The people in this region called BS, not because they’re racist and uneducated, but because they feel that they were betrayed before. When the coasts shouted “racists” at them, it made everyone double-down in their position.
Meanwhile, DJT basically steals the Obama-era democratic platform, makes a stop in their little main-street town and promises the impossible.
Someone else might have a different experience, but this is what I saw and heard.
——
To be clear, midwesterners weren’t voting based on tax policy as you suggest, this was about trust, betrayal and vengeance.
>To be clear, midwesterners weren’t voting based on tax policy as you suggest, this was about trust, betrayal and vengeance.
That's consistent... but I don't really see how it's actionable. There's a lot of talk on the left about what we can do to help the midwest financially, but as you say, it's not about money.
If you had the ear of someone who mattered in the 'blue state' establishment, what would you tell them if they asked "What can the blue states do to help?"
My argument is that not valuing education (as evinced by an unwillingness to spend public money on it) is an even bigger problem than the actual lack of money for education, though that is also certainly a problem.
I can get a better education from Moocs than I did from my tenured mathematics professor who didn’t know the applications of linear algebra in the real world.
Would you ask your Literature professor what the real world applications of reading Joseph Conrad are? I think asking for a 'real world application' of something you are learning in the course of a liberal education is missing the point.
For an engineering discipline getting a college degree is almost always a requirement for getting a real job. This means that practically for a lot of people college is largely intended to be training for their job, so it makes sense why they get frustrated when it doesn't actually train them for it.
To pull my personal experience in college was frustrating because I didn't feel like I had much control over what I wanted to learn because college had their idea of a "liberal education" (which didn't match up with mine) and in a modern job market I had little choice but to attend.
If you mean like a licenced engineer, a PE or something, then sure, a degree is required. But if you mean someone in the computer industry, as the word is usually used in these parts? A degree is a substitute for a few years of experience, If you can learn the Material in question.
> It also doesn't help that every state in the midwest has been slashing educational budgets and in some states has enacted almost a war on education.
I looked up some information for my home state (Iowa) and the opposite seems to be true, at least for K-12. This study shows per-capita increases in K-12 education 2008-2015 in North Dakota, Illinois, Kansas, Iowa, Missouri, Nebraska, and Minnesota, while finding decreases in New Jersey, New York, Delaware, and California.
Looking at simple percentage deltas is rather misleading. It's important to understand the context and the causes behind those numbers. In Kansas, for example, education funding has been deeply cut in non-obvious ways. It's so bad that the State Supreme Court has been forced to intervene and declare the current funding of the schools to be unconstitutional! [1][2] (Think about that for a second -- these are highly conservative judges, not "activist judges," deploying the logic of civil rights on behalf of school children.)
The same problem pervades the Midwest -- except Minnesota. (Minnesota is very unique in the Midwest for actually investing in education and producing high levels of educational attainment [3][4].) The end result is that no matter how cheap the land or low the taxes operating and growing a knowledge-driven business in much of the Midwest is a really a non-starter.
> In Kansas, for example, education funding has been deeply cut in non-obvious ways.
Even your own articles don't say anything about a cut. Your first article says Kansas added $300M to their educational budget. The lawsuit came because this was judged not enough of an increase, and because the increase was judged to be unevenly distributed across districts.
> It's so bad that the State Supreme Court has been forced to intervene and declare the current funding of the schools to be unconstitutional!
The implication here is that no enlightened coastal state would have such a problem. But in fact when the Atlantic wrote about underfunded schools in 2016, the case they centered on was in Connecticut. And they wrote "since the 1970s, nearly every state has had litigation over equitable education". [0] In 2012 WaPo wrote about underfunded schools in Connecticut, New York, Washington, Colorado, Wyoming, and Kansas. [1] This issue is not unique to midwestern states.
> The same problem pervades the Midwest -- except Minnesota. (Minnesota is very unique in the Midwest for actually investing in education and producing high levels of educational attainment
If you follow your US News article through to its actual ranking of PreK-12 education, you'll find that Iowa comes in literally right after Minnesota (they are #7 and #8). [2] After that, you'll see:
#14 Illinois
#15 Nebraska
#16 Wisconsin
#17 Indiana
#19 Missouri
#21 Michigan
#22 South Dakota
[...]
#26 Washington
#31 New York
#37 Oregon
#44 California
I can't speak to the Midwest's suitability for starting a company. But the K-12 system in the Midwest appears to be relatively strong. I did PreK-5 in Iowa and felt I had a strong educational foundation. I believe it is a place that respects and supports education. I don't think that painting the midwest as an educational backwater is accurate or fair.
I think the point was it's the only place in the midwest that could even be remotely considered in the same sentence for those properties. Other midwestern cities are large suburbs in comparison.
>It also doesn't help that every state in the midwest has been slashing educational budgets and in some states has enacted almost a war on education. I think the attitude of "SV toxic culture" is ironic, after having grown up in the midwest and seen horrible racism, anti-intellecutalism, anti-free speech measures, and all others kinds of issues.
Well you have to understand that when people say they are looking for more "diversity of thought" they really mean "people who think like me".
Some of the smartest people I've met grew up in the midwest. Your comment is part of the problem: it paints a large, diverse region with a single derogatory brush, and it additionally hints that everyone who disagrees with the standard bay area political perspective must be uneducated, if not outright malicious. This kind of thinking is what these VCs are trying to escape.
Emphasis on “dense” and “pot” especially, and the culture in SV is more Petri dish than anything else. It is demonstrably all about the money, and then getting the fuck out.
I remember Detroit when there weren't any VC's downtown and the startup scene was spread among the suburbs.
Dan Gilbert set the Madison building as ground zero for a startup neighborhood. He even wanted that stretch of Woodward Avenue, Detroit's main street, renamed there as Webward Avenue. He filled the Madison with startups that he funded. When they outgrew it they moved to other building he owned nearby.
Now that zone extends for ten or fifteen blocks, I know because I visit my friends down there regularly. One guys vision is all it took.
Detroiter here (typing this in an apartment right off Grand Circus Park)
Duo Security (in Ann Arbor) and Plex Systems (Troy) are the two 'Metro Detroit' anchors - pure software companies doing over $100 million+ in recurring SaaS revenue.
I was thinking to myself - who is #3-5 for SaaS in Detroit?
It has to be Quicken, right? They're the largest outfit I can think of. They’re obviously not primarily software, but I think they employ most of the tech workers downtown.
I think its worth pointing out how important it is having that one investor willing to fund companies and move them to a startup neighborhood.
Here in Jacksonville, FL we've seen 2-3 different attempts to create innovation districts downtown in the last five years, always led by entrepreneurial activists leveraging tax grants and "if you build it they will come" mentality. One collapsed after building an incubator and funding only small consumer products instead of the startups they promised and wasting a huge amount of money on overhead. One never got off the ground. Another launched to much fanfare and then went silent. I've been told political leadership are pretty sick and tired of hearing how entrepreneurship is going to save everyone.
You get these excited people wanting to make a difference so they follow the playbook but without the key players and it fails. But I get shade for being the one saying not to do it because its wasting goodwill for when a real opportunity comes along, everyone who could act has already been burned by false promises based on little more than hope.
Paul Graham had this thesis that there was untapped potential by targeting young people. I've always believed that same principle could apply to the midwest. Where I grew up everyone wanted to be an entrepreneur. Not because it was hip, but because there were no good jobs (the town was built around a factory that closed down in the 80's).
The exceptional talent moved to the coasts, but what's left is still pretty persistent, and given that the trends of technology have been to lower the barriers to entry in startups, "exceptional talent" isn't required. In fact what the midwest has is a plentiful supply of ambitious, and persistent people... which arguably is more valuable.
Almost all the most successful SV companies don't require exceptional talent. Most of the "big names" have a tiny fraction of their engineering organization that has to be truly exceptional.
The problem is that, at least based on my experience (I worked in the Midwest and the south east for over a decade ending a few years ago), the vast majority of "talent" in the midwest is below even the mediocre requirements of most SV/VC companies. No amount of persistence can overcome that.
I seriously doubt you've thought this comment through. University of Illinois Urbana-Champaign, among others, are renowned for producing important research. NCSA Mosaic and LLVM are just two noteworthy technologies coming from research done at UIUC. Alumni have come to form Netscape, AMD, Oracle, and YouTube.
UIUC is the most noteworthy of midwestern universities, but is hardly the only excellent education available to undergraduates and grad students.
I disagree. While you can't deny the supremacy of the elite coastal universities, there do exist great schools in the Midwest: Uni. of Illinois, Chicago, Case Western, Michigan, Wisconsin, Ohio State, Northwestern, etc. Oh and probably the most prestigious, Carnegie Mellon.
I doubt it's that. It's more likely that it's a combination of low quantity of software/tech jobs and low quality ones. "All" the people with any talent leave for places where these things aren't true.
I’m in a weird situation in that I started my education and career on the West Coast, but ended up on the Midwest a decade later for personal reasons. I do have to say that the business culture differences are astounding. Obviously I’m generalizing, but Midwest business culture is incredibly risk averse and VC money tends to flow to niche high research fields that the investor either came from or understands really well (e.g. Biotech). I’ve started to see some small changes with some funds looking to invest in “general” startups, but the capital is astonishingly weak.
Honestly though, I’ve come to appreciate it (even though it can drive me batty - Midwest “nice” is a real thing and can be a severe hindrance to effective communication), as I think it forces a level of creativity and resiliency on me that I didn’t need in the West Coast. Finally the tech community out here is so small that people really genuinely seem to look out for one another and be genuinely interested in what other people are doing as you never know where the next job is going to come from.
Somehow I feel like NYTimes writers have mastered the art of "it-almost-sounds-sincere-but-nothing-like-skewering-with-an-undercurrent-of-sarcasm". The whole recounting of the "trappings of hipsterdom", the mentions of the vegan donuts and coal-infused kombucha, the portraying of VCs on a "safari". Granted, not so sure if the target is the hipster-posh VCs or the local yokels, but for this article I could appreciate a more straightforward style.
How many of this “Silicon Valley comes to Midwest” article do we need ? It’s all feel good, but numbers don’t support it. And this PR move has been happening for 3-4 years at least. Just other day DoorDash raised $535mn and it is based in Palo Alto. SV startups continue to raise giant sums, grow businesses at global scale, and make their investors money.
You would be amazed at how much companies still value face to face collaboration even in this era of Slack etc. The salary deltas may be big yes but there's often a large premium on being in the office.
> The trip, which took place on a luxury bus outfitted with a supply of vegan doughnuts and coal-infused kombucha, was known as the "Comeback Cities Tour."
I live in Detroit. It’s a city that has been pushed to the edge of oblivion... and then into oblivion for several decades. It's fantastic that thers investment, but at the same time, stuff like this feels so incredibly patronizing. "It's nicer than San Francisco!" Yes, there are, in fact, nice buildings outside of San Francisco, even in Detroit.
Midwestern cities don't exist solely to make money, and I'm rather disturbed that they're seen more and more as nothing but investment vehicles. Detroit is 80% black. We didn’t even have working street lights until a few years ago (shout out to the Public Lighting Authority). I just look at San Francisco and the entire Bay Area, and I think to myself: "we don't want that here". Detroit isn't just cheap rent and exposed brick. It's grit and soul and pain and culture and 300+ years of history. I'm sure these investors got a lovely tour. Did they talk about the 1967 riots? Did they show them northwest Detroit, where entire city blocks are basically becoming urban prairie? Did they talk to the regular folks living and working in the city for generations? They’re lovely people, and they live here too. They're as much a part of Detroit as the Madison Building or New Center or Dan Gilbert or the rotting houses or the rich history.
Thing is (I'm a native, black, 3rd generation Detroiter, and a serial founder who has lived in the Bay Area) none of that (unless and until it does) has anything to do with starting startups or making startups succeed.
And impertinent. That's the thing: people want the side effects of startup success here but they don't care about successful startups or the things that make startups succeed. The Genius loci is huntin 'em and killin 'em here. I live it everyday. Maybe, just maybe a place like Detroit could overcome the premier network effects of the Valley if people here cared about startups. They don't.
In some ways it's unfair but true. In the same way that people with families should not start startups.
"This one is real. I wouldn't advise anyone with a family to start a startup. I'm not saying it's a bad idea, just that I don't want to take responsibility for advising it. I'm willing to take responsibility for telling 22 year olds to start startups. So what if they fail? They'll learn a lot, and that job at Microsoft will still be waiting for them if they need it. But I'm not prepared to cross moms." ~ http://paulgraham.com/notnot.html
> When you invest in a San Francisco start-up, “you’re basically paying landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders Fund, referring to the companies that provide start-ups with messaging services and data hosting.
There must be a few other companies missing from this list..
It's a facile statement. A significant fraction, if not the majority by far, of most companies' expenditures is in salaries which go mostly to pay rent or mortgages in most places.
askafriend's comment is correct: most companies, regardless of industry or location, spend a significant fraction of resources on salaries. The notion that "it pays landlords" isn't unique to the bay area or VC-funded companies, by far.
Silicon Valley success is Midwestern success. I would wager that the majority of engineering talent working in the Bay Area was born and raised in the Midwest.
Sad as it is, lots of people on the coasts perceive it that way.
As an anecdote, I was born and raised in Iowa. My dad was on the board of a a non-profit which primarily operated out of the DC suburbs. As the only person from the Midwest on the board, he floated the idea of moving operations to Iowa. Everyone thought he was stupid to suggest such a thing. "Could we even find qualified people to hire in the Midwest?"
They weren't doing any lobbying or hosting events, it was effectively just an administrative office. They moved to Iowa, paid a small fraction in rent, got more space, could afford to pay a similar wage giving the employees much more disposable income, and hired another person (I believe going from 3 to 4 employees).
"When you invest in a San Francisco start-up, “you’re basically paying landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders Fund"
Only the first part "landlord" it's affected by location.
Eh, for amazon? I think it is location dependent. The majority of your datacenter costs, if you want to run your own hardware rather than amazon? At first, those costs will be dominated by people, and this is why it makes sense to run on amazon until you're paying a quarter million or more a year.
Sure, you can get part time sysadmins. Not that bad for planned work. But getting someone who will answer your pager? You pretty much have to hire someone full time and they need to be really dedicated. (being the only guy on pager is a rough experience.)
If you can find someone with my skillset in, say, Cleveland? they don't have the option of super high paying local jobs where you get fed three times a day and don't have to carry a pager. The me in Cleveland is gonna work a lot cheaper.
The problem, of course, is finding a me in Cleveland. I'm sure you can, but there just isn't the density there as there is here.
AWS and Twillio costs are more or less location independent (w/in US at least).
Good point about significant portion going to salaries. Somehow author of the article wrongfully omitted it from the top 3 expenses.
p.s. and then the employees salaries to go pay for rent; so the "landlord" part is rightfully there; I just have no idea how AWS and Twillio ended up on the list.
My point re aws is that aws is way more expensive than data center space and hardware; if you have someone competent and inexpensive in the midwest to handle the datacenter/hardware stuff, it makes sense to move off of aws much sooner than in the bay area, where people to manage the hardware side of things are going to cost you a whole lot.
Therefore, your amazon bill is, in a way, location dependent.
Fundamentally, I don't care how "hungry" my technical staff is. (I mean, I want to see to it that they are well fed, but if I'm hiring technical staff... their ability to "hustle" isn't something I am selecting for.)
I know there are good technical people other places- I hired a few to work remote when I was doing my own thing, and in the last year, two of my friends have moved from here to cheaper pastures.
it's just... well, the density of nerds here is incredible. If you can pay local rates, you will almost certainly be able to find someone who doesn't have to move. In the midwest, I think that most areas, there are very few local employers; if you want to jump jobs, you often have to move. That means that as an employer, if you want to hire someone on-site, a lot of times you need to talk someone into moving. I personally live within walking distance of internap, Intel, drobo, palo alto networks, EMC and tens of smaller companies that could hire me as a sysadmin or a network admin or even as my current specialty, an EDA administrator. A ten minute drive widens the field greatly.
This density goes both ways; it means that an employee can easily find an employer without moving, and the other side of that is that an employer can easily find an employee. This means, I think, that people tend to work at jobs that they match with better, because there's a much smaller cost to switching to that other job that fits better.
There seems to be no evidence that startups are significantly growing anywhere outside of the already well-known tech cities. And the main reason is because most of the talent that really wants to work in cutting-edge tech takes the initiative and relocates there to be with all the other people that really want to work in tech (barring some people who are taking care of sick or aging relatives, etc.) I'm not saying another city couldn't eventually displace SV, but it would require a huge shift in network effects.
Also, the cost of living argument is mostly nonsense. For large tech companies, even with spending $6,000 a month on an apartment, you still have a lot more left over after California taxes than the best tech employers in the Midwest or Southeast. When your total comp is 3x what you would make in an "affordable" city, does it really matter that rent is 1/3 of your income?
Every time I read an article about VCs it is either about chasing trends or something bad. I guess this is what separates mature investors from corporate executives.
At IETF Dallas 2015, I spoke to some people who had been west coast, now located there. They all said the primary driver for them was cost-of-living. Same salary could translate to a huge disposable income result, relocating. For the companies (this was mainly Datacenter and comms people) the RTT to east and west coast about equalizes. So, you can either have two DCs, one for each major population center, or you can have a bigger investment somewhere in the middle.
Relocation expense against first year hire costs is pretty big. If you could shed $20k+ of excess cost to make somebody work for you, and get east-vs-west quality to a median line, and get reasonable land rent for DC and offices, wouldn't you talk to your CFO and board about it?
I think its great VCs are expanding their worldview. I think there are definitely good investment opps outside of SV. I think its a stretch to say SV is over. Yes living expenses and salaries are crazy but there is a success network here that is reinforcing. In order for SV to be over it would take a new annoited tech hub, like we saw SF do recently. Many companies and jobs moved up from SV to SF. Saying there are now 100 smaller tech hubs in the Midwest South etc does nothing to combat SVs network effect. It is still the densest (albeit most costly). So much of the new talent and entrepreneurs will naturally flock there to maximize their chance of success.
>When you invest in a San Francisco start-up, “you’re basically paying landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders Fund, referring to the companies that provide start-ups with messaging services and data hosting.
This is the most absurd realization. Literally 50% of your startup's funds will be sent directly to landlords if you locate in the bay area.
Is there really a lot going on in South Bend? Detroit I can believe, but some of those other cities made me think "there are other mid-west cities that would have been much better choices!"
It says this trip was organized by a rep from north east ohio which is the only reason they went there. Akron and Youngstown don't have the talent to develop a website, much less support more than a few tiny startups.
I guess now that they have used up all the social capital in SF, they need to broaden their horizons and look for more people to make their slaves. I wonder what terms they’ll offer to some naive kid in Ohio? They could probably get away with a lot more and do exponentially more damage than what they have done here.
I've been developing animation software for 2 years, and am set on getting profitability without help, mostly because this is probably necessary anyway, but also because it'll send the message to other folks in town that they don't need an external 'go-ahead' to start a business that works.
I think part of the reason VC money isn't working as well in the valley, is that people are more obsessed with raising money than they are with making their business work.
There's a certain uncomfortable fatalism that comes when you take the mindset that no one is coming to save your business. Not now, not ever. It's the same feeling you get when you have a software bug, and you can't look up the answer on google, because you're so deep into your own territory, that the question wouldn't make sense to anyone else.
I welcome money, and I welcome interest, however, I think some people just need to steel themselves and launch without help.
Some people need money, and other people need to just do it. That goes for every area, but in the Midwest, sometimes we get this "we need to copy the big cities" mentality, and I want to stop that, since 99% of the time, no one is coming to the rescue, even if I'd like to see more companies coming in, and lowering that %.