Evacuating Silicon Valley

IMG_0451

Camped out at a VC office waiting to pitch

I’ve been working at and building technology companies for almost thirty years with a brief stop-over at Microsoft in the 1990’s to work on DirectX.  One of the great joys of founding one of the Internet’s earliest online game publishers (WildTangent) was getting to work with thousands of fledgling online game developers around the world.  I joined my first technology startup in Cambridge England  in the 1980’s when I was 21.  I’ve raised over 150M for VC funded companies over the years from many of the Valley’s largest and most respected VC firms.

It’s understandably nearly impossible to convey to people outside the valley what a strange and distorted world high-tech venture capital is.  The TV show Silicon Valley is very difficult for me to watch because it’s not comedy most of the time.  It’s a strikingly accurate portrayal of how absurd and self-obsessed valley culture really is.  That and… WildTangent was a streaming media and compression technology company with the company slogan “Size Matters”.  We were one of the few dotcom era companies to survive the market meltdown that wiped out the first era of internet technology companies.  I spent a lot of years trapped in a Silicon Valley episode nightmare I couldn’t escape as CEO of a dotcom era tech company sitting square in the middle of a giant deserted tech park with nothing but “For Lease” signs and empty parking spaces as far as the eye could see trying to figure out how to survive when all of my peers had gone out of business and all of my investors had written us off along with the rest of their defunct investment funds.   

I think Silicon Valley is dying.  Not just because the absurdity of the culture has reached such a peak that it is even the subject of a mass-market comedy sitcom, but because the economics that have enabled the valley for so many years have seriously broken down.  Nobody will say it, least of all anybody from the Valley.  The tech pubs in the valley thrive on the hype, the puff articles and hosting conferences for Valley insiders to sit around on panels promoting themselves to each other.  I love VentureBeat, don’t get me wrong… big fan… but…

http://venturebeat.com/2015/10/30/how-non-u-s-startups-should-approach-silicon-valley-investors/

It’s an article about how startups from abroad should approach Silicon Valley… The article reads like the usual Valley echo-chamber chatter.

Ian Sobieski, managing director at the Band of Angels fund, said while it’s important to have at least some presence in Silicon Valley, it is by no means essential to move there.”

I’m going to go way out on a limb here and with respect, disagree with the premise of this article.  I would observe that today not only is it NOT important to have some presence in Silicon Valley, it is probably a good idea for modern startups to run screaming AWAY from Silicon Valley and not look back.  Why?  Because I strongly dispute the view that the valley has much to offer to this generation of tech entrepreneurs.

““Almost every visitor we meet in Silicon Valley thinks there’s one reason to be there — capital,” he said. “But the way to be most successful is to put customers and talent first. Silicon Valley is the best place on the planet to talk to the most companies — almost every big company in the world has some sort of innovation lab, corporate development office, or VC fund in Silicon Valley. The reason to come to Silicon Valley is to get customers first — but also get talent.”

IMG_0246

A visit to a retired Apple executives home in San Francisco to discuss funding strategy.

IMG_0441

Desperate and starving for talent, VC funded startups promise anything to recruit… even not working…

I would observe that the business climate and conditions in Silicon Valley are actually terrible and so is the talent.  I’ve worked at and with startups all over the world and the “talent” is superior elsewhere.  Nowhere on Earth is talent HARDER or MORE EXPENSIVE to recruit and retain than Silicon Valley.  Nowhere on Earth is it more costly to start and run a company.  Nowhere on Earth is it HARDER to gather a group of talented young friends and sweat out a great company together in your parents garage instead of attending University classes like the great tech company founders of old did.  That era of Silicon Valley is GONE.  It’s sad, but it’s true.  I assert that you would have to be stupid, to try to found a technology company in Silicon Valley today.  But what do I know…

http://www.businessinsider.com.au/sergey-brin-on-starting-a-company-in-silicon-valley-2016-6?r=US&IR=T

If you’re itching to start a company out of a garage, then you shouldn’t pick up and move to Silicon Valley, according to Google cofounder Sergey Brin.”

IMG_0186

The legendary Bucks Dinner where all the great Sandhill VC’s have breakfast meetings.

Now why would a Google founder go and say a terrible thing like that?  Because he’s trying to do everybody a favor, he’s trying to tell you that he’s going to hire away all the best talent available within a 1000 mile radius of Google HQ and he’s got the money to do it.  Founding startups is hard.  The minute YOUR startup has a bad day, your best most valuable people will suddenly discover the need for a less stressful more “balanced” lifestyle at a salary only Google, Microsoft, Apple or an Andreessen-Horowitz funded startup can afford.  The only talent that a responsibly lean and entrepreneurial startup will find anywhere near Silicon Valley is second rate talent that can’t get a cushy job at Google or inexperienced kids who will jump at a job at Google five minutes after they get enough experience at a startup to rate an offer.  There is ZERO talent in the valley that any early stage startup should be trying to recruit.   As I write this I can hear a bunch of my VC friends sputtering about “experience” and “scaling” and the usual Valley rationalizations but again I respectfully disagree.  I assert that successful entrepreneurs are only forged in adversity and too much capital, wisdom and “support” ruins them for learning to struggle and compete in the real-world.  I assert that real entrepreneurs, especially ones with lots of Silicon Valley experience and credentials should pack their bags and evacuate as quickly as possible for much greener pastures abroad.  In fact, having the courage to leave the valley is the most resume enhancing thing I think a modern entrepreneur should do.  

It is true that there is a unique breed of tech entrepreneur that Silicon Valley has forged in the past.  Their expertise and experience with founding and running technology companies can be unparalleled.  The rest of the world is full of BETTER quality talent far from the recruiting clutches of Google, Facebook, Amazon, Apple and Microsoft, but often lacking the experience and confidence to know how to go about founding a creating a successful modern tech company.  If the valley forged entrepreneurs are afraid to leave the comfortable self-validating nest of the Valley to go where the new opportunities are and where the new talent is emerging… are they really entrepreneurs anymore?  

…so this is what they tell themselves to justify the inexplicable costs of trying to start a tech business in California.

IMG_0435

…and here we find the Weebly team hard at work for their investors at 10AM on a Tuesday in downtown San Francisco.

“Silicon Valley is the best place on the planet to talk to the most companies — almost every big company in the world has some sort of innovation lab, corporate development office, or VC fund in Silicon Valley. The reason to come to Silicon Valley is to get customers first —”

…but this isn’t true either anymore.  These companies aren’t your customers, they’re competitors for your ideas and talent.  They don’t have “innovation labs” to help you start your company, they have innovation labs because they’re afraid YOU will disrupt them and/or attract their most creative entrepreneurial thinkers away from them.  The very foundation of modern technology startup ideals is to make online products and services that can reach a worldwide market organically without an army of salespeople, account managers, PR teams, marketing departments, legal contract departments and accountants.  If you are building a tech company that NEEDS relationships with the Valley to succeed… you’re already doing something wrong.  Large established technology companies have excellent anti-bodies to competition.  It’s very convenient for them if you locate your startup somewhere they can watch you, learn from you, and recruit your people from or buy your business cheaply when the costs of operating in the Valley burns through your capital or the hardships of being a founder make a highly paid 9-5 job look appealing again.  They have profitable businesses, they have lots of reserve capital to weather bad days and to buy or sue inconvenient upstart competitors before they can grow too big to stop.

So I agree with Sergey Brin, Steve Jobs, Bill Gates and Jeff Bezos.  Silicon Valley is a terrible place to found a company today… and also a terrible place to focus to scale a successful technology company tomorrow.

Times have changed around the world.  Everybody is connected now.  Every government on Earth hopes to grow it’s own Silicon Valley technology culture.  Every millionaire and billionaire being minted by the thousands as third world nations leave poverty are looking to invest their money in higher risk/higher return ventures near them.  Everyone wants to invest in their kids, their communities, businesses they can be a part of.  These countries and investors WANT experienced entrepreneurs to help them develop technology startup ecosystems.  They have lots of resources, lots of talent, lots of support programs, lots of NEW opportunities and NO COMPETITION.  These are REAL entrepreneurial opportunities, not the massive capital intensive, over funded ponzi-scheme companies that the Valley has become known for today.

IMG_0443

By 11AM on a Tuesday a few precious members of the Weebly team with their pets have managed to struggle in to work.

Genuine entrepreneurs are fearless, they go where the opportunities are and they embrace risk and uncertainty to pioneer new ideas and markets.  If these people are afraid or too comfortable to leave the Valley to go where the emerging talent, markets and resources are to start companies, then they aren’t the entrepreneurs they think they are.  Today’s Silicon Valley reminds me of an old joke;

A man was walking home at night in the rain when he noticed a distressed stranger searching frantically around the base of a street light.  He stopped and said; “Excuse me, can I help you find something?”  To which the stranger replied; “Yes!  I’ve lost a contact lens and I can barely see, I need to find it!”  So the man spent several minutes in the torrential rain searching in vain under the street light for the missing contact lens.  Finally as the rain soaked him to the bone and a chill started to set in, he paused and told the stranger; “I’m sorry, I don’t think we’re going to find your contact lens, are you sure this is where you lost it?”  To which the stranger gave him an odd look and answered, pointing into the darkness across the street; “Well no, I lost it over there.”  “Then why are we looking here?” asked the man.  To which the stranger replied… “Because this is where the light is.”

The extraordinary costs, competition and risks of doing business in the tech corridors of the United States have ironically forced VC’s located in those markets to become highly risk averse.  They’re afraid to invest in companies that all of their neighboring friends aren’t also competing to invest in.  They’re afraid to fund companies without validation and the financial support of other large funds.  They can’t afford to bet millions on unproven (flaky) young founders anymore.  They hold little hope for investing in companies they can expect to have massive public offering liquidity events on the NASDAQ as the costs and risks of going public in the US have become so great that nobody wants to do it anymore.  Many VC’s highest ambition for their startups is to sell them off to one of the established big players in the Valley, pocketing a modest return before the constant demands for capital dilute away their returns. They like their portfolio companies to be in the valley to make it easier to flip them quickly and they like their entrepreneurs to live there to make attending board meetings convenient.  

IMG_0428

Is it a set from Silicon Valley? No… it’s what all the hip VC funded startups look like.

None of this is a healthy environment for entrepreneurs or startups.  There is plenty of hungry talent and money to be found outside the Valley and if there is any expertise from the Valley that can possibly benefit your technology business it will come to you or it was not the expertise you really needed.  If you’re not making a technology product that can reach the Valley from anywhere on Earth… you’re not making the right product yet.  You don’t need Valley sized capital to scale a successful technology business if you don’t have valley sized burn-rates and need valley sized sales, bus-dev, marketing and legal resources to make your business model work.  The Valley echo-chamber is not an environment that rewards entrepreneurs for being contrarian, skeptics or free-thinkers, it rewards people who learn to sell what the valley is buying that day.  It is much easier to create a cohesive team that can make the sacrifices and whether the hardships of starting a business together when those people are not displaced from their communities and subjected to huge living expenses, high taxes, drug culture, bad schools and long commutes in order to live in the Valley.  Finally VC’s that make you come to them in the Valley are not the ones you should be seeking investment from for a foreign technology company.  If you have to seek them out, they’re not going to understand or value any strategic reasons you may have for your choice of home country.  The VC’s who are best positioned to help you enter the US market are already investing in your home market and have those connections in place.  There is plenty of evidence from companies like Xero, Atlassian and Mindcraft that great startups can achieve tremendous financial support, growth and liquidity potential far far from the Valley.  

 

IMG_0132

Meanwhile on the Microsoft Campus… gourmet restaurants…

IMG_0143

Bicycle, electronics and music shops…

IMG_0138

Nerds gliding around the campus on… well… these things…

IMG_0137

…live music over lunch…

IMG_0152

Palatial campus as far as the eye can see…

IMG_0161

…now do you really believe your startup should try to compete with this for talent?

IMG_0449

 

 

 

 

 

Comments

comments

4 Comments

  1. As always, you are spot on with your evaluation, Alex! I’ve been a Silicon Valley rat for 8 years now and have seen everything you describe. Your focus is the entrepreneur side of things, but from the tech worker view it’s far worse. My advice to tech workers is stay away!!! There is a reason companies like Google have tech workers living in their cars in the parking lot! These great big salaries may seem extraordinary when you’re being recruited from your Ivy League or Midwestern college but once you get here you quickly learn you can’t live here on it. You’re never going to be able to buy a house here unless you take a risk with a startup that hits the jackpot. Heck, you probably won’t be able to afford a car unless you do live in it in the parking lot! But hey, that’s why companies like Google, Facebook, and Apple have shower facilities in every building! There is a reason food is accessible for breakfast, lunch, and dinner. There is a reason every building has a large refrigerator or two on every floor. You’ll need these things when you’re living out of your car in the parking lot! That is unless you are lucky enough to garner a bunk in one of the newest living arrangement sensations, the tech worker dorm. The small I nvestors are buying 1400-1600 square foot 3-4 bedroom houses here in the valley and putting bunk beds in the bedrooms. They can cram 6-10 tech workers in a house and charge them each $600-1,000 to rent a bunk in a house with kitchen and common area privileges. You’re only going to have time to sleep there anyway. How do you think all these tech workers from India get their start here? Welcome to Silicon Valley!

  2. As always, it’s refreshing to read your common-sense article amidst all the BS that’s being published on the IT industry online. The more of your articles I read, the more often I keep returning to look for new ones…

Pingbacks

  1. Behind the Line: What's Alex St. John been up to? - Enthusiacs

Leave a Reply

Follow

Get every new post delivered to your Inbox

Join other followers:

%d bloggers like this: