Screw the Valley. Timothy Sprinkle
which includes startups, larger companies, government agencies, and the nearby University of Colorado Boulder. Not too shabby for a borderline ski town that until recently was probably better known outside the city limits for the 1970s sitcom Mork and Mindy, the murder of Jon Benét Ramsey, and the annual, open-air marijuana festival on the university campus.
What brought tech entrepreneurs to a city like Boulder? Lower costs, for sure, but there are cultural elements at work as well. Boulder has a reputation as one of the “nicer” cities in tech, which isn’t something you often hear about Palo Alto or Menlo Park. There’s a real community feel in the town, where give-before-you-get is the prevailing attitude, and founders feel safe to step up and help each other out, competition be damned. It’s a small community—reputations are important. And what Boulder might lack in resources it makes up for with quality of life, which makes it easier to attract talented, out-of-town workers and keep them there over the long term.
It’s not just Boulder. In Austin, you get all the resources of the University of Texas system with heavy helpings of Texas hospitality, acres of inexpensive office space, and a beautiful, easygoing quality of life. Ditto for Raleigh, where the Research Triangle Park serves as the anchor, along with Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University. In Detroit, there isn’t a strong local university (unless you count the University of Michigan, thirty minutes up the road in Ann Arbor), but there is a core group of dedicated investors working to create a viable tech ecosystem as part of the city’s overall revival. And the examples go on and on.
In short, there are ways to do business in these new hubs that may not be possible in Northern California. Not necessarily better, not necessarily more effective, but different. As a result, there are now ways to stand out from the crowd and make a splash in technology without swimming in the same Bay Area pool as thousands of other entrepreneurs. And, the fact is, in this data-driven age, startups don’t really need to be in the Valley anymore. With a high-speed line, talent can be effectively located anywhere.
The investment numbers are starting to catch up to this new reality. According to the National Venture Capital Association (NVCA), New England, primarily Boston, accounted for about $3.2 billion in VC funding in 2012, followed by $2.7 billion in the New York metro area, and $2 billion in greater Los Angeles. A decade ago, all three of these areas accounted for just $5.6 billion in funding combined. Texas is on the rise at $1.9 billion as of 2012, followed by the combined Midwest region encompassing Kansas City, Minneapolis, and Chicago at $1.4 billion, and the Southeast region at $1.1 billion. Denver/Boulder saw $683 million in venture investment in 2011, while the Washington, DC, area generated $979 million.
Some of these regions are also becoming known for specific technologies. Orange County, California, has an emerging reputation for ophthalmology startups, for example, while Minneapolis–St. Paul is known for its medical device companies. Raleigh has a strong base of biotech startups, while New York City has zeroed in on technologies to support financial services companies. As with any economic development effort, developing a specialty is about leveraging established local industries and building on a city’s past successes.
This kind of “clustering” is good news for everyone involved, explains NVCA president Mark Heesen. Venture capitalists who are interested in investing in medical device startups, for example, know that eastern Minnesota is a good place to look for opportunities due to the cluster of device startups that are located there. And it has a snowball effect. Money gets invested into the Twin Cities ecosystem, supporting the companies that are there and leading to the development of more similarly minded firms nearby. These startups, in turn, attract even more outside investment, and the cycle continues. For developers, salespeople, and the other employees of these startups, local competition like this is a good thing; there’s always another place to send your resume if your current shop goes belly-up, which is a characteristic of a healthy ecosystem.
Still, Heesen says, even the best-known startup hubs face an uphill battle:
It’s difficult to see another version of Silicon Valley springing up in the next thirty to forty years. Israel has tried to replicate it, China has tried to replicate it, even Russia has been trying to replicate it, but it’s a very difficult thing to do. The colleges in the Valley were an integral part, but we also saw several incredibly successful companies take off and, most importantly, stay in the area. Everything else grew from there. It was a perfect storm that we probably won’t see again in our lifetimes.
But it won’t be for a lack of trying. Improving the odds of startup success outside of the Bay Area was the idea behind the Startup America Partnership (SUAP), a national organization dedicated to creating strong startup ecosystems from coast to coast. Launched in 2011 alongside the Obama administration’s startup initiative, and now part of an organization called UP Global with Startup Weekend, the group is backed by the Kauffman Foundation and the Case Foundation, along with a collection of corporate sponsors like American Airlines, American Express, Dell, Intuit, and Microsoft.
“We highlight the importance of startups as innovators and job creators,” the organization writes on its Web site. “We give startups access to the relationships, opportunities, and knowledge they need to succeed. We celebrate entrepreneurship as a core American value. We aspire to make creating or joining an American startup the most desirable job in the world.”
What started out as an effort to deliver free and low-cost support and services to entrepreneurs (via SUAP’s network of corporate partners) has evolved into a regional network of startup ecosystems, connecting founders, investors, workers, and, eventually, potential customers. So far, in addition to gathering more than $1.2 billion worth of service offers that have benefited some 3,000 young companies, the group has worked to develop a collection of mentors in these far-flung cities and towns, tapping local entrepreneurs, investors, and others in hopes of growing and sustaining these ecosystems.
“The job of SUAP . . . is not to offer more of the fine words and sugar highs that abound in the world of entrepreneurship, but to redraw the landscape of America’s economy so that more people felt confident enough to start their own businesses,” the organization wrote in its 2012 report on the state of US entrepre-neurship. “There would be cheerleading, of course. But there also would be hard work in the many areas that affect entrepreneur-ship. That hard work would include drawing attention to, and encouraging the study of, legal and policy barriers faced by entrepreneurs. Among the issues that have arisen are tax incentives that could help both startups and the broader economy; changes to the immigration laws to enable more talented people to stay and work in the United States; new models of venture financing, such as crowdfunding; helping to lower the burden of student loan repayments; and providing more free resources to help entrepreneurs spend less to get started.”
In the words of SUAP chairman Steve Case: “What you are doing as entrepreneurs isn’t merely about providing that product and supporting your family. The collective effort is what makes this nation great. What’s your part in the tapestry of entrepreneurship?”
This regionalism isn’t one size fits all, though. Tech ecosystems do share many similar qualities, but the range of needs and unique challenges between cities can be significant. Florida has a large community of high-net-worth individuals and plenty of available capital, but its investors are not familiar with the tech market and as a result are less likely to put their money to work in local startups. Iowa has an established community of IT, software, and biosciences companies, but is having a hard time getting them all to think outside of their silos and work together as an ecosystem. Texas is very capital-rich, but, like Florida, that money isn’t finding its way to startup founders, while Connecticut has money but no functional startup community to invest in. Massachusetts has a wealth of resources of all types available, but they’re all centered in Boston instead of being spread across the state, while states like Nebraska, Vermont, and Maryland are having trouble attracting and retaining talent in the first place.
“The most frequent problem in the regions is that ideas aren’t big enough or innovative enough,” says Donna Harris, managing director of the Startup Regions at SUAP. “Once they grasp that they don’t need our permission to act, the creativity starts to flow. You don’t need man-on-the-moon ideas, just very simple, new ways