Would Your Startup Be Better Off in Silicon Valley?
December 10, 2009
By Guest Poster: Sanjay Sathe, Founder and CEO, RiseSmart
When I was looking for a change as a senior executive at Dallas-based Sabre in 2006, I got firsthand experience with outplacement services and with searching the Web for jobs. I was surprised by how frustrating and time-consuming it was to use the major job boards (even the ones supposedly geared to executives).
So I stopped looking for jobs and decided to start my own company. It’s called RiseSmart.
RiseSmart applies fresh thinking, powered by technology, to update outplacement and job search services for the needs of today’s employees. We meet jobseekers where they are today – online – delivering personalized job leads and helping them to make the most of social networks, among our other services.
Starting with just two employees, RiseSmart has grown since February 2007 to more than 50 employees. We have earned the outplacement accounts of Fortune 500 companies, and we are generating millions of dollars in revenues. While we still have much to accomplish, our vision is coming together.
But one choice I made in order to pursue this vision was particularly difficult. I left my longtime home in Dallas to move RiseSmart to San Jose.
I am a native of India, and Dallas is the only place in the United States I’ve ever lived. I had children in Dallas schools and a wife who had built a strong circle of close friends.
So, why did I move my startup to Silicon Valley? And should you do the same?
Benefits of Starting Outside the Valley
The answer, as with many difficult decisions, is “It depends.”
Early-stage startups can be very successful outside of the Valley. RiseSmart was headquartered in Dallas for our first 18 months before moving in July 2008, and I think being in the city played to our advantage in important ways.
First and foremost, it enabled me to tap my local business connections, earned over many years, to attract both seed money and initial customers. We were able to raise $1.25 million in angel funding in our first year, something that would have been far more difficult for me to achieve outside of Dallas.
Dallas is also a major corporate hub – a great place for selling our outplacement offering. The first Fortune 500 clients we landed were Dallas companies, and this local success is ultimately what laid the groundwork for RiseSmart winning institutional funding.
Finally, I think because the Dallas startup community is much smaller than that of Silicon Valley, it is very close-knit. When there are potential synergies between two companies, you try to make them work – as opposed to saying, “Let’s do lunch” and moving on to something else.
Different Stages, Different Needs
But when it was time to raise our first round of institutional funding, it became clear pretty quickly that we might need to move our headquarters to get it.
For the most part, it’s simply a numbers game. VCs generally like to be in close physical proximity to the companies they fund – and there just aren’t as many VCs in Dallas (or even all of Texas) as there are in startup hubs like the Valley and Boston.
This difference in sheer numbers has secondary consequences, too. For example, in RiseSmart’s experience, we found that many Texas VCs were focused on the enterprise software and telecom sectors. Silicon Valley VCs entertain ideas from a broader set of industries.
I also think it’s safe to say that, with fewer dollars to go around, VCs outside the Valley are more likely to wait for the “sure thing.” Unfortunately, this can lead to missing out on the next big thing.
This problem is not unique to Dallas. Boston, for example, is the second biggest startup hub after Silicon Valley – but Facebook had to move from Boston to the Valley to get funding, a story that is not at all uncommon.
Ultimately, we determined that RiseSmart needed institutional money to scale our operations, and we got this financing from Norwest Venture Partners (NVP), based in Palo Alto. Upon receiving an initial $3 million investment from NVP, we moved our headquarters to Sunnyvale in July 2008, and later to San Jose.
NVP joined Menlo Park-based Storm Ventures to provide RiseSmart with an additional $4.6 million in funding in October of this year.
What’s Best for You?
So, that’s my story. But what’s the best decision for you?
Here are my top four reasons for moving to Silicon Valley. If none of these apply to you, you should consider staying put.
1. You can’t find the necessary talent where you are now. Unquestionably, there are more geeks per square foot in the Valley than anywhere else. But plenty of major cities – particularly those with good universities – boast more than their share of talent. The talent in the Valley has more experience working in startups, which is a major plus. But it’s also a double-edged sword, as you’ll encounter more individuals who have become cynical as a result of their experiences.
2. You can’t get the necessary financing where you are now. If you’re a good salesperson with a good idea, you should be able to get angel funding wherever you live – because there are rich people everywhere. But when it comes to institutional funding, there are only a handful of startup hubs, of which Silicon Valley is by far the largest. If you want to live in Austin or Boston or Raleigh-Durham, by all means, go after money from those VCs first. But your best bet for landing meaningful dollars is the Valley.
3. You can afford it. It’s no secret that the Valley is prohibitively expensive. This is a really good reason to not move to the Valley unless you are independently wealthy, or until you score VC funding to at least sustain yourself. If you move to the Valley on a wing and a prayer, it can really hamper your efforts to start a company – because what are you going to live on until it takes off?
4. There’s no compelling reason to be somewhere else. All things being equal, Silicon Valley is the place to be for technology-oriented startups. But all things aren’t equal, are they? Perhaps your family would be miserable if you moved. Perhaps your startup is focused on a specific industry, like entertainment, and you’d be better off in an industry town like New York or Los Angeles. Every situation is different.
Wherever you end up, I wish you the best of luck in making your startup dreams come true. The relentless pursuit should continue.
