What happens in Silicon Valley when your startup doesn’t fit into the current hot ‘unicorn’ categories?
I recently spoke to one female founder about her business and why she chose to setup on the US East Coast rather than follow the popular path of establishing a San Francisco base. Her answer shows the obsessions Silicon Valley investors have and why the Bay Area model may not be right for all companies.
Originally we planned to set up in the Bay area. That’s what you do right? So our company’s registered office was in Palo Alto and then I started plans to have three of my staff and myself relocate to San Francisco. I took onboard some Silicon Valley Advisors and this was a pretty horrific experience that taught me a lot. Here is my experience of trying to set up in the Bay Area then not. This is my cautionary tale to other Aussie Start Ups.
The Valley comes with a certain formula that gets beaten into you. Here’s how it goes:
A Start Up must:
- Be in the Bay Area
- Have had an MVP in market
- Be an incorporated US company, preferably a Delaware company if you want US VC investment
- Have a Run Rate (annual revenue) of $3-5million dollars in order to attract investment
- Not be enterprise software
- Be a SaaS company like Atlassian with a similar business model
- Have a product that is inexpensive where clients can self-install and there is no professional services or servicing required
I found the Silicon Valley Advisors I dealt with to be arrogant, formulaic and could not see potential outside of the standard Unicorn-creating formula. So I realized the Bay Area was not going to be a good fit for My business. Additionally I figured that none of our clients were actually based in the Bay Area and I needed to be near them. As a FinTech company the logical thing was for us to go to where our clients were so that we could constantly listen to them. Listen to their problems, understand their business, build relationships, have them help us figure out what our product should be and pay us
So we moved to NYC and set up on office in Chelsea. From NYC it takes only a couple of hours to get to Boston, Baltimore, Philadelphia, Columbus, Chicago, even Texas to be with clients.
Also the investment discussions are much more ‘normal’ and investors are respectful of me as the CEO and Founder and my background and potential to build a significant, revenue led and profitable large software company. They are backing me and value that I am experienced. Not once has age or gender come up. In fact to be fair, probably the opposite. Being a woman over 40 seems to be appealing to East Coast clients and investors.
The founder’s experience also betrays a herd mentality among the Silicon Valley investors, something that may be a weakness for the industry and the region. It certainly indicates the dominant business model may be very fragile as markets turn against tech unicorns.