Why are the world’s startups flocking to San Francisco? In a five part series for The Australian I look at the motivations for Australian entrepreneurs heading to the Bay Area.
The reasons for the moves are varied, as are the experiences, and it’s an interesting snapshot of a historical industrial shift as Silicon Valley evolves.
The success of Silicon Valley is partly based on the sharing of information. Can a closed group of business leaders replicate that success?
Currently I’m in the United States interviewing Australian startup founders who’ve moved to the Bay Area on why they’ve chosen to move their businesses in Silicon Valley.
Naturally there’s a whole range of reasons for relocating across the Pacific – for some most of their market was in the US, for others it was the accessibility of investors while for many the move was always part of their plan to go global.
The almost unanimous comment though from the founders was one of the attractions of the Bay Area are the support networks, “It’s a place you fall in love with straight away – it’s the people and the attitude,” says Holly Cardew. “People ask what can I help you with.”
Cardew, the founder of image management service PixC, sums up the consensus on the Bay Area business culture of ‘paying it forward’. Almost every entrepreneur who’d moved to San Francisco mentioned how the question “how can I help you?” was key to building a network and finding customers, staff and investors.
That openness to helping the ecosystem was greatly appreciated by Carl Hartmann, co-founder of logistics startup Temando. “I’m here today because people were kind enough to pay it forward,” he states.
Since then Harmann has become one of the ‘go-to guys’ for Australian entrepreneurs arriving in San Francisco and almost everyone we spoke to mentioned Carl as being a great help for them in obtaining initial introductions.
Those introductions and helpful acts are essential in a community where the most valuable asset is the people, not just investors but the entire complex ecosystem of coders, lawyers, publicists, designers and various other disciplines essential for an industrial hub to thrive.
Which raises the question about yesterday’s announcement of the TechSydney initiative, a project claiming “to address the Sydney innovation ecosystem’s greatest challenge: collaboration.”
This is a good idea, and one this writer was involved in seven years ago with the failed Digital Sydney program in 2010 which aimed to bring together the disparate groups that make up Australia’s disparate tech and digital media sectors.
Digital Sydney failed because the state government is poor executing at such initiatives so the fact TechSydney is being led by experienced startup founders, investors and advisors should give hope this attempt would be more successful.
However, TechSydney’s press release quickly dispels that hope with the opening line.
Australia’s most successful startups and global tech giants, including Atlassian, Airbnb and Airtree Ventures are backing a new not-for-profit aimed at turning Sydney into Australia’s Silicon Valley.
The “Australian Silicon Valley” line shows a focus on the current Bay Area tech startup model funded by venture capital and seed investors who are happy to forgoe profits in the hope of big capital gain when the business is acquired or goes public – the Silicon Valley Greater Fool model.
Silicon Valley itself is pivoting away from this model with businesses across the Bay Area now frantic to at least have the illusion of being profitable or on the path to making money. In narrowly promoting the tech startup model TechSydney seems to be trying to catch a wave that has already broken.
The main worry from the TechSydney announcement though is that it seems to go against the open door policy that makes Silicon Valley so successful. Rather than encouraging questions and new entrants, TechSydney is slamming the door shut with only the successful and well connected invited.
The group will launch at an exclusive invitation-only Dinner on May 30 at the Powerhouse. Sydney’s top 200 technology companies will be in attendance. The first 100 have already been invited, and the group is now taking applications for the next 100 attendees at TechSydney.com.au, and is urging companies to register their interest today.
In some respects this is to be expected of the Sydney business community – the city’s industry is based upon the Rum Corps model of the colony’s early days where success is based upon connections and influence rather than being open and collaborative. This attitude underpins the ‘mates culture’ that is critical to acquiring power and wealth in New South Wales and across Australia.
With an attitude of having an ‘invite only’ group leading the push the hopes of creating an ‘Australian Silicon Valley’ are doomed. By locking out new entrants or dissenting thinkers, it’s impossible to create a vibrant hub.
For Sydney, or any other Australian city, to succeed as a global hub in any industry that legacy of the Rum Corps, the mates network, needs to be suppressed and a more open, collaborative mindset put in place.
TechSydney can do that if its leaders choose to do so. Hopefully at their invite only meeting at the end of the month the wise men of Sydney’s tech elite will decide that an open initiative that welcomes newcomers and tolerates new ideas is the best opportunity to make the city a global leader.
Despite having spent a hundred thousand dollars on a chrome panda for their office lobby, Dropbox are warning staff that benefits are about to tighten, Business Insider reports.
The warnings from Dropbox’s management are a clear indication that tougher times are approaching for tech companies. For those wanting to imitate the Silicon Valley greater fool model or get a slice of it, that opportunity may have passed.
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.
For listed tech companies 2016 has been a bloodbath to date however design company Autodesk seems to have bucked the trend.
The key to keeping investors happy seems to lie in announcing major layoffs, in Autodesk’s case ten percent of its workforce which equates to 950 workers.
Autodesk’s management are painting those layoffs as being due to the company’s transition to cloud services with online subscriptions making up over half the business’ revenue.
Regardless of how valid that reasoning is, the message to the tech workers is clear; more tough times are coming.
With investors ruthlessly expecting better profits, focused leadership and leaner workforces many managers are going to have to face some tough decisions in what’s looking like a difficult year.