The Future of Web Apps is......Silicon Valley? (FOWA flashback)

At the FOWA conference last week, Paul Graham talked about the commoditisation of startups, and as an aside he noted that this would increase rather than reduce the influence of Silicon Valley (see our post on this at the time here). Needless to say, this went down well in London (not ) and there were earnest rebuttals, to which Paul has replied here. Sez he:

The idea that startups would do better to move to Silicon Valley is not even a nationalistic one. It's the same thing I say to startups in the US. Y Combinator alternates between coasts every 6 months. Every other funding cycle is in Boston. And even though Boston is the second biggest startup hub in the US (and the world), we tell the startups from those cycles that their best bet is to move to Silicon Valley. If that's true of Boston, it's even more true of every other city.

This is about cities, not countries.

This is an interesting point, and fits other research (eg Porter's theories of industry clusters). He goes on to say:

The difference between cities is a matter of degree. And if, as nearly everyone who knows agrees, startups are better off in Silicon Valley than Boston, then they're better off in Silicon Valley than everywhere else too.

I realize I might seem to have a vested interest in this conclusion, because startups that move to the US might do it through Y Combinator. But the American startups we've funded will attest that I say the same thing to them.

I'm not claiming of course that every startup has to go to Silicon Valley to succeed. Just that all other things being equal, the more of a startup hub a place is, the better startups will do there.

And that is really the nub of it - what cluster of skills, infrastructure, services etc does a start-up hub need - and thus, if London is to be a hub, what does it need to do?. Being in similar industries helps:

If your startup is connected to a specific industry, you may be better off in one of its centers. A startup doing something related to entertainment might want to be in New York or LA.

Or London for that matter...but the point is taken - what does each city have as initial suppliers/customers. London is very cosmopolitan, but its not exactly the centre of the universe for deep infrastructure - finance, retail and media R us, however.

But the main thing is access to people with money:

In fact, the quality of the investors may be the main advantage of startup hubs. Silicon Valley investors are noticeably more aggressive than Boston ones. Over and over, I've seen startups we've funded snatched by west coast investors out from under the noses of Boston investors who saw them first but acted too slowly.

At the risk of annoying my UK VC friends, I would suspect that this is a UK issue too....does this ring true?

West coast investors are confident enough of their judgement to act boldly; east coast investors, not so much;

And of course its about the f2f socnet:

In addition to the concentration that comes from specialization, startup hubs are also markets. And markets are usually centralized. Even now, when traders could be anywhere, they cluster in a few cities. It's hard to say exactly what it is about face to face contact that makes deals happen, but whatever it is, it hasn't yet been duplicated by technology.

And finally, a very interesting point:

(If another country wanted to establish a rival to Silicon Valley, the single best thing they could do might be to create a special visa for startup founders. US immigration policy is one of Silicon Valley's biggest weaknesses.)

So...Four things London needs to be a startup hub:

- A skill cluster in the city that forms a first market for startups
- Access to bold investors
- F2F contact networks that are "always on"
- Access to smart, ambitious people from wherever

To these I'd add (based on research I've seen elsewhere) top class universities, infrastructure that is Good for Geeks

Now Ryan Carson, who organised FOWA, has written a rebuttal here - this is a part of it:

I just spent 14 days travelling around various cities in Europe on our FOWA Road Trip. I shook a lot of hands and had a ton of great conversations with folks who are building web startups.

It was amazing how many people are launching web apps outside the US / English speaking market. They’re excited, motivated and many have already launched their apps. These folks are getting more and more support from movements like Seedcamp and investors like 3i, Index, Advent and Accel.

Events like FOWA, dConstruct, Mix and Max are also equipping people in Europe - the level of support is skyrocketing. There are also a ton of BarCamps and Open Coffees sprouting up. Not to mention the excitement around mobile (Mobile Mondays, Swedish Beers, etc).

It seems crazy to discourage that growth by saying that people should move somewhere else. How can we get to that critical level of support here in Europe if we always have people saying everyone should move to Silicon Valley?

Look at last.fm (£140 Million!) and moo - if you ever needed an example that you don’t need to move to Silicon Valley, they’re surely it. I’d like to also humbly put forward DropSend. We’ve managed to succeed and we’re not even in London.

In the nicest possible way, this argument doesn't negate Paul's points - loyalty, enthusiasm and effort are very good things, but what Paul is talking about is working out where the tide flows before starting out paddling the canoe. As Gartner points out on its "hype curve", the first people to make money in any new technology area are conference and network event organisers, but their existence does not in itself imply that there is a firm base for a cluster of startups to be founded on. Seedcamp is different, it is the start of something new if it spreads - the big issue in the UK has not typically been the VC per se, but the "equity gap" between Angel and VC - the $0.5m - $2m funding.

But I do think Ryan is reporting something else implicitly - these people would not all be trying if they did not think it was "game on". And I do recall what Esther Dyson once said - it is very easy to get a startup funded in Silicon Valley - the hard bit is competing with the other 4 in the same space who also got funded. In Europe its far harder to get money, but if you do its an open field (until one of the US players comes in). The point about last.fm is telling too - it is in one of the sectors that the UK is good at - music. Moo to me is not a webservice per se - (I see it as the Starbucks of business cards ) but again it is in a UK strength - graphic design.

But there is something else as well as the above that could play to Ryan's view.

I am reminded of a book Eric Beinhocker wrote a year or so ago, The Origin of Wealth - it treats firms (especially startups) as a form of Darwinian evolution. I've long held this view too (Eric and I were in the Business Dynamics practice group many years ago), and the reduction in cost to start-up just tells me that more firms will try to colonise any one ecological niche, so Silicon Valley probably just can't support all the firms that can now start up in a niche.

And in my view this means that access to capital is less necessary early on, ie small companies can show some early evidence of success at Angel level, rather than at VC level of funding. This means the Sand Hill Road mob are probably less necessary - or should be, since if our VC's can't fund startups with some evidence of traction then they shouldn't be called "Venture" capitalists and deserve to have their gonads cut off with rusty razor blades

Like all evolutionary niches, it can be shut off - and the UK Government needs to step up here - we also run a small company, the red tape, financial and tax laws in the UK for small startups are nuts compared to the USA (eg we can't write down R&D as capital investment, and the limits to what can be claimed as expenses are nitpicking considering the risk of setting up a startup)

But as far as I can see, London has much the rest in fairly good order (OK, need to work on the networking a bit more, but its coming on nicely - see the Broadsight theory of the role of Beer in Social Networking here).

Maybe one just needs to buy one's friendly neighborhood VC a drink...or 10