Can startups start outside Silicon Valley?
Posted on October 20, 2016
3 min read
Drawing on his extensive experience in both places, muru-D’s new Entrepreneur-in-Residence Ben Sand shares his thoughts on building successful startups in Australia vs. Silicon Valley.
Startups are groups of people building new things, and the way all large companies start out. As the dynamics of work change I think working in startups and developing new ventures may be the most common form of work environment within 10-20 years. Given this scenario, I am very motivated to help people become good at building startups.
Over the last 15 years I have helped build a number of startups in Australia and Silicon Valley. The most successful is Meta, which I cofounded. In the last 3.5 years it has grown to 150 people and raised about AU$100M. Prior to Meta I led an education company called Brainworth.
When starting a company, a fair question is: Where is the best place to start?
It’s a popular myth that building tech companies can only be done well in Silicon Valley. The truth is a bit more nuanced.
It is very hard to grow a tech company outside of Silicon Valley, but it is almost impossible to start one in Silicon Valley.
An engineer out of college will typically earn AU$150,000-$200,000/year + stock options. And people with 5-10 years’ experience will earn 3-5 times that much or more.
Attracting and retaining talent in Silicon Valley is extremely challenging and expensive, and it is hard to be competitive if you have raised less than AU$10-$20 million in capital.
In fact even Google co-founder Sergey Brin has encouraged people to consider starting companies outside Silicon Valley for this very reason.
People have noticed a downturn in tech company valuations recently, but employee salaries continue to rise. The reason for this apparent paradox is that tech is actually getting stronger, but it was slightly overvalued for a short period.
A large group of investors from other sectors came in to join the tech boom. They paid a bit too much per share as they did not understand the business fundamentals as well as more seasoned investors. They have mostly written down their investments and made a slight retreat. We are now back to business as usual.
During that time, good quality companies continued to grow, tech workers continued to flock to San Francisco and San Francisco housing prices continued to rise.
For anyone who thinks Sydney prices are unreasonable, please take a moment to consider people working 80 hours a week in the San Francisco Bay Area. To live close to work, means a 1 bedroom city apartment. The median rent in San Francisco is about A$1200-$1500/week.
This explains why high salaries are required, and why starting a company in San Francisco is very hard right now.
In summary, starting in Silicon Valley is very hard. Australia is a great place to build a tech company.
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