The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “How important is it for startups to be in Silicon Valley?” is written by Peter Thomson, marketing director of SeedInvest.
When I started my career in venture capital in New Zealand, the constant refrain in the industry was that New Zealand could be a great place for startups if it had a better startup funding ecosystem—one like London’s. Ironically, when I moved to London in 2011, the same song was playing and everyone was complaining that the European startup scene would be much better if there was a startup funding ecosystem like New York. In 2014 I moved to New York, and now I hear constant complaints from startups that wish VC funding was easier to come by “just like it is in Silicon Valley.”
It seems the grass is always greener in startup finance, and that the greenest grass is always in Silicon Valley. But there are a few home truths that entrepreneurs need to realize about the supposed nirvana of Silicon Valley. Contrary to popular opinion, raising capital in Silicon Valley is no cakewalk. The Valley is widely known as well networked, as stories abound of social introductions that lead to venture funding. What no one talks about is that the Valley is really only well networked for people who grew up there (often with parents who worked at the chipmakers that gave Silicon Valley its name) or went to Stanford University for years.
The myths of easy startup funding in Silicon Valley are often based on stories that omit the long-established relationships entrepreneurs have built with the investors in question. For new entrepreneurs, the scene in Silicon Valley can be surprisingly hard to break into, with none of the welcoming meetups and networking events that characterize the New York, London, and European startup communities.
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Furthermore, Silicon Valley has less of a beating heart than people realize. The region is geographically dispersed and most people drive to and from their offices at giant corporate tech company campuses. Early–stage startups end up in anonymous warehouse spaces, apartment rooms, or in San Francisco outside of the Valley. By contrast, the vast majority of startups in London are located in tight proximity in the Silicon Roundabout neighborhood of Shoreditch, and in New York the Silicon Alley neighborhood near Flatiron is a thriving hub of cafes, bars, and startups.
Another myth is that deals get done faster in Silicon Valley. This misconception is based on a common misunderstanding about the use of non-binding term sheets. The stories that start, “I had a term sheet within two hours of the first meeting” usually omit the months of legal negotiations needed to complete the actual documentation, or just mean the cash itself was drip-fed through escrow accounts over an even longer period. An even worse scenario: The term sheet included reverse vesting clauses that forced the founders to give up ownership of their own company and earn it back over time.
When startup teams outside of Silicon Valley believe these myths, they often plow on with a bad idea, assuming it’s local investors who just don’t get it, rather than accepting feedback and pivoting to focus on a better idea or bootstrapping until they achieve product market fit. Being outside of Silicon Valley means that your startup needs to learn to survive on revenue or develop a compelling-enough investor proposition to persuade local investors to open their checkbooks. The truth is that great startups can get funded almost anywhere: A strong team with unique technology, passionate users, paying customers, and rapid growth can find investors wherever they are based. Being outside of Silicon Valley makes you stronger.
It’s true that there are plenty of potentially great startup ideas that aren’t immediately obvious to local investors. These companies can indeed struggle to get funding in some regions. If that’s the case, don’t look to Silicon Valley to save you, but instead look to the entire world. These days, investment capital is surprisingly global, and equity crowdfunding platforms allow startups to connect with investors around the world. Instead of taking your startup to Silicon Valley, bring the world to your startup.
For reasons of lifestyle, access to development talent, and proximity to customers, being based outside of Silicon Valley can be an advantage. Don’t be seduced by the Silicon Valley myth of easy startup funding.
Read all responses to the Entrepreneur Insider question: How important is it for startups to be in Silicon Valley?
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What Entrepreneurs Get Wrong About Funding by Linda Darragh, professor of entrepreneurial practice at Northwestern University.
The Key to Launching a Successful Startup by Josh Kaplan, director of properties and ventures at United Entertainment Group.
The Secret to Any Startup’s Success by William Vanderbloemen, founder and CEO of Vanderbloemen Search Group.
The One Myth Keeping Entrepreneurs From Success by Craig Morantz, CEO of Kira Talent.
The One Thing That Can Drag Your Company Down by Suneera Madhani, founder and CEO of Fattmerchant.
The One Thing More Important Than Being in Silicon Valley by Mollie Spilman, chief revenue officer at Criteo.
The Biggest Downside of Moving to Silicon Valley by Allison Berliner, founder and CEO of Cataluv.
What Virgin Mobile’s Cofounder Wants You to Know About Silicon Valley by Amol Sarva, cofoundera of Virgin Mobile USA and developer of East of East.
The Silicon Valley Myth: Proof Your Startup Can Thrive Elsewhere by Fayez Mohamood, cofounder and CEO of Bluecore.