Many aspiring tech entrepreneurs have dreams of moving to Silicon Valley to live the proverbial startup dream. They want to make it happen, just like the cast of the hit HBO show that became synonymous with tech companies and innovation. But between the extremely high cost of living, difficulty finding a place to live (if you can even afford it), rising crime rates in San Francisco, and other tech innovation hubs prospering all over the country, we will use this post to dig into a question that tech entrepreneurs should ask themselves before making the move: does Silicon Valley still matter for tech’s continuing evolution?
How Did Silicon Valley Become Silicon Valley?
If you’re an aspiring tech entrepreneur who has not yet watched Something Ventured, let’s start by telling you to step away and watch that documentary immediately. The story takes you through the history of companies, investments, and engineers-turned-entrepreneurs who wanted a piece of the pies they were building and how venture capital and startup culture came to be.
If you prefer the Cliff’s notes version, here’s a quick summary.
In the 1950s, new companies and startups typically centered around where the money was, which were the industrial and financial capitals of the country like New York City and Boston. Innovation in those days was typically only found through established, large companies, through whom the engineers and inventors rarely owned any of the equity in the things they built that changed the world.
The creation of NASA and technology finding its way into defense spending found teams of engineers moving to an area on the west coast near San Jose, where Frederick Terman was the dean of the Stanford engineering school. Terman encouraged his faculty to start their own companies, and the mixture of government money, technological advancement, and engineering know-how, all centered in the same place, eventually led to the first semiconductor as we know it.
These new technology startups on the west coast wanted to do things differently than had been done on the east coast, so they began to offer equity and real ownership of the inventions the engineers came up with. This led innovators who had big ideas and dreams to the region like a magnet.
Once financial wizards like Kleiner, Perkins Caulfield, and Byers as well as Sequoia Capital set up shop on Sand Hill near Stanford and began pouring serious, non-government money into these engineers with a dream, the famed Silicon Valley was born, and the world has never been the same.
What Makes a City Good for Tech Startups?
Silicon Valley had all of the elements necessary for a burgeoning tech scene when it was first started. Access to plenty of highly-educated and experienced engineers, access to capital (both from government funding and private means), universities that offered highly-skilled and eager new graduates, and even a Dean of Engineering at the infamous Stanford who encouraged his faculty to build their own startups.
California was also the home of the quintessential California dream at the time, with McDonald’s being founded in San Bernardino, CA, around the same time (1955) that Silicon Valley began turning into what we know it as today.
With costs of living and regulations now leading many companies who once adored being in the golden state to search for new homes and the rise of communications technology allowing tech companies to start just about anywhere they can get the appropriate team and bandwidth, let’s go through some of the elements that make an area prime to be a tech startup innovation hub.
Access to Bandwidth
We’re rapidly approaching the time when telecommunications companies will provide high-speed internet to anyone anywhere in the world who wants it, but it’s not quite at the level (or cost) to provide the ability for a startup to set their shop up on the backside of any mountain just yet. Access to fast and high-bandwidth internet is still crucial for any startup, which is one of many reasons that so many of them start close to major metropolitan areas that have fiber or easy access to another high-speed internet.
Access to Highly Skilled Labor
One of the reasons that Silicon Valley became what it is today was those engineers from Shockley Semiconductor who didn’t like their boss and became known as the “Traitorous Eight” when they left to found Fairchild Semiconductor. They were all highly skilled engineers who were in the right place at the right time, with the right skill sets to set out and pave their own way.
Your tech startup may have everyone that you need at the moment, but God willing, you will have the need to scale your operation fast, and for that to happen, you’ll need access to highly-skilled labor in the way of software engineers, developers, programmers, and business school graduates. The best place to find those pools of people are either near colleges and universities with the requisite types of classes or established software and technology companies whose employees may be lured away by the chance to work for your startup.
Access to Capital
Banks are notoriously bad at dealing with tech startups because, more often than not, they refuse to do so. Even as the FinTech revolution tears its way through the banking sector, the banks that give loans still require the very thing that most startups are lacking: collateral. After all, if you had your own money, it would be poured into your startup!
Whether it be angel investor networks, venture capital firms, family offices, business forums, or universities and government agencies that may provide grants for tech startups that interest them, any good startup will one day reach the point where they need an infusion of quick money. The closer that capital is located to you, the more likely they are to invest in your firm.
Access to Travel
This may not be something that startups consider, but close proximity to a major airport is another advantage for the location where your tech startup sets up shop. You will surely spend months (if not years) locked in a room working on the code that will one day be delivered to the world but to find success you and your team will hopefully be doing a lot of travel soon.
Building your app, site, software, or product is only one piece of the puzzle. After it’s built, you and your team will be doing a lot of traveling to sell, promote, and form partnerships for your budding company. You don’t want to be a six-hour drive away from an airport when you get a last-minute call to speak at a conference or meet with that CEO you’ve been trying to connect with.
The New Silicon Valleys of the USA
Unfortunately, many things have changed since the heyday of Silicon Valley, and the region just ain’t what it once was. Regulations prevented residential buildings in the area while tech behemoths like Google, Facebook, Twitter, and others began growing rapidly, leading to an extremely expensive cost of finding living accommodations in the area, as well as making it extremely hard to find if you can afford it.
On top of that, California is well-known for having one of the most anti-business climates in the country. Between regulations, costs, overwhelming bureaucracy, traffic (yes, California traffic is as bad as they say), rising crime, and taxes at multiple levels (even after the exorbitant corporate taxes in CA, every employee can also look forward to paying some of the highest state income and sales taxes in the country), startups and Fortune 500 companies alike have been making a mass exodus from California for the past decade.
If you want to know how bad it’s become, read former Rolling Stone journalist Matt Taibbi’s Substack series on The Lawyers Who Ate California. Elon Musk was just one CEO out of a long line who felt that the costs of doing business in California had come to far outweigh the benefits.
For startups of any kind, the burn rate (monthly spending as the company develops and searches for early customers) can make every penny need to count. This has led many companies to look for alternative locations where they can set up shop and begin their budding enterprises.
Additionally, the Small Business Administration offers a variety of grants and special loans to companies that set up shops in innovation zones, rural areas, or other disadvantaged portions of the country in order to spur innovation and create jobs. Even without an SBA grant or loan, the cost of setting up a shop in Birmingham, Jacksonville, Houston, or anywhere else in the country can often provide your startup with a crucially longer runway than the cost-prohibitive Silicon Valley.
Austin already had the moniker of the “Silicon Valley of the South” long before SXSW and the Austin City Limits festival brought the “keep Austin weird” mantra to the rest of the world. Dell Computers setting up shop in close proximity to one of the top engineering universities in the world (the University of Texas), had begun taking tech away from California long before the major migration of CA companies to Texas started, but now Austin is a close rival.
The new incubators, startups, venture capital, and state tax credits offered by the Lone Star State have made Austin a prime destination for tech startups. The extreme popularity of the city has led housing prices to rise exponentially from where they were just a decade ago, but you can still count on the no state income taxes, low cost of living (aside from housing), and great eclectic food and nightlife to make Austin a strong draw for the startup crowd.
Most people only think of oil, beef, and soap operas when they think of Dallas (you may be a little too young to remember the infamous Dallas television show from your parents’ time), but it too has a substantial-tech startup scene that has been burgeoning for quite some time.
The headquarters for Texas Instruments, AT&T, Solera, and AECOM provide quite a few unique benefits that tech startups need: access to highly-skilled workers (Southern Methodist University, Baylor, and the University of Texas-Dallas are all located there), capital (Dallas is home to many of the family offices of the old-money oil billionaires), a thriving downtown and major international airport (DFW) as well as the home of Southwest Airlines (Love Field) all combine to make Dallas a great location for your startup. Dallas even spent $100mm to build a new Dallas Innovation District to help bring more startups and tech jobs to the city.
Proximity to trained potential employees is crucial to a startup, and the seven different colleges and universities located in Birmingham all help to make this area another new location fighting for the coveted Silicon Valley of the South title.
Between the University of Alabama at Birmingham, Birmingham-Southern College, Miles College, Samford University, Jefferson State Community College, and Lawson State Community College, there is a massive number of college-educated and trained potential hires (or interns) for tech startups to pull from. Factor in the cost of living, beautiful and friendly southern environment, proximity to other nascent tech hubs, and the existence of major tech and information technology companies already present in Birmingham, and you have the recipe to make another amazing location for tech entrepreneurs to create impact.
Where the players play! ATL may not be the first city that you think of when considering the home turf for your tech startup, but the city has earned a $2.1bn surge in startup capital, with $1 billion of that coming in 2021 alone.
Very low corporate taxes, affordable cost of living, amazing food, the southern charm that makes the above three locations so accommodating, and access to major universities like Georgia Tech, University of Georgia, Vanderbilt, and Emory provide a wide swath of college-educated and highly-skilled potential employees. An area that also has the advantages of several different SBA programs, this southern bell of a city is reshaping its branding to become one of the major tech startup hubs in the US.
Final Answer: Does Silicon Valley Still Matter for Tech’s Continuing Evolution?
It certainly does have a nice ring to it if you were to tell people that you’re the founder of a startup headquartered in Silicon Valley. But are those bragging rights really worth your startup only having a six-month runway based on your burn rate rather than a year?
On top of that, if you and your fellow co-founders do happen to strike it big, do you want to look forward to the exorbitant taxes, costs, and regulations that have led so many other established companies (and tech companies) to take all of their employees and leave California?
If any silver lining came from the lockdowns, it was to show people that between video conferencing software, increasingly better cameras, microphones, and faster internet connections, we don’t really have to be locked down to any location, anywhere, anymore. There is something to be said about the august environment of innovation that exists in San Francisco and Silicon Valley. But as the founder of a startup, you should be more concerned with your burn rate and runway, as well as the quality of life and safety of your team, than bragging rights and cool locations.
The four locations listed above are just a small list of the tech innovation and startup hubs that are popping up and developing all around the country. In our minds, the idea of Silicon Valley is something very different now than it was ten or twenty years ago, and there are plenty of other locations around the USA that show immense promise in creating a better, and easier-to-thrive in, innovative environment than Silicon Valley will ever be again.