We have seen that YCombinator officially moved to Silicon Valley, and TechStars opened an office in Boston. Both areas are technology hubs. Why does this matter? I have heard the arguments about the proximity of excellent universities, but this does not really explain why those two areas are considered so much hotter than others.
New York City should be one of the major hubs. I apologize to those schools that I miss, but it has Columbia University, NYU and Cooper Union. There are other very good universities near the city as well. However, it is not seen as “THE” place to found a startup. Granted, it is not a bad place for a startup, but there is not as much buzz as something in Silicon Valley. The DC/Virginia area is another tech heavy area that is home to many startups as well. There are schools like Georgetown and University of Virginia to feed talent to the startups. Again, this area does not get the same level of hype. Finally, we look at my home city of Philadelphia. It is home to the University of Pennsylvania, Drexel University and Villanova University, while Princeton University is only an hour away. Philadelphia has a good amount of technology companies, but its startup scene is rather light compared to the other cities mentioned.
Location really seems to matter when dealing with money. There are several venture capital firms hovering over the Silicon Valley area. New York is a major world-wide financial hub, so venture capital is always going to be near. DC/Virginia will always have money due to the heavy political scene. On the other hand, Philadelphia does not have a heavy financial interest. There are many financial firms and major enterprises, but the only thing it could be considered a “hub” for would be major pharmaceutical companies. The same could even be said for Chicago and many midwest cities. They could be a hub for insurance companies, but there is not the heavy financial influence that other cities have.
Are things changing with the ease of starting a business and the newer cloud services? I think the distributed nature of business on the internet allow for more people to be involved without regard to location. It does not seem like the location concerns have gone away, but they are not as important as they once were. Many cities have people forming their own incubators. In Philadelphia there are now incubators and smaller angel and venture funds that startups can get funding from. You just have to know where to look.
Does location really matter any more?
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Regular Geek 
I’ve noticed a difference between New York startups and West Coast one’s in terms of the their attitudes towards their business models. New york startups seem more practical when it comes to making money. A year ago I watched an interview with the founder of Dogster,and he felt the same way. I know this is a little off topic, but I was wondering if you noticed any differences along these lines. Do the VC firms that back them have different philosophies, or is it just a different attitude that exists in these area’s towards work and money?
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Michael,
That is a very good question. I have not looked at the “philosophy” of the startups or the firms funding them. I am sure that the VC firm would relate to the “practicality” of the startup due to the bias of the VC firm. I would need to look further into the startups to see if location had anything to do with that though.
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I support if it’s all about the VC and chasing dollars, it’d be super important. But even for bootstrapping firms that don’t seek out vulture capital, there’s a need to be in a place where you can have access to a critical mass of talent and folks who “get” what you’re doing. Without it, your project could be DOA no matter how smart your core team is.
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You have probably heard this before, but one of the main reasons for the location is its very self contained and in the culture. That’s the same reason why Hollywood still is the movie hub and Detroit’s the (well it was anyway) the car hub.
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Rob – I think of it a little like Twitter. Anyone can start a service like Twitter, and others have tried. So why does Twitter get all the attention and growth? Network effects. New users go where the action is, and existing users’ engagement is increased by an existing hive of activity.
Silicon Valley got a head start via the hardware start-ups of the 1970s, and has only built on that network effect since then. Smart, experience workers are there. VC is there. Peers with whom you can work are there. These serve to reinforce the network effect benefits of the area.
BTW – glad to see you giving my alma mater UVa a shout-out here. Wahoowa!
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Ron,
The “critical mass” of talent would be there in many major cities due to the universities that exist. The “get” part is harder because some people just do not understand what developers are trying to do.
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Mukund – The culture may have a lot to do with it, mainly because if that is where the players were, others will gravitate towards it.
Hutch – First to market is an important position. It could be that Silicon Valley was first to market with many tech advancements ages ago, or the fact that Twitter was really the first microblog.
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Rob, this is an interesting thought track to me. I have been rolling this around for some time in my head as I am based in South Carolina – not considered a major technology hub, but oddly enough has a very strong international presence located here between various industries. In proximity it is located almost dead-center between Atlanta and Charlotte, one a very big metropolitan area while the other is consider a banking hub.
Theoretically, technology should lessen the effect of location (what with telecommuting and globalization in full swing), but somehow certain pockets are well known for certain niches or verticals.
I would agree with Hutch in the grander scheme because often who you know is very important in business. In other words, having a relationship with the right person at the right level can mean the difference between a deal and no deal. Given this very human effect, location can be very important, and more so if a “clump” of those key people are co-located.
Warmest Regards,
Ken
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[…] debate is as old as startups themselves: does location matter when setting up a company? The sad truth is this: it does […]
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I agree that location is much less of a factor when it comes to starting a web startup. But growing it into a successful business requires a great team, access to amazing business advisors, access to partner companies, networking with other “connected” individuals, etc.
I believe there is a specific mindset on the west coast about “going big or going home.” People in the valley want to be the next Myspace, Facebook, Youtube and Ebay, and place much less emphasis on creating a sustainable business from the get go. I’ve never been to the east coast, so I am unsure if this attitude is as abundant.
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