Essays

Big companies are just not a good place to make things happen fast. I talked recently to a founder whose startup had been acquired by a big company. He was a precise sort of guy, so he'd measured their productivity before and after. He counted lines of code, which can be a dubious measure, but in this case was meaningful because it was the same group of programmers. He found they were one thirteenth as productive after the acquisition.

The company that bought them was not a particularly stupid one. I think what he was measuring was mostly the cost of bigness. I experienced this myself, and his number sounds about right. There's something about big companies that just sucks the energy out of you.

Imagine what all that energy could do if it were put to use. There is an enormous latent capacity in the world's hackers that most people don't even realize is there. That's the main reason we do Y Combinator: to let loose all this energy by making it easy for hackers to start their own startups.

The process of starting startups is currently like the plumbing in an old house. The pipes are narrow and twisty, and there are leaks in every joint. In the future this mess will gradually be replaced by a single, huge pipe. The water will still have to get from A to B, but it will get there faster and without the risk of spraying out through some random leak.

This will change a lot of things for the better. In a big, straight pipe like that, the force of being measured by one's performance will propagate back through the whole system. Performance is always the ultimate test, but there are so many kinks in the plumbing now that most people are insulated from it most of the time. So you end up with a world in which high school students think they need to get good grades to get into elite colleges, and college students think they need to get good grades to impress employers, within which the employees waste most of their time in political battles, and from which consumers have to buy anyway because there are so few choices. Imagine if that sequence became a big, straight pipe. Then the effects of being measured by performance would propagate all the way back to high school, flushing out all the arbitrary stuff people are measured by now. That is the future of web startups.

Why to Move to a Startup Hub

After the last talk I gave, one of the organizers got up on the stage to deliver an impromptu rebuttal. That never happened before. I only heard the first few sentences, but that was enough to tell what I said that upset him: that startups would do better if they moved to Silicon Valley.

This conference was in London, and most of the audience seemed to be from the UK. So saying startups should move to Silicon Valley seemed like a nationalistic remark: an obnoxious American telling them that if they wanted to do things right they should all just move to America.

Actually I'm less American than I seem. I didn't say so, but I'm British by birth. And just as Jews are ex officio allowed to tell Jewish jokes, I don't feel like I have to bother being diplomatic with a British audience.

The idea that startups would do better to move to Silicon Valley is not even a nationalistic one. [1] 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.

And I think I can prove I'm right. You can easily reduce the opposing argument ad what most people would agree was absurdum. Few would be willing to claim that it doesn't matter at all where a startup is—that a startup operating out of a small agricultural town wouldn't benefit from moving to a startup hub. Most people could see how it might be helpful to be in a place where there was infrastructure for startups, accumulated knowledge about how to make them work, and other people trying to do it. And yet whatever argument you use to prove that startups don't need to move from London to Silicon Valley could equally well be used to prove startups don't need to move from smaller towns to London.

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. But other considerations can outweigh the advantages of moving. I'm not saying founders with families should uproot them to move halfway around the world; that might be too much of a distraction.

Immigration difficulties might be another reason to stay put. Dealing with immigration problems is like raising money: for some reason it seems to consume all your attention. A startup can't afford much of that. One Canadian startup we funded spent about 6 months working on moving to the US. Eventually they just gave up, because they couldn't afford to take so much time away from working on their software.

(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.)

If your startup is co

And finally, if a good investor has committed to fund you if you stay where you are, you should probably stay. Finding investors is hard. You generally shouldn't pass up a definite funding offer to move. [2]

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 this year's Boston Demo Day, I told the audience that this happened every year, so if they saw a startup they liked, they should make them an offer. And yet within a month it had happened again: an aggressive west coast VC who had met the founder of a YC-funded startup a week before beat out a Boston VC who had known him for years. By the time the Boston VC grasped what was happening, the deal was already gone.

Boston investors will admit they're more conservative. Some want to believe this comes from the city's prudent Yankee character. But Occam's razor suggests the truth is less flattering. Boston investors are probably more conservative than Silicon Valley investors for the same reason Chicago investors are more conservative than Boston ones. They don't understand startups as well.

West coast investors aren't bolder because they're irresponsible cowboys, or because the good weather makes them optimistic. They're bolder because they know what they're doing. They're the skiers who ski on the diamond slopes. Boldness is the essence of venture investing. The way you get big returns is not by trying to avoid losses, but by trying to ensure you get some of the big hits. And the big hits often look risky at first.