It Pays To Be Different - Why building your company outside Silicon Valley may save it
By Patrick Riley on January 29th, 2016
While places like San Francisco and London get the most attention in the tech space, startup ecosystems are emerging all over the world. San Francisco and London didn’t become tech hubs overnight – and we’re seeing hubs quickly emerging in places like Buenos Aires, Prague, Cairo, and throughout the midwestern United States. But the question is: Why would you want to build your company in a “new” startup ecosystem?
As a startup in one of these emerging regions, you can take advantage of being in a less saturated local market. With that in mind, here are five inherent traits that entrepreneurs in less established startup ecosystems are leveraging to set themselves apart, not just locally but on a national and international stage.
1. You have a unique perspective. Because you have roots in the community where you’re launching your startup, you intuitively understand things about the local market that outside investors won’t – unless you show them. For instance, when I was in Prague talking with a company about their on-demand babysitting app, they knew things about Czech mothers that they would have never known unless they were on the ground in Prague.
2. You can easily earn respect. You’re a big fish in a small pond. You can easily meet most of the investors or startups in a small town (like here in Boulder) pretty quickly and get their respect. In startup land, nothing is handed to anyone, but you can know your community without a lot of work as most of the mentors and investors know one another and word spreads quickly.
3. You already stand out. Because your local market is smaller and less saturated, you’re naturally going to turn heads more than you otherwise would in a more established ecosystem. If you think about how Facebook got off the ground, they went from one college to another. You have the opportunity to get buy-in from the local community quickly. Take advantage of that attention and show people why your startup is a game-changer.
4. You have fans. Local communities love to rally around their own. When a local startup makes waves, it has a built-in fan club cheering it on, made up of people who are proud of their city and want to see it succeed. This support system is so helpful and really hard to have as you enter a larger city.
5. You’re an attractive investment. Last but not least, because your valuation isn’t inflated the way others are in places like San Francisco and London, you’re an easier investment ask. We’ve seen valuations of $9-10M lately in these larger, well-known cities for companies who just have a pitch deck and no product. In places where GAN accelerators operate, the average company has a valuation of just about $3.5M if you’re in the States and under $2.3M if you’re not in the U.S. This isn’t because you’re “lesser than” the startups in San Francisco – it’s because it’s cheaper and arguably more efficient to build your company outside of the big cities.
For these reasons and more, so-called “second-tier” cities – places like Pittsburgh and Cincinnati, Prague and Cairo – are quickly becoming more and more desirable locations to grow a startup . And we don’t see that trend changing anytime soon.