While growing numbers of cross-industry startups set up a presence of some sort in Silicon Valley, they migrate for a variety of reasons. The importance of being in the Silicon Valley depends on what kind of company you're building, and what stage you're in, according to Startup Grind. The region is full of like-minded thinkers and early adopters who can provide valuable feedback for validating your idea. And on the funding side, financiers in Silicon Valley tend to be more risk-loving, and invest more money, more quickly, and more often than elsewhere.
The corporate-innovation blog explains that corporations establish a presence in Silicon Valley for one more of the following reasons: exposure to ideas; inclusion in startup deal flow; access to the talent pool; partnership opportunities with local companies (private and public); acquisition and investment opportunities; and to understand the Valley's innovation-creation culture.
Eilif Trondsen cites a steady history of "Silicon Valley Innovation Outposts" (SV-IOs) as a form of the region's growth. These (sometimes single-person) hubs are created by large companies that hope to take advantage of, and benefit from, being part of the Silicon Valley dynamic ecosystem. Dallas-based AT&T established the AT&T Foundry in Palo Alto, effectively accelerating the cycle time for developing new products and services, and opening up partner collaboration. Swisscom's Valley presence not only affords the company valuable insight on how to best serve its clients, but helps accelerate startups that Swisscom likes, often bringing them over from Europe.
Some even think France needs to build a bridge to Silicon Valley. As Jerome Lecat, CEO of large scale data company, Scality, explains, "We founded Scality in France, and our decision to move the entire management team to Silicon Valley was made not because we wanted to leave France, or even gain customers in the United States, but because we wanted to become part of the ecosystem here, and enjoy the benefit of the ideas that permeate this environment." The company was inspired by French predecessors and BI company, BusinessObjects, the first to be listed on NASDAQ. BusinessObjects was acquired in 2007 for $6.78 billion.
While locals will tell you none of this bodes well for morning commutes, this kind of immigration is great for the Valley's economy. For each job created in the high-tech sector, approximately 4.3 jobs are created in other local goods and services sectors across all income groups, including lawyers, dentists, schoolteachers, cooks and retail clerks, among many others.
I asked a few startups, originating outside of Silicon Valley, why they ultimately felt they needed to have a presence here, and how it impacted their business.
Scout RFP - SaaS bidding and RFP management
In just two years, Scout RFP was founded in Cleveland by four college friends from Case Western, and moved to San Francisco to embrace the entrepreneurial spirit and seize the opportunity to provide a business tool for sourcing teams. Prior to the relocation of Scout's founding team, the smart request for proposal (RFP) SaaS startup had only 19 customers. Today, the company works with over 80 customers, 25 percent of which rank as Fortune or Global 2000 companies in North America and Europe. To grow and support these new clients, Scout RFP went from 11, to 30 employees. The company achieved funding success setting up shop in San Francisco, as well, tripling their seed funding to raise $9M in a Series A.
"The huge concentration of investor resources and technologists in the bay area has given Scout RFP an invaluable edge," comments Alex Yakubovich, CEO Scout RFP. "We are continually surrounded and energized by the ambition of companies experiencing the same high-velocity growth that we are. The strategic partnerships we have formed since establishing our presence in Silicon Valley have been integral to Scout's success."
Long story short, Scout RFP has grown 300% in funding, customers, and headcount since moving to the valley.
Paubox - Portal-less HIPAA-compliant email
This Hawaiian digital healthcare startup moved headquarters from the islands to Silicon Valley for three reasons: Access to talent, access to new ideas, and access to capital. "Silicon Valley is brimming with smart, talented people building incredible things," explains Hoala Greevy, Paubox CEO and founder. "That's how deals happen, teams get filled out, and startups grow."
He's got a point. It's the same for other industries: You want to be in movies? Go to Hollywood. You want to be the world's best surfer? Go to Hawaii. You want to grow your startup? Go to Silicon Valley.
Moving from Honolulu to San Francisco paid big dividends for the startup. Paubox was accepted into 500 Startups, and has now taken things to another level. "The level of new information we have absorbed and deployed during the first half of the program has already given us a leg up in the market," Greevy continues.
Refund.me - Airline charge dispute & recovery
Airline industry startup refund.me originated in Potsdam, Germany. The company's B2C operation serves consumers from over 150 countries assisting them with the processing and settlement of flight compensation claims regulated under EU 261/2004 legislation. With the growth of the consumer division and the company's planned expansion into enterprise, there were compelling reasons to headquarter group operations in Palo Alto.
Today, the company's B2C operation serves consumers from over 150 countries and 350+ airlines around the globe. Through a recently launched (2016) B2B Business Solutions portal, the company began processing several hundred thousand flight segments from B2B contracts with Travel Management Companies (TMC's) and corporate travel buyers to filter out and process eligible EU261 claims.
"Here [San Francisco] we have convenient access to VC firms, great legal support for tech startups, and unparalleled network access to a deep pool of specialized tech skills due to close proximity to Stanford University, where we are engaged in discussions on new product development," Eve Buechner, Founder and CEO discloses.
Blu-Bin - 3D printing
"Founded in Vermont, growing in Silicon Valley." That's the mantra of Blu-Bin, a 3D printing service provider. The company spent its first three years in Vermont, and by Spring of 2015 had customers driving from over two hours away just to use their 3D printing service. Blu-Bin reached a point, though, where the company conceded it needed to be near a higher concentration of customers and more sources of growth capital.
The company ultimately set-up shop in San Jose and Redwood City. The move proved fruitful. "We've been in the valley for a year now and without a doubt it has been the best decision I've ever made for the business," Blu-Bin's founder, Alder Riley asserts. Average monthly sales increased almost 500%, and the company went from a single Vermont printing shop, to what will be four in total in Silicon Valley, with San Francisco and Milpitas opening later this year.
Projects got bigger for Blu-Bin, as well. The biggest job the company had ever done in Vermont was some work for Vermont Teddy Bear. Today Blu-Bin has done everything from helping startups launch successful kickstarter projects, to developing products for giants in the tech space like Apple, Google, and Stanford University.
But there's always another, antithetical, story.
Born to Sell - Covered call investment tools Born to Sell's financial tools allow traders to earn extra income from stocks and exchange-traded funds (ETFs) they already own, or to help find new investment opportunities selling covered calls. The company won first place (in both 2013 and 2014) in the trading software category of the Trader Planet Star Awards.
This year, however, the company moved out of Silicon Valley to Las Vegas, NV. "Now that you can get any kind of expertise you want via online freelancers (on demand with short notice), there's no reason to be located in one location over another," Mike Scanlin, CEO of Born To Sell, relates. "Time zone might matter, but city and state do not, so I opted for a lower-cost place to develop software and run the business."
His reduced costs now are largely from his personal expenses. Instead of renting a small place for $3800/month, Scanlin now owns a big place with a mortgage half of his former rent. It even sits on a lake 15-minutes west of the Las Vegas strip, and came replete with 18-foot boat. "Once you get out you won't miss it at all," Scanlin reflects.