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The spreading of tech-hubs globally, in both small and larger cities, should be interpreted as an absolute positive sign. Whether in metropolitan hubs such as London's Tech City and New York's Silicon Alley or smaller city clusters like Belgium's Corda Incubator and StartupAmsterdam, the tech startup scene is experiencing substantial growth around the world. This trend can be attributed to young entrepreneurs looking for decreased operational costs, more business-friendly climates, and overall better quality of life for their startup companies.
Steve Case, former AOL chief and Revolution LLC founder, has referred to this phenomenon as the “rise of the rest”. What seems to go rather underreported, however, is the fact that while these less-famed tech hubs are most definitely experiencing growth, Silicon Valley is flourishing at an ever faster pace. World's biggest and most heavily funded startup cluster is singlehandedly responsible for completely changing entire industries; think of what AirBnB did to lodging or Uber to transportation. With this in mind it's fair to state that Silicon Valley seems to export the most aggressive (best performing) companies, attract the most funds, and as a result remains at the pinnacle of the tech world.
Taking a closer look at the statistics we notice that in 1995 30% of all venture capital invested in the United States was going towards the Bay Area. 20 years later, in 2015, that number skyrocketed to nearly 50%. This probably comes as a surprising fact to some of the readers, having been under the impression that more and more investors were finding their ways to emerging tech clusters.
One of several factors for this evolution is proximity. Although the internet did make the world smaller and somewhat eradicate geographical limitations for companies, it also opened up their ability to scout, locate, and attract top-notch talent away from smaller markets. In addition to proximity, altered investor behaviour should also be considered as decisive element. As companies remain private much longer than before and massive late-stage financing rounds alter the way venture capitalists go about their business. Where before companies used to receive funds from the public market, that money is now being poured in by the VCs.
“Why is this significant”, you ask? Well, since most major private tech companies are located in Silicon Valley, the financial statistics and reports are perhaps a bit “misrepresented” leading to even more funds flowing towards the Bay-based startups.
Those companies that do start their business outside of Silicon Valley and do well oftentimes end up eventually moving to Northern California. As the startup grows and the need to find talented employees with managing experience increases, the realisation that Silicon Valley most likely has the highest concentration of quality people with experience will push the small market business towards the Bay.
Startup owners in atypical hubs can, however, try to leverage the advantages they possess over ultra-expensive, over-populated, and hyper-competitive Silicon Valley; better quality of life, less expensive real estate, and a lower risk of burning out professionally. While those pros are definitely worth mentioning, it should also be noted that there are other downsides to small market startups. Obtaining startup capital is always going to be more challenging in Salt Lake City, UT than it is in Cupertino, CA! Your small market company runs the risk of permanently having to defend your (small) city at investor meetings in New York or Silicon Valley. That will get old real quick.
So will this trend of investor capital flowing predominantly to Northern California ever be altered? What is needed for startups outside of Silicon Valley to grow is capital, expertise, and help to recruit talent for their companies. If these elements aren't provided we will see an accumulation of money, power and influence in Silicon Valley until the companies there will have control over pretty much everything you can think of. Not sure if that's the most ideal scenario for the future of our cities, our industries and for our overal well-being.