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I read here, and in articles elsewhere, about how important it is for a startup to be located in Silicon Valley. But they're all very vague, mentioning "the energy" or "the talent" or "networking."

Can anyone give me some concrete examples? Even if they're just hypothetical?

Sure there's a lot of talent there, but you can find talented developers in any big city.

With whom am I going to network? Investors? Is this just a benefit because there are more investors-per-startup there, making the odds of finding an interested one better?

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In terms of investors I would add that there are above 75% of all VC investment in the world are made in the Silicon Valley (I don't have the exact number, but it's in that range). And don't be fooled, getting VC investment without having some kind of network to introduce you or backup the quality of your work is much much harder. By being in the Silicon Valley you meet the VC folks, you meet former Entrepreneurs that were already funded and successful, you meet the crowd that you need to get build the trust you need to get your funding.

Not to say that being in Austin TX, or Boston, or else is not good, but the Silicon Valley is a very helpful place to be.

Drawback: COST OF LIVING!! it is expensive to live here and as a consequence wages are high so your startup cost are high. Also, competition for talent is very strong, so you have to pay people more (increased cost again). And finally, the average time spent in a company is around 3 years in the Valley, which means you will have a lot of turnover in your talent pool which has a hidden cost (training, ramp up time, etc..).

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So you're saying that the funding game is like an old-boy's network where people investing their money are more interested in who you know than whether your project has a good chance of success? Because that sounds so unlikely; I must be misunderstanding. Can you elaborate? – Sean Feb 27 '11 at 2:30
Yes, that's basically what I'm saying. As always it is not black or white, all this is gray and it's a matter of probability. I'm not saying that if you don't no anyone, you will not get funding, and on the opposite end of the spectrum, if you know plenty of people you will get funding, there need to be some meat to the project of course. The days of the Internet Bubble where anything could be funded are over.. the VC industry has suffered a lot in the last 10 years and they are VERY picky. They are NOT risk takers! they will put as much chance on there side as they can (opps too many char..) – Antony P. Feb 27 '11 at 17:36
Put yourself in the shoes of a VC: You have dozen of deals coming every week on you desk, but you will do only 10 for the year. You will work with the startup for 4 to 10 years (better have a good relationship), the idea is VERY likely to change in the first year (meaning the BPlan will be obsolete quickly).. Don't you think the team and relationship and background is more important than the idea? – Antony P. Feb 27 '11 at 17:37
I guess I see what you're saying. If you're a VC or an angel, having someone you know and trust vouch for a candidate makes that candidate much more attractive. And if you're in Silicon Valley, there are a lot more people in the game meaning it's easier to make contacts and get someone to vouch for you, or at least introduce you to a VC or angel funder, making you at least a little more promising than some schmoe off the street. – Sean Feb 27 '11 at 20:32
You got it. Of course, as I said, it's not the only way, it just helps a lot.. If you have the best idea and team, you will find funding, and there are many examples of that, but often time, if you dig a little you realize there is some relationship in the game. – Antony P. Feb 28 '11 at 3:59
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Talent:

PayPal is an interesting example of a dense pool of 'talent' that went on to start a number of great companies.

  • YouTube Chad Hurley, Steve Chen and Jawed Karim
  • LinkedIn Reid Hoffman
  • Slide Max Levchin
  • Yelp Jeremy Stoppelman
  • Kiva Premal Shah
  • Palantir Nathan Gettings

For more on paypal see:

http://www.siliconvalleywatcher.com/mt/archives/2011/02/top_paypal_alum.php

http://money.cnn.com/2007/11/13/magazines/fortune/paypal_mafia.fortune/index.htm

I think there's a reasonable hypothesis that there will be dense pockets of talent that startups can tap into from google, facebook, twitter, etc.

Network/Partnerships:

Consider studying Facebook. Although not all great start ups that are building businesses on top of facebook are started in SV (Playfish, Buddymedia), it is important for companies like Zynga to have a presence near their key partner to adapting to strategic changes to virality features & payment methodologies, for example.

Investors:

I don't think your logic is sound with respect to fund raising. Specifically, it is not a probability game ("more investors = more likely to find an investment).

You do have a higher potential for creating competition if you have a good plan and strategy, which can result in a better transaction for the entrepreneur.

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Thanks but that sounds like more of the vague stuff I've already read. Can you explain why, for instance, Zynga needs to be physically close to Facebook? Why can't they adapt to changes in Facebook's platform from somewhere else? Are they physically going to the Facebook offices every week to for personal meetings and insider-only tips? – Sean Feb 27 '11 at 2:32
If your point is proximity is not a necessary or sufficient condition for effective communication, I agree with you. My point is that physical proximity can enable more effective communication. – burritoboy Mar 2 '11 at 17:05

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