Best City to Start a Startup
Correct long-term decisions can provide an unfair advantage over others. Location choice is one such major decision for a new founder. Understand what is important to your startup. Avoid going by popular generalizations.
Time Advantage
Not being in the right location a few years ago would impact you. Time has changed things in your favor. Many metropolitan areas have made their mark nowadays as good startup ecosystems. These present enough choices to you as a founder. This is not to say you can't start outside of these startup ecosystems. Be prepared to work more if you choose to do so.
Customer Proximity
Let us take a few examples of your target customer base:
Cost of Taxes & Regulation
Employee salaries, rent and home mortgage costs are what most founders think about. Taxation and regulation are two key factors that get ignored. Both these factors will harm your business. They will also hurt your employees including you on a personal level.
Taxes take a bite out of your business and employee compensation every year. Taxes will also reduce the gain during a positive liquidation event. Lowering your annual recurring cost is a business leverage. This has taken a backseat in the last few years since capital has been abundant. Lower cost of living is a strong selling point for attracting talent.
Regulation is another factor that impacts the startup productivity and personal lifestyle.
Think like a bean counter while making this decision. Tax Foundation is a good place to start your research.
Funding Ecosystem by Stages
Anything that has been happening for a long time becomes the "accepted norm". Norms are a money-making industry for "someone". You don't have to partake in that norm. Use first principles thinking.
Venture Capital industry started in the San Francisco Bay Area. It multiplied there for a while. Today, you've quite a bit of choice of VC's based in different cities. Every location may not have the perfect lineup of investors at all stages of your startup. And that is okay. You will need to travel during the fundraising process. Non-recurring travel is not cumbersome. Contrast this to everyday pain in hiring, retention, cost of living, regulations, et. al.
Second Office and More
Let us assume you are already in a high-cost competitive area like San Francisco or New York. You can always make a call to pause hiring in your HQ and build out the remaining team elsewhere. If you do so, please don't think of the HQ as core and second office as a support office. This is how large corporations think while outsourcing. They have established processes. In a startup, you are working hard to survive each stage. Treat every startup employee as a unique edge to help create a superior product or service.
Assembling the Team
Hiring the initial core team is a function of three key factors:
Case Study
Why would a startup in the semiconductor industry choose Pittsburgh? My investment, Aspinity, is one such startup. The following factors enabled their decision:
I'm a huge proponent of startup creation across diverse geographies. My investments are across the U.S. keeping in line with this thesis.
Time Advantage
Not being in the right location a few years ago would impact you. Time has changed things in your favor. Many metropolitan areas have made their mark nowadays as good startup ecosystems. These present enough choices to you as a founder. This is not to say you can't start outside of these startup ecosystems. Be prepared to work more if you choose to do so.
Customer Proximity
Let us take a few examples of your target customer base:
- Consumers: Obvious choices might seem San Francisco, Los Angeles or New York. Most consumer products and services have a digital distribution. That reduces the relevance of these high-cost locations.
- Semiconductor: Nashville or New York would not be the best choice. There is hardly any semiconductor industry over there.
- Oil & Gas: Houston dominates this industry. At least the customer-facing teams should be in Houston.
Cost of Taxes & Regulation
Employee salaries, rent and home mortgage costs are what most founders think about. Taxation and regulation are two key factors that get ignored. Both these factors will harm your business. They will also hurt your employees including you on a personal level.
Taxes take a bite out of your business and employee compensation every year. Taxes will also reduce the gain during a positive liquidation event. Lowering your annual recurring cost is a business leverage. This has taken a backseat in the last few years since capital has been abundant. Lower cost of living is a strong selling point for attracting talent.
Regulation is another factor that impacts the startup productivity and personal lifestyle.
Think like a bean counter while making this decision. Tax Foundation is a good place to start your research.
Funding Ecosystem by Stages
Anything that has been happening for a long time becomes the "accepted norm". Norms are a money-making industry for "someone". You don't have to partake in that norm. Use first principles thinking.
Venture Capital industry started in the San Francisco Bay Area. It multiplied there for a while. Today, you've quite a bit of choice of VC's based in different cities. Every location may not have the perfect lineup of investors at all stages of your startup. And that is okay. You will need to travel during the fundraising process. Non-recurring travel is not cumbersome. Contrast this to everyday pain in hiring, retention, cost of living, regulations, et. al.
Second Office and More
Let us assume you are already in a high-cost competitive area like San Francisco or New York. You can always make a call to pause hiring in your HQ and build out the remaining team elsewhere. If you do so, please don't think of the HQ as core and second office as a support office. This is how large corporations think while outsourcing. They have established processes. In a startup, you are working hard to survive each stage. Treat every startup employee as a unique edge to help create a superior product or service.
Assembling the Team
Hiring the initial core team is a function of three key factors:
- Combined Networks of Founders: Everyone's network is a combination of networks. Use the strength of weak ties. Start making a list of potential core team members. Warm them up as soon as you know you are going to be doing a startup.
- Vision of your Startup: Common long-term goals is a powerful way to unify strangers. Continuous broadcasting through the right channels is key.
- Attractiveness of Startup Location: People are selfish. Options need to exist if your startup doesn't work out. The presence of more startups and large companies helps. The diversity of employers is another factor that gets ignored. This helps employees' partners who may have a career in a different industry. And the location should meet the lifestyle needs of all types of employees. Location with cool hangout places and good public schools will attract diversity.
Case Study
Why would a startup in the semiconductor industry choose Pittsburgh? My investment, Aspinity, is one such startup. The following factors enabled their decision:
- One of the co-founder's prior startups started in Pittsburgh. It got acquired by Cadence Design Systems for over $100 million.
- The other two co-founders are former researchers from Georgia Tech. and West Virginia University. Both leverage strong east coast connections through these.
- Pittsburgh talent is very relevant for Aspinity. It has early-stage startups, acquired startups and satellite offices of large technology players. Ansys, Duolingo, Facebook, Google, IAM Robotics, Neolinear, NetApp are some of them. And Pittsburgh has diverse technology domains. Semiconductor, systems, embedded, robotics, AI/ML, NLP et. al. Aspinity needed semiconductor, systems, embedded and AI/ML talent.
- Lead VC and a key non-VC board member (former Neolinear CEO) are in Pittsburgh.
- Top-notch talent from Carnegie Mellon, University of Pittsburgh and Penn State. More highly-ranked east-coast universities are also nearby.
- Sales and Sales Engineering hires don't have to be in Pittsburgh. They should be closer to the major potential customer locations. And Aspinity has followed that.
I'm a huge proponent of startup creation across diverse geographies. My investments are across the U.S. keeping in line with this thesis.
Let's Talk: If you have a true experience that resonates, please send me an email.
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