5 Reasons Why It's Not Yet Time to Move Your Startup to Silicon Valley
Entrepreneur's New Year’s Guide
When gold was discovered in Sacramento in 1848, gold rush fever drove almost 100,000 people to California in less than 12 months, each hoping to make it big. Today, of course, the state’s better known for attracting those interested in a different element – silicon.
The mere mention of Silicon Valley conjures up images of Californian sunshine and the glass and chrome headquarters of many of the biggest names in tech. You’ll find Adobe, Alphabet Inc., Apple, Asus and more, without thumbing further than “A” in the phonebook.
It’s easy to see why moving or expanding to Silicon Valley is a driving ambition for many European entrepreneurs; it will often seem like the top prize, thanks to the stacks of VC funding, technical talent, and networking opportunities.
However, all too often, startups and scaleups expand too early in their roadmap – creating a host of new problems in the process. It’s not that European entrepreneurs shouldn’t make the leap to Silicon Valley at all, but rather they must do so at the right time and, even then, only when it makes sense for their business.
For example, an adtech startup might do better in New York, given the wealth of clients in that area. Equally, those that make the Silicon Valley move too early may find themselves not in tech nirvana, but knee-deep in new problems. As such, it’s worth examining the reasons why staying in Europe may make strong business sense and ensures the pitfalls of heading prematurely to the West Coast are avoided.
1. Unprecedented cashflow.
Across Europe, there’s a growing abundance of VC funding, bolstered by fresh government initiatives like The British Business Bank, a publicly owned lender with £2.5 billion available. In 2018, European startups received a record-breaking €21.2 billion in VC funding, compared to just €6.5 billion in 2013. And the largest IPO from 2018 is based in Sweden – Spotify, of course.
No longer do entrepreneurs have to head to Silicon Valley to access deeper pools of capital. European entrepreneurs must go head-to-head with a plethora of other companies in Silicon Valley for the same pool of money. It’s not cheap to do business in the Bay Area either, given the high cost of living and intense competition for the best talent.
2. Supportive entrepreneurial community.
Success isn’t just about capital -- a support ecosystem is vital. There’s now a much stronger community of serial entrepreneurs in Europe who are ready and willing to support and advise Europe’s next wave of founders. Having been on the start-up journey themselves, they know all too well how tough it is to build global winners and the mistakes that should be avoided!
To build relationships and get out there to meet people in the ecosystem, let’s also not forget the networking opportunities at conferences such as the Web Summit, The Europas, and Slush, alongside a wealth of smaller events like GeekGirl Meetup and Silicon Drinkabout. Talent is highly accessible too, with Europe boasting 381 universities that number amongst the world’s best.
3. Sector expertise.
Europe offers easy access to a multitude of different markets – many of which are famous for their own sector-specific expertise. For instance, the UK is globally renowned for fintech -- think Monzo and Revolut. Sweden is great for media and entertainment (Spotify and Skype), while Finland is a gaming hub (Empires & Puzzles and Angry Birds).
It’s this bigger picture of technology entrepreneurship across the European continent that gets overlooked. Entrepreneurs should be capitalising on the knowledge, skills, and potential customers across these markets; only this way can they succeed on their own terms.
4. Geographical and cultural diversity.
With a diverse mixture of people, cultures, and languages in close geographical proximity, Europe can also be a great place to spark new thinking. Such diversity helps to challenge existing assumptions and spur technology to solve evolving, real-world problems. Perhaps that’s part of the reason Europe saw around double the U.S. number of IPOs last year, as well as an average share price growth of 222 percent, compared to 42 percent in the States.
While Silicon Valley certainly offers a close-knit and supportive community, the sheer proximity of other tech companies, particularly in areas like Palo Alto, can create an echo-chamber effect that breeds groupthink, limiting the potential for contrarian ideas.
5. Competing for talent in the uncanny Valley.
Gaining and retaining great people is a definite challenge when surrounded by global giants hoovering up the best of the area’s elite universities, or attracting exceptional people from other companies. Consequently, some small businesses are actually leaving the Bay Area so they can grow faster.
Of course, that’s not to say the skills shortage isn’t a problem in Europe, but physical location is starting to matter less and less, with virtual teams becoming the norm in areas like software development – even for companies that are already located in Silicon Valley. This makes it less necessary to move to Silicon Valley for a talent war, which – let’s face it – most startups and scaleups will likely lose to their technology giant neighbours.
Beyond this, success breeds success – and, in Europe, the previous generation of founders is now injecting time, money, and expertise into the next generation. TransferWise is a great example, with some 33 of the company’s newly minted millionaires investing more than $70 million in early-stage ventures. These serial entrepreneurs have been on the journey before and have much to teach.
From a VC perspective, it’s paramount to offer a more distributed and localised approach to funding across Europe, as this supports entrepreneurs not just with cash but on-the-ground advice, mentoring and empathy as they develop both their business and leadership skills.
Ultimately, it’s a great time to be an entrepreneur in Europe. This continent continues to offer bigger and better growth opportunities for passionate and energised founders. It’s increasingly attractive for US startups to expand into Europe earlier, both for market size and talent (just look at those staggering San Francisco costs). There are, of course, enormous opportunities in Silicon Valley, but European entrepreneurs should think carefully and ensure they look before they leap.