I just got back from a week on the west coast. A long weekend with the family, followed by investor meetings, partnership meetings, and three days of the annual startup conference, TechCrunch Disrupt.
SF was its usual self. Sunny, cool, partially-grungy and absolutely booming (also, surprisingly scooter-free). In the tech scene, much of the activity was centered on the Moscone Center for TechCrunch Disrupt, where startups, investors and industry players from around the world gather to talk state of our industry.
So, in the center of the city that makes HBO’s ‘Silicon Valley’ more than just a parody, what were the hot topics?
The usual suspects were present (blockchain, crypto, AI) and of course a strong dose of current events (#MeToo, #FakeNews, #Russia!). But what caught my attention were the conversations around the search for the next Silicon Valley. “Peak Valley”, as the fading hype over the West Coast is now dubbed, was a trending topic this year. In fact, there were two full sessions with major Valley players (Doug Leone, Steve Case, JD Vance), that specifically addressed this topic.
As this timely article in The Economist points out, there is “evidence that something is changing. Last year more Americans left the county of San Francisco than arrived.” Call it Peak Valley or Valley Plateau, surveys show that in 2018, “46 percent of respondents say they plan to leave the Bay Area.” By some accounts, “young startups pay at least four times more to operate in the Bay Area than in most other American cities”
What the Valley insiders really think
At the event, I had a chance to spend some time with TechCrunch Editor-at-Large Josh Constine to get his thoughts on the Peak Valley phenomenon. In a nutshell, Constine was encouraging.
“Startups are increasingly looking beyond Silicon Valley for hosting their engineering, sales, and other non-customer facing teams in order to avoid the Bay Area’s high housing prices, salaries… and traffic! These companies may still need to keep leadership in the Valley, though, since fundraising, partnerships, and recruiting are all best done here,” Constine said.
“But startups are increasingly realizing the importance of unit economics, getting to profitability, and controlling their destiny instead of handing it to VCs. That means cutting costs however they can.”
JD Vance, partner at Revolution and one of the founders of the Rise of the Rest fund, echoed the benefits of being closer to your customers.
“If you want to build a biotech company, if you want to build a healthcare company, if you want to build a transportation logistics company, it helps to be close to the sectors into the companies that can be potential customers, be potential supporters, be potential mentors. And so I think that’s one of the things that is driving what we expect will be a pretty significant migration of risk capital away from the coast and towards the middle of the country.”
And it is not just the startups who are leaving, but also the money — Vance’s Rise of the Rest fund being a prime example. According to The Economist, two-thirds of Valley capital is now invested outside of the Bay Area. Revolution partner and AOL founder Steve Case, explains in regards to investing outside of the Valley, “It’s kind of like you’re buying wholesale.”
Can Atlanta be investors’ next startup Costco?
Atlanta seems to check all the boxes (minus the lack of traffic!) of what founders are seeking outside the Valley. So, why was the city mentioned only once in more than 40 sessions led by over 150 speakers in over three days? This dearth of representation begs the question, are we doing enough as a region?
Out of over 700 startups that exhibited, only 12 were from the Southeast — most of those from Florida. More startups were from southeast Asia than from the southeast U.S. (by a factor of 3:1!)
There were entire pavilions devoted to tech startups from Argentina, Australia, Austria, Bahrain, Belgium, the Caribbean, Colombia, the Czech Republic, Germany, Hong Kong, Indiana, Japan, Korea, Lebanon, Montana. Nothing from the southeast, let alone Georgia or Atlanta.
What’s going on here? We took the lead to talk to every company from the southeast (all 12 of them) to learn why they were at Disrupt. The number one reason was access to investors and funding. All of them said that the event had been valuable, all were glad they attended, and all were surprised at the lack of regional representation.
“Living in South Florida, it is apparent that the startup scene is thriving. I was shocked to see such a low percentage of startups from the Southeast represented at Disrupt,” said Ray Bonachea, co-founder of fintech startup TMPLR.
Now, if you are part of the Southeastern startup community, you know where this is going. Does the region unfairly get a bad reputation for being difficult for startup funding? It’s probably one of the stereotypes that we are most sensitive to here in Atlanta (that, and sports championships — or lack thereof). But is it a fair criticism?
On more than one occasion, I’ve heard outside investors speak very highly of our talent pool and how our companies are so efficient with capital. But while I’ve always enjoyed being the underdog (that certainly explains my love of Georgia Tech football), we must acknowledge that we are working with constraints that are less than ideal, constraints that clearly drive companies to the Valley and northeast for funding.
With all of that being said, there certainly feels like there is an opportunity here. If the Valley is making it harder and harder to do business, and venture capital is looking elsewhere for higher returns, it seems like Atlanta and the region as a whole has a huge opportunity to rise up to the challenge.
So where do we go from here?
As a region and a community, there are three things we can continue to do to capitalize on Peak Valley.
1) Use our influence as a globally connected city to bring attention to the “arbitrage” opportunities available to outside investors when they invest in local startups. The Advanced Technology Development Center (ATDC) exemplifies a local organization that regularly brings local startups to outside investors through road trips to the Bay Area, Boston and NYC.
2) Recruit innovative companies from across the country and around the world to set up shop here. If it is four or three or even two times cheaper to start a company here, shouldn’t Atlanta be top of mind for everyone? The Engage fund and Techstars Atlanta accelerator both bring in great startups from outside the region and from overseas, some of whom remain following their stint in these programs.
3) Make sure our local companies are on the national and global stage. This is perhaps the trickiest one. I think we all feel we are doing this, but the fact remains that at a global startup conference, Atlanta was mentioned once in three days. Cities like Boston, Austin and Seattle, predictably, had dozens of mentions, speakers and exhibitors.
Silicon Valley isn’t going anywhere any time soon. There are just too many smart people, too many big and innovative companies, and enough money to survive a peak, plateau, dip or whatever you want to call it. It would be hard to copy the Bay Area, nor should we try… but if the next Silicon Valley isn’t going to look like Silicon Valley, could it look like Atlanta?
In acknowledging that, here is an opportunity for the southeast and Atlanta to rise up, with our requisite chip on our shoulder, and take advantage.
Michael Sengbusch is the founder of Eletype, an Atlanta-based startup, and the former CTO-in-Residence at the Advanced Technology Development Center (ATDC).
