For Startups, Is Friction Always Bad?
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venture funding from August Capital in Menlo Park, CA, and Google Ventures in Mountain View. (Google Ventures is known for putting Google’s resources at the disposal of its portfolio companies, which is a pretty strong inducement to move closer to the Googleplex.) Other recent self-exiles from Boston to the Bay Area include e-mail reminder service Baydin, crowdsourced errand-running service TaskRabbit, and children’s clothing swap site thredUp.
If you talk to the entrepreneurs inside these companies, they’ll all tell you the same story: when it came time to raise money and seek business-development help, the barriers were simply lower in the Bay Area. Just this week I met in San Francisco with another Cambridge, MA-based Web startup, Traackr, that’s likely California-bound. CEO Pierre-Loïc Assayag said he was here in town to meet with potential investors and to scout for office space for the company, which analyzes social-media streams and provides information to marketers about the most influential online voices around specific topics or markets.
Being based in Cambridge—halfway between Harvard and MIT, in fact—has been great for Traackr up to now, Assayag says, since it has meant that “we can snatch any kid off the street and they can code.” But after bootstrapping the company for four years, it’s time for Traackr to really fuel up, and “this is where we have felt the shortfalls of being in Boston,” Assayag says.
It isn’t that Traackr couldn’t raise the money it needs from Boston-based venture firms, he says. It’s that it’s too much trouble. “The approach seems to be very analytical,” Assayag says. “The investors we talk to on the East Coast have all been asking us for tons of paperwork and due diligence. It takes a tremendous amount of time just to entertain the relationship.” Assayag says that when he did the math—calculating how much time he’d have to spend building spreadsheets to satisfy the East Coast venture firms and how much equity he’d have to give up to get their capital—it turned out to be safer and cheaper simply to pour the same resources into sales and new business development.
But of course, there’s another option: going west. The Bay Area investors Assayag is meeting with this month “are really looking at the handful of things that make or break a business,” he says. “They know that everything else can be fixed. It doesn’t matter if your five-year financial plan is not great. It can be changed. The conversations we’ve had here so far are about, ‘Show me the product, introduce me to your team, show me a client.’ That’s it. That gives them enough information to gauge whether or not this business has legs.”
Traackr hasn’t won funding yet, and its move to the Bay Area isn’t a done deal. I quote Assayag because he’s willing to go on the record with his comparative findings, and because he’s got an outsider’s perspective—he’s a Frenchman who studied philosophy at the Sorbonne and ran IT projects for Peugeot-Citroen. When he first moved to the U.S., Assayag says, he was impressed by how easy it is to start a business here. “Your social security number is also your employer identification number, by default!” he marvels. But San Francisco operates at another level entirely, he says. “Every person is his own startup; everyone is working on something on the side. It’s sad [for Boston], but it’s like going to LA if you’re a script writer or an actor. No matter what you say, that is where the ecosystem is.”
Now, the comparison to LA is an interesting one. It’s safe to say that if California enacted full-employment legislation for all of the actors currently waiting tables in Los Angeles, a lot more lousy movies and TV shows would get made. (New Jersey must have done something like this; can there be any other explanation for Jersey Shore?) Similarly, there’s something hallucinatory, even hazardous, about a city where everyone is walking around with their own startup idea. The danger is that … Next Page »