Where Failure is an Option: San Diego’s Startup Culture as a Bay Area Annex
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had worked hard, fought valiantly, and there were reasons outside of your control that caused the failure. If the company failed because of arrogance, stupidity or failure of integrity—that was certainly a different story—and you were screwed.”
Barrow, who is director of the Massachusetts Technology Transfer Center (as well as a Boston Xconomist) and who spent 11 years at Connect, the San Diego non-profit group for technology entrepreneurship, also suggests that San Diego’s startup culture is less intense.
“Boston startup culture is different—definitely entrepreneurial—but much more is done before the startup is launched,” she tells me in an e-mail. “It is almost as if San Diego startups are like the proverbial plane that is being built while flying—and Boston ones are fully designed and tested before taking off for the first test flight. In San Diego the whole team might not yet be assembled at launch—the founder probably operates as CEO for longer before bringing in a more experienced senior management team—while in Boston there is a strong emphasis to get everything together before going out to raise significant money.”
Jeb Spencer, the managing partner at TVC Capital, a private equity firm that specializes in software deals, seconded Barrow’s view about San Diego, writing in an e-mail that San Diego “just has too many distractions to keep people at work 24 hours… You often need to recruit more intense people from outside San Diego to be in senior management positions here (and then they get jaded after a few years, take up surfing and gliders or something).”
Spencer also offered a personal anecdote about the Bay Area’s tolerance of failure: “When we went out to raise our 2007 fund (our second), my partner and I were asked at the office of a respected institutional fund manager in the Bay Area about ‘our mortality rate’ in the first fund. We both looked at each other perplexed, asked for clarification, (“how many of your companies have failed?”) and then we both responded at the same time—’none.’”
TVC’s investment strategy targets mature companies with later-stage growth potential. Still, he says it became clear that in the Bay Area, VCs are making their investments based on “portfolio theory” and actually expect 40 percent or so to fail. So failure is no big deal to them. “Because Silicon Valley leads the world in startups, and has for more than a decade, and because at least 40 percent of funded startups fail and 95 percent of startups overall fail, you get used to failure in the Bay Area.”
So do San Diego’s investors have different expectations?
Leo Spiegel, a managing partner of San Diego-based Mission Ventures, says he agrees that the challenges of getting a startup to work are enormous, and failure can provide valuable lessons and experience. “On the other hand,” Spiegel tells me, “I do believe … Next Page »