If we were on the west coast, we'd have been funded by now.

I hear this refrain quite often from consumer Internet entrepreneurs on the East Coast. "If we were in the Valley we'd have raised money in no time, but people here don't get us." This is a kind lie, and it is time we rid ourselves of it. You're not getting funded because your idea stinks, the way you talk about it stinks, you stink, or VCs in general stink - but it's not because you are in Boston, New York, or DC... not anymore.

Scott Kirsner's article in the Boston Globe this Sunday (where I was quoted), or his follow-up piece with George Zachary of CRV on his blog both give this feeling of impending doom for consumer folks on the East Coast. But I think he's being overly dire.

It IS harder to build a consumer internet business in Boston. You get this constant nagging feeling that you're missing the kind of impromptu meetings with like-minded folks that provide inspiration -- that's why I support efforts like OpenCoffee so much. And he is right when he says:

Having just boomeranged back to Cambridge after spending two years in San Francisco, the lack of consumer tech activity here is startling to me -- it's like going from a noisy, hot, crowded bar to another across the street where the bartender has plenty of time to wash glasses and gab with the three regulars perched on stools.

But the fact that it is harder is nothing new. That's like saying, "the financial industry in Boston is still not as big as New York's." That's not news, that's reality. I think what IS news is that it is much easier to run a consumer business on the East Coast than it used to be. There are more of us for one, and location is much less of an issue for funding.

As recently as five years ago most VCs invested locally exclusively, but that is becoming increasingly rare. Today plenty of west coast firms, from Redpoint to Sequioa to Kleiner Perkins, invest in east coast companies. Three of the most famous consumer internet investors are not even in Silicon Valley. Brad Feld (Colorado), Josh Kopelman (Philly), and Fred Wilson (NY) make it a point that they will go anywhere for a good company.

But the reverse is happening too, Charles River, Matrix and Venrock are bi-coastal, and guys like Bijan and Will seem to be doing as many deals in Seattle, NY, and LA as they are New England. All that is to say that VCS are getting better at not making excuses based on location, and so should we entrepreneurs. If you are down the VC road and aren't getting the reception you want, first check yourself, then I encourage you to have no fear and get your ass on a plane to hunt down that deal.

Conduit got fairly close to moving (none of us have much family here, and I'm sure the house would do well in any market) but we decided Boston was the best place to build this company. Some of our reasons for Boston were:

1) Much easier to hire excellent engineers. Google and a few others have sucked all the oxygen out of San Fran, and that's why they are trying to recruit here now.

2) Easier to get mainstream press attention. While getting Techcrunched and Digged is somewhat harder, New York is a huge asset when it is time to access mainstream TV and print. I've seen this first hand.

3) Our personal networks. Our personal networks are much stronger in the Northeast since we've all been here. While no one had family to tie us to Boston, your network matters a lot when building a company where you want the coolest folks you can trust, and their friends.

4) Silicon Valley is not our customer. We aren't building a product for the Techcrunchers, and it's easy to get caught in an echo chamber in the Valley. We're trying to break a bunch of rules on how people interact with games and virtual worlds on the web - so over-exposure to those rules could be a burden. Admittedly, this one is speculative.

5) Higher quality young folks. This one might be a bit controversial, but there is a certain kind of person, let's call him the "start-up whore" that I really hate. These type of people hop from one start-up to another just looking to diversify their stock pool and play a kind of celebrity start-up game. This dis-ingenuousnesses is cancer on a young start-up, and Silicon Valley attracts a shit-load of these types. By and large in Boston you get a much more genuinely entrepreneurial group when you actually find them.

Anyway that was our personal choice, and there was also a solid list of negatives to locating in Boston. But fundraising was never one of the big reasons to move to the Valley.

UPDATE: A couple emails pointed me to a post by Fred Wilson that brings up a much broader point than I was attempting -- silicon valley does not, perhaps, increase your chances of overall success.

Comments

[Rick Burnes]

So what is your advice for a Boston-area consumer-web startup seeking angel funding?

How do you get that initial $250K George Zachary is talking about when most of the angels in the area are only comfortable betting on a new switch?

[Jay (living in First Life)]

Nabeel, I think you make a great point. I've been all over the country and heard the same excuse from a lot of entrepreneurs. The one point I disagree with you on is this:

- Bay Area investors are willing to back crazier ideas than anyone else. Bay Area VCs/angels will give you money for the most crack-pot of ideas. The downside of this is that a lot of dumb companies get funded. The upside is, sometimes, the most revolutionary of companies is one that 99.99% of us will think is worthless until somehow it proves us all wrong.

So while I agree with you that the quality of companies funded outside of the Bay Area is higher, if you have a really crappy idea, you can still get funding in the Bay Area. Y Combinator is case in point of stupid ideas getting cash (although a tiny amount barely enough to feed 20 hungry Rwandans for a year).

Also, I'm not sure I agree with you with regards to finding the top notch engineers. I think the very top engineers are still in the Valley, because that's where the action is. It's like if you were an actor, you'd live in LA so you can be part of the best movie deals. That being said, I think most talent in the Valley is very overpriced. You're better off going to MIT or UVA and hiring the top of the class and treating them well (e.g. paying them enough that they don't have to beg for food in their spare time).

Most real consumer businesses can be built anywhere and I think it's healthy not to be surrounded by the madness, but even I (a very heavy Web 2.0 critic) have to admit that it is worthwhile to have a good network there too.

Good luck to Conduit. You've certainly got your head screwed on right.

[Scott Kirsner]

Nabeel, I'm certainly not defending the entrepreneurs who whine that they would've been funded sooner if they were in the Valley. But sometimes it is simply true.

One thing that struck me, in talking with Jon Flint of Polaris, was that I floated the concept of Google as an incredible "sugar daddy" acquirer. I ran into lots of Web 2.0 companies in the Valley whose primary exit strategy was to get bought by Google or Yahoo. But Flint, a very sharp guy, said that approach sounded risky to him.

And many Boston VCs (I don't have a data point for this) seem to be shifting towards ever later stage investing.

So what's a Web 2.0 start-up to do, if they need $1 million or less, and are trying to build something that is really, ultimately a feature/enhancement/add-on for Google, Yahoo, or MSFT? In those cases, I do think there's validity in saying that you might get funding quicker on the Left Coast.

And as for being dire, I'm mostly wishing that our tech economy here was more diversified -- not saying that it's impossible to start and build a great consumer company here. TripAdvisor is a great example that I should've mentioned in the column...

SK

[Darren Herman]

Nabeel, great post. I read it early this morning and have been mulling it over all day. Being an entrepreneur and adviser here in the Northeast, there is some early stage money however not anywhere close to what is being funded out west. You *can* get sub $1M in funding but you need to know where to look and your potential investors is cultivated from a much smaller list.

All in all, if your idea is that good, it will get funded. You can be in Cape Verde, Brazil, Lima, or Sweeden, but if it's *that* good, the money will find you. That's the position you want to be in.

[nabeel hyatt]

Jay - I think there is absolutely a place for highly speculative, big thinking, seed stage investing. And I agree there is a dearth of that in the pre-VC (angel) phase for Boston. And I wouldn't be so hard on YC, since they are one of the few doing it locally.

Unfortunately Rick, there isn't really a "pack" of loose angels the way there is Ron Conway, Jeff Clavier, etc on the west coast. We really need some folks to step up and take the helm. The angel groups here are way too conservative.

My post was specifically addressing venture capital, a little later than you seem to need. And I agree that this is a big issue in Boston. To fill that gap, what you seem to be getting is more incubations from inside VCs -- you see General Catalyst, Prism, and IDG doing this. CRV quickstart is also east coast as well, as far as I know.

But there should be more options to help you claw your way to VC (or, heaven forbid, profitable) territory.

[rick web]

I thnk we've made a nice niche stealing disgruntled engineers away from google et al out in our SF office, but by and large, you are spot on about the benefits of NY/Bos. Mainstream press especially. The VC thing definitely has SOME truth to it, though I'm not sure it's a bad thing. You can drunkenly stumble into VC in SF, and that's not an exaggeration. Here you need to show some plan. Though what do I know?

[JohnKenney]

Hmmm. Sorry, but I don't agree with this post. Certain points strike me as true - like it's better here than it used to be and some companies don't deserve to be funded. And it may be true for any given company that Boston is a better place to be.

But the overall point that Boston lags the West Coast in the consumer web space seems completely irrefutable, deeply structural, and probably more or less irreversible. The Valley, the entire state, and, to some degree, the entire coast line, has, at this point, won an enduring comparative advantage over Boston and most everywhere else in the world when it comes to consumer web. This is because they have had a string of massive consumer web success stories - Microsoft, Google, Yahoo, eBay, etc - that have created a huge pool of seasoned consumer web entrepreneurs, a deep talent base of consumer marketers, engineers, etc., a skilled investor and financing infrastructure, etc., etc. These things are not easily overcome or replicated and they become, to some degree, self perpetuating.

I think the only reason Boston is even vaguely better at consumer now is because it is so ridiculously obvious how much money can be made. Yet even given this glaringly obvious and sustained reality, the degree of movement in Boston is absurdly small and the level of skepticism about consumer plays remains remarkably high despite compelling evidence to the contrary. I don't have data to back this up, but my guess is that our rate of change in consumer has not actually kept pace with that of the consumer sector on the West Coast or even in the world in general. I don't mean to be a pessimist or to suggest that successful consumer plays can't be launched here, but the fact that Boston has moved a little during a time when the consumer web has exploded is not cause for celebration, it is a cause for deep concern.

[nabeel hyatt]

John, I'm not sure we actually disagree as much as you assert. I am not trying to refute that the East Coast lags the West Coast in # of consumer startups... in fact my point is that this is so old it's not worth talking about.

"But the fact that it is harder is nothing new. That's like saying, "the financial industry in Boston is still not as big as New York's." That's not news, that's reality."

My point is that if you choose to locate your company on the East Coast, VC funding is not going to be the reason you do not succeed. Location is less of an issue to get funded than it has ever been in the history of venture capital.

To your second point - I would like to see any evidence that the *percentage* of consumer-focused VC funded startups in the Valley versus New York or Boston do any better. I'm sure the absolute number is higher, but until someone shows some basic evidence for a higher percentage I'm not even sure I buy it.

Hi Nabeel:

Don't mean to beat a dead horse, but to follow up on your follow up.

Perhaps it is the case that funding is less of an issue than it ever has been in regards to funding a consumer biz out of Boston, but I hope you aren't saying that apples-to-apples it is equivalently easy (or hard) to get funding for a consumer biz whether it is located on the East or West Coast. Your first paragraph seems to suggest that you think that is true. I suspect that it is not true and that there remains a very large gap in terms of the ability to fund a consumer idea vs. the bay area.

No doubt if your idea or your team or whatever is totally killer, you'll get funded wherever you are. But most ideas aren't in that camp and folks are scrambling a bit more. If that's the case, Boston isn't the best locale to be scrambling.

Re: my second point being about success rates. That really wasn't what I was saying. I have no idea what the success rate is here vs. the west coast or anywhere else. I have no knowledge of that, but given that I believe know how is to some extent cumulative, it wouldn't surprise me if our consumer succes rate were lower.

But rather what I was saying is that our relative position in terms of total deals funded/total consumer activity is dropping as a percent of total consumer activity nationwide. Meaning we are doing more, but everyone else is doing even more than we are, so we are losing ground further in an area where we are already way, way behind.

As far as this being old news. I guess you are right about that, but the fact that we are apparently giving up on the whole proposition, at least structurally, troubles me a bit. I know we are all justly proud of the level of innovation around here, but that said, we are slowly, but steadily losing ground relative to other regions (not just the bay area, but s. ca and ny/nj, as well) in terms of venture deals/money. couple that with the lack of major tech players in most any field, not just consumer, and the departure of some of our longstanding big companies like gillette and it begins to feel like we are slowly losing some of our vitality.

[Reality Bites]

This is a serious debate, and an important concern for Massachusetts. MA innovated the digital start-up, the mutual fund, and so much more. We're now a victim of our culture. The state relied on university grants to fund earliest stage R&D that was later married to university alum VC dollars, and eventually created big employers, i.e., one cozy family. Now those local R&D projects drive tech employment growth in other parts of the world. Most entrepreneurs will tell you the risk averse culture lives on in MA, and most MA investors that say they are early stage, will also tell you they require a) a track record P&L, b) a veteran entrepreneur, and c) often times an unfair advantage, prior to cutting a check. Its their money, they have all the right to be risk averse and invest in maturity (hopefully at maturity valuations) if that's their formula. There is no doubt conservatism has its benefits, but so does portfolio theory. The reality is there are no guarantees at early stage. So, great ideas and companies are never launched in MA, or wise up and move to the west coast. Its ironic that some of the west coast's biggest success stories, some mentioned above, actually left MA for the West Coast at idea/early stage: Apple (true), Qualcomm (Tyco), and eBay (Tufts). I have heard MA VC's crow about how they passed on investing in early stage eBay. So much for good ideas being funded anywhere. If it isn't patented core technology, infrastructure plumbing, bio-tech, or a veteran entrepreneur, go west young man, or maybe Bangalore. A lot of MA students are moving out of state upon graduation in big part for this very reason. MA has lost more residents than anywhere but Louisiana. The state has not helped much either. Like everything else in Boston, it is designed to confound and confabulate. They should look to MD as a better model. Local VC's hate this brain drain, but new entrepreneurs are just not valued in MA, so residency follows employment follows investment. I commend the folks that document this - despite the denials, where there is smoke, there is fire guys.

[Nabeel Hyatt]

All of your points are valid Reality Bites, I was not saying that it is overall easier for all people to build their startup in MA, or frankly anywhere outside of CA. Although Fred Wilson would say it doesn't have a bearing on your success if you locate in the Valley, that wasn't my point.

I was saying two very simple things:

a) That moving to California for access to capital is a stupid reason to move in this age.

b) That there are in fact advantages, in our case, that led us to decide that Boston was the right place to locate. And I listed five of those reasons.

There are certainly disadvantages as well, you list some and I touched on another one recently.