Paul Graham on Startup Hubs

Paul Graham, a blogger and early stage VC, has two great essays out on why startups form where they do. In How to Be Silicon Valley, he talks about what he thinks it takes for a city to become a startup hub. It’s a long essay, but here are my favorite excerpts:

I think you only need two kinds of people to create a technology hub: rich people and nerds.

Do you really need the rich people? Wouldn’t it work to have the government invest in the nerds? No, it would not. Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.

Building office buildings for technology companies won’t get you a silicon valley, because the key stage in the life of a startup happens before they want that kind of space. The key stage is when they’re three guys operating out of an apartment. Wherever the startup is when it gets funded, it will stay. The defining quality of Silicon Valley is not that Intel or Apple or Google have offices there, but that they were started there.

So if you want to reproduce Silicon Valley, what you need to reproduce is those two or three founders sitting around a kitchen table deciding to start a company. And to reproduce that you need those people.

What nerds like is other nerds. Smart people will go wherever other smart people are. And in particular, to great universities. In theory there could be other ways to attract them, but so far universities seem to be indispensable. Within the US, there are no technology hubs without first-rate universities– or at least, first-rate computer science departments.

One of Silicon Valley’s biggest advantages is its venture capital firms. Venture investors, however, prefer to fund startups within an hour’s drive.

In Why Startups Condense in America, he talks about why America is the best place for startups to form. Again, a long essay, and here are my favorite excerpts:

For example, many startups in America begin in places where it’s not really legal to run a business. Hewlett-Packard, Apple, and Google were all run out of garages. Many more startups, including ours, were initially run out of apartments. If the laws against such things were actually enforced, most startups wouldn’t happen.

Startups are marginal. They’re started by the poor and the timid; they begin in marginal space and spare time; they’re started by people who are supposed to be doing something else; and though businesses, their founders often know nothing about business. Young startups are fragile. A society that trims its margins sharply will kill them all.

Startups are easier to start in America because funding is easier to get. There are now a few VC firms outside the US, but startup funding doesn’t only come from VC firms. A more important source, because it’s more personal and comes earlier in the process, is money from individual angel investors.

Google might never have got to the point where they could raise millions from VC funds if they hadn’t first raised a hundred thousand from Andy Bechtolsheim. And he could help them because he was one of the founders of Sun. This pattern is repeated constantly in startup hubs. It’s this pattern that makes them startup hubs.

Incidentally, America’s private universities are one reason there’s so much venture capital. A lot of the money in VC funds comes from their endowments. So another advantage of private universities is that a good chunk of the country’s wealth is managed by enlightened investors.

All in all, these are two great essays with a lot of good points. As many of you know, I think that Blacksburg has a lot of potential as a startup hub. We’ve got a lot of the characteristics Paul talks about—a major university, lots of smart people, and lots of rich people. But we’re still lacking a lot too. One of my longer term goals is to help cultivate the startup culture in Blacksburg.

My first goal is to build an awesome company here at Webmail. Blacksburg needs as many success stories as we can get to shine a light on the great things going on in our region. And ultimately, I want to help fund and support other startups in our region. I’ve got the gumption and the experience—all I need now is the money!