The nightmare of Silicon Valley. Don’t open your business in Silicon Valley because it is suicide.
Silicon Valley is for a technological entrepreneur the same as Hollywood for an actor or Real Madrid for a footballer. In the universities, garages and student flats of some populations of this Californian region that precedes San Francisco, the germs of technological giants such as Apple, Google, Facebook and a long etcetera were created. Going there and rubbing shoulders with American ICT companies is a dream, a chimera that only some can live. However, for many of those who have been lucky enough to be able to go to the cradle of technology and settle there for a while, their stay has become a small nightmare.
In the USA it is only possible to stay three months as a tourist and to spend more time is to start a long process of paperwork “that will cost you one kidney and part of the other”. The entry, therefore, is not easy if you are going to do business. Once inside with this formula, a friend one mine already saw that being there was not cheap at all. To stay, he had to stay in a student room, because “the accommodations are prohibitive” and in 2009, when he was there, there was not even Airbnb. The founder of Alianzo explains that the main barrier that can be found in Silicon Valley are the excessive cronyism and the system itself, which is structured as a kind of caste.
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“Everything there moves through closed groups that function as mafias. Penetrating them is really difficult. Most entrepreneurs believe that it is enough to launch something in Silicon Valley and go through events to tell it. Nothing is further from reality. In the three months that I was there, I went to all kinds of events and listened to about 50 projects. None of them triumphed, “says my friend. “To be successful you have to be within the existing structures, which means having great friends, having studied at Stanford or, more recently, going through the YCombinator accelerator. The rest is practically impossible. And without friends, there will be neither users nor money” he adds.
Eneko Knorr is the founder and CEO of Ludei, a Software-as-a-Service company that helps web developers build mobile applications. He went to the valley a little after my friend and in his case he decided to start there, launching the company from San Francisco. He landed there 7 years ago because then in Spain there were almost no investors and he stayed for five years. Although at first he did not want to believe it, he came to a conclusion very similar to that of Del Moral: Silicon Valley is a very closed ecosystem.
“If you grew up there, you work at Google, you’ve sold your startup in Silicon Valley, etc. You are an insider, you are part of the ecosystem, and if you are going to seek investment, you will have relatively easy. If you are not in the ecosystem, whether you are Spanish, German or even an American coming from Texas, you will have to penetrate it if you want to achieve something. Silicon Valley welcomes foreigners very well, but entering the ecosystem is something else “ says Knorr.
“There are levels of society and contacts that it is almost impossible to reach: when you have been there a long time, you realize that you are only able to scratch the surface and reach contacts at levels similar to yours. It is a very stratified society, believes that people who have been there a lot longer have many more success options: “They have easier contact and close agreements, have the same culture, etc. In the end, you are another immigrant: a cool immigrant with a project, but an immigrant after all. A friend of mine points out that there is a certain favouritism of investors by local entrepreneurs. “If they have to choose between an American and someone from outside, the decision is obvious, and that makes everything a little more difficult,” he adds.
Another barrier that makes this categorization more palpable between American entrepreneurs and entrepreneurs that come from outside is culture. “We think we know the USA, and more specifically Silicon Valley, because of everything we’ve read, seen in movies and series, etc. But this is not the case: there are deep cultural differences and in the way of working and doing business, and it can take about six months to begin to understand how that works. In reality this applies to all migrants, go to the country they go, but tends to minimize that time of integration, “says Díez Ferreira.
Does money call money?
“Life in Silicon Valley is very expensive, so an entrepreneur who wants to go there will have to have a very important budget,” says my friend. He supports his words and goes a step further in his criticism: “You have to have a lot of money. First for the paperwork. Then to make friends of level. That is, to participate in the elite groups you have to pay tolls. Either to hire one of the public relations companies of the local mafias or to “invent” a round of successful financing to be able to go out in the media “.
The high costs not only become an obstacle to survive and thrive in the valley but also to get talent. Hiring someone is an impossible mission: good people are already caught, salaries are astronomical ($ 100,000 a year can charge a programming fellow, for example), and if you get to bring equipment from other sites you may end up stealing other startups or the giants of the sector.
Personally, the high cost of living can also involve problems. From the outset, there is no public health in the country and any visit to the doctor goes through an eye of the face. And that, without talking about operations or important interventions.
One of the false myths of Silicon Valley is that it is very easy to get investment because in the US the financing rounds are much higher and anyone can pocket a couple of million dollars for their project. However, American business angels are not very fond of giving alms and look with a magnifying glass at what is going to stop what is in their pocket. To begin with, because the investors there only invest in projects there. And to get to investors you have to have good relationships and a project with traction. To have traction, once again, you have to have “friends” or money to be able to buy users.
There all Americans entrepreneurs look for money (they have it easier than any foreigner), but also the best entrepreneurs of all the countries of the world: Europeans, Asians, Africans, Latin Americans … They are all there and compete for the same money you! And above, as nobody knows you, disadvantaged parties, you do not have the references and contacts you have in your country of origin
It is true that there is a lot more investment than in Europe, for example, but also the rivalry and the level of this are incredible. There is much more financing available, but the competition is also much more ferocious.
No means no
Although it may be better to get a feedback, than a silence for an answer.
Disembarking in the valley can be a challenge for founders with a low tolerance for frustration. Negatives are a constant and something that is said without any kind of care. “There is a lot of investors, and a lot of people want to hear about your project. But you’re not always ready to hear “NO” 100 times in a row, one after the other. When we made our first investment round, it was very hard on a psychological level to continue believing in yourself and in the idea when so many people tell you not to.
European ecosystem vs. Silicon Valley
What has Silicon Valley that does not have Europe and vice versa? Do we really have so much to envy to this historic region for ICT? Leaving aside geek mythomania and romanticism for the history of computing, it seems that we are not so bad. We have the same talent as them, but we can launch projects for a tenth of the cost, and that’s a huge competitive advantage. We just need to get more funding (which is already happening) and above all have more ambition, believe us more.
An European friend is also convinced that “there is a great talent, which has nothing to envy with the Silicon Valley” and that is much cheaper in comparison. His startup, Ludei, has Basque engineers who have “stuck” giants like Google or Mozilla because “they are top-level talent”. In addition, stresses that “in Spain, there is a quality of life that is nowhere.” These two factors together with the existing investment that allows us to succeed globally from our country, make Spain “a perfect place to start”.
Silicon Valley is on its way to dying of success. So much money has led to people having exorbitant salaries, which are unsustainable. In fact, many startups have gone to areas where talent is not as expensive, such as Los Angeles, Austin (Texas) or Boulder (Colorado). Silicon Valley will be the world reference, but there are other ecosystems taking a lot of shapes. Attentive to China where it is innovating at the level of Silicon Valley or more.
The entrepreneurs we have consulted make it clear: Don’t open in Silicon Valley because it is suicide.
Originally published at TheStartupFounder.com.