“Anybody can be an entrepreneur” sounds so good, and seems so self-evident, that quibbling with it seems churlish. But while true on its face, the real issue revolves less around the capability of an individual, but rather to be a successful entrepreneur when so much depends on factors outside an individual’s control.
This line of thought occurs due to recent rah-rahing about my local entrepreneurial ecosystem: San Diego, California. A focus is on the recent arrival of a series of expatriate Silicon Valley companies coming to San Diego because of its ostensible inexpensive real estate and engineers. These new companies are full of enthusiasm for San Diego — and they should be, this is a great city to live in, especially compared to the fierceness of the Bay Area.
But San Diego city promoters have used the arrival of these companies to infer that suddenly we are a great place to start and build a company. And the simple reality is that while we may be a good place to start a company, we are a terrible place to nurture a company to growth and beyond. We have an anemic funding infrastructure that provides a small amount of angel financing at the beginning of a company’s life and then expects the rest of the world — primarily Silicon Valley, Boston and to a lesser extent Los Angeles, to fund our companies (I was amazed to hear this as feature and not a bug from a longtime San Diego investor and ecosystem leader).
When companies do get funded from elsewhere, these companies leave San Diego and take their successful entrepreneurs — and the future angel investment they represent — with them. Without a set of successful tech entrepreneurs with loyalty to the city, we will never have the comprehensive funding infrastructure necessary to regularly take companies from inception to IPO or acquisition.
This problem is exacerbated by the conservatism of investors who earned their capital outside of technology — in San Diego this is largely real estate investors. By their very nature real estate investors have an aversion to the level of risk inherent in venture capital. If a real estate investment declines, the downside risk is mitigated by the permanence of the asset (the largest price drop in the history of the Case-Shiller home price index was only 18%). But if a venture capital investment goes bad, there is an excellent chance the investor will lose the entire investment. While there are many mitigating factors, it is very difficult for a founder to overcome this cultural risk aversion.
Compounding this challenge is that investors who are attracted to VC returns have access to companies in Silicon Valley that have a higher chance of success due the maturity of the environment and the greater access to capital at all stages of a startup’s lifespan. So we lack a native set of investors dedicated to building the local ecosystem at all levels of investment, both due to risk aversion as well as rational decision-making regarding the better prospects in the Bay Area.
There is a way forward — differentiate our ecosystem based on the particular advantages we have that cannot be easily duplicated. A subject to be explored in future posts.
