The Decision (Toronto vs. San Francisco) Where to build your next tech startup?
(Part 2 of 2)
Over a year ago, I wrote a medium post titled “Where to build your next tech startup? Toronto vs. San Francisco (Part 1 of 2)” During this time, I was debating the 2 cities and wanted to put my thoughts down in a post. The conclusion at that time was as follows:
For the ideation and fundraising phase, it is better to be in San Francisco. When you know what you need to build and are heads-down hiring and executing, it is better to be in Toronto.
Perhaps this was a self-fulfilling prophecy — but I ended up taking my own advice. I lived in San Francisco for 6 months which allowed for rapid iteration of ideas and a successful fund-raise — and am now spending the majority of my time back in Toronto where we are building out the core engineering team.
I wanted to walk through some of the events over the past year along with some interesting observations that got us to this point. While this write up definitely covers the Toronto vs. San Francisco debate — it also provides a brief overview of the process we went through as repeat entrepreneurs to go from ideation to launch for SnapTravel!
The Ideation Phase (San Francisco)
From October 2015 — March 2016. My co-founder (Henry Shi) and I iterated aggressively through business ideas. Henry had just left his engineering gig at Google and I moved out to SF to join him. We spent 6 months treating Running Lean by Ash Maurya as our bible. The process was roughly as follows:
- Read, research, google to choose a big and interesting space
- Identify players in the space and line up ‘problem interviews’ (a quick 15-min line of questioning to extract user pain points.
- Follow up with ‘solution interviews’ where we go back to the users who had pain points and presented them with solutions.
We used this process to explore ideas in a variety of spaces including: sales tools, marketing automation, micro-tasks, fin-tech, commercial real estate, esports, and virtual reality among others.
The beauty of being in San Francisco, is that the iteration is much faster! Given the density of tech companies and smart individuals who are up for meeting and having open discussions — we were able to very quickly gain insights. For example, one area we spent quite a bit of time on was exploring workflow management tools. In a few days, we were able to line up 20+ meetings with companies who would be ideal customers, VC’s who invested in competitors, as well as other entrepreneurs who had previously explored this space. This is of course in addition to the regular flow of meetups, events and conferences in the city.
Being in San Francisco was invaluable during the ideation stage as it allowed us to meet with tons of smart people — and rapidly gain insights and iterate.
I had quickly made the video below for a friend who asked how we were able to line up so many meetings. I have decided to share it below. It is very raw — but shows off a great process for lining up a high volume of relevant meetings with very little time/effort.
The Fundraising Phase (San Francisco)
After a few months of iterating through ideas and meeting smart people, we had lunch with the CTO of Expedia Stuart Silberg (who had recently left his position). This kicked off our iteration of ideas in the travel space. We built a few websites using instapage and of course drove traffic via Facebook Ads given my experience at AdParlor.
We quickly learned that users are lazy. No matter which interface we built, users preferred to message/email asking us to do the hard work: “My friends and I need a hotel in New York next month. Can you help us?” Given all the discussion around chatbots, we decided to test this concept. We were able to quickly build a POC and drive actual hotel bookings from people we didn’t know. We took this data and began the fundraising ‘tour’. Again — being in San Francisco was invaluable to the process.
One of the best ways to get to a VC is an intro from one of their portfolio companies. San Francisco is full of entrepreneurs who have taken money from the best investors in the world.
Being in SF allowed us to rapidly meet with the top VC’s in the world. We were also able to meet entrepreneurs who had been through the fundraising process and could offer tips & tricks about the process.
We ended up raising our seed round ($1.2M USD) led by Bee Partners (San Francisco) and lightbank (Chicago — although our intro to them came from SF). We did have a Hedgewood, a Toronto based investor, join the party but for the most part, the investors in SF were more aggressive, thoughtful and decisive about their investment decisions. The advantage of being in San Francisco for the fundraising process was clear. There is no other city like this. Period.
Building the product / engineering team
During the my 6 months in San Francisco — I chatted with hundreds of CEO’s. My conversations spanned entrepreneurs with businesses across verticals ranging from 5 person companies to 500 person companies.
I asked everyone: ‘If you were to start your company again, would you start it here?’
While I didn’t take an official tally, the responses I got were roughly a 50/50 YES/NO split. The pros are obvious. Investors and entrepreneurs who think big and employees who have scaled billion dollar businesses. Yet an overwhelming number of entrepreneurs mentioned that in the early stages, it is just too damn expensive.
The competition for engineers is fierce. Companies need to dish out an excessive amount of money and equity to attract top engineers — and still have a very difficult time recruiting.
Some CEO’s were visibly dejected at the current market conditions. The burn rate for their company was way too high relative to the amount of progress they were making given the absurd rent and employee costs in the valley.
For a startup that has raised a seed round — the most important thing you can do is talk to customers and build product. Building product is expensive. Especially in San Francisco. You need to give your company the runway to prove product/market fit that leads you to either profitability or a series A.
I validated the claim from my last post that after taking everything into account (recruiting costs, salary, equity, tax credits, rent, tenure…) an engineer in San Francisco is 4x the cost of an engineer in Toronto.
Given these market conditions — we decided to move back to Toronto and build out the engineering team here.
In just a few months and at a very reasonable cost, we were able to hire engineers, and build out the core product in Toronto. We officially launched in July 2016 at the MobileBeat event in San Francisco and were covered by Conde Nast Traveler as the ‘the Best New Way to Get a Hotel Deal’.
Maintaining a presence in San Francisco
I personally make frequent trips out to San Francisco (~twice a quarter) and this allows us to stay plugged into the silicon valley ecosystem and regularly meet with the big players for strategic partnerships — as well as all the serendipitous meetings and networking that happens from being out there.
To be clear, despite opening our core office and building the engineering team in Toronto — there is no replacement for having a presence in San Francisco.
I hope this post was useful for other entrepreneurs debating Toronto vs. San Francisco. SF was hugely beneficial for the ideation and fundraising phases — and will continue to be the best city for building strategic relationships/partnerships.
However, it is just too expensive to hire engineers and build product on a ‘seed round budget’. I would recommend following a similar path to what we went through.
- Leverage SF for ideation and fundraising.
- Build your core engineering team in Toronto.
- Make it a priority to schedule frequent trips back to the valley.