
Startup funding is slowing in San Francisco - lingben
http://qz.com/660835/you-dont-need-to-be-in-california-to-build-a-lucrative-startup/
======
rexreed
This is non-sensical: "The biggest winners, by contrast, are much smaller,
less coastal, and low-cost cities just starting to incubate their own
ecosystem"

Since when was Boston, which experienced a 45% increase in VC investment and
which still ranks #2 in total Venture investment a NON-Coastal, low-cost city?
And the top growth location is San Diego (coastal, high cost). I think the key
is to look at which sectors are experiencing growth and shrinkage in VC
investment and see how that correlates to the locations in which those
investments are happening.

BTW, Austin - it's not doing well.

~~~
dionidium
Non-sensical is hyperbolic. You're pulling those two examples from a table
that includes these rows:

Dallas $127,715,000 / 147% / $75,940,000

Detroit $66,985,000 / 145% / $39,640,000

Portland $42,600,000 / 675% / $37,100,000

St. Louis $23,930,000 / 327% / $18,330,000

Kansas City $13,670,000 / 297% / $10,230,000

~~~
ghaff
Yes, but the two examples are at the top of the table and together
significantly exceed the sum of the rest of the table.

~~~
rexreed
exactly. And while the fly-over country (as they say) might indeed be non-
coastal and lower-cost the quantities are sufficiently small to indicate that
the conclusion is incorrect. It's not that being non-coastal or low-cost is an
indication of where the money is going (Portland, San Diego, and Boston are
clear counter-examples), it's that the ones that are non-coastal and showing
growth in VC funding are being driven by a small number of large investments
that are outliers.

So, when it says the "biggest winners"... they really don't mean the biggest
winners. They mean that there are some winners that are interesting non-
coastal low-cost living locations, but these are interesting winners, not the
biggest ones. And of course the big winners are still coastal and high cost of
living cities. There's nothing contraindicating in the research that VC
patterns have shifted. EXCEPT in the case of Austin, which interestingly is
the opposite of what they claim about the biggest winners. Austin was a big
loser in Q1.

------
ben_jones
Isn't it just a maturation of the process? First we throw everything at a dart
board, then we take notes on what sticks, and finally we repeat the steps that
made them stick as best we can while wasting fewer darts.

Many of us here are founders and we'd love it if funding was effortless, but
at the same time we can't allow hubris or denial to turn us into doomsayers.
Things don't last forever.

------
sremani
Here is a theory, Software as a Culture and Info vehicle is pretty much
mature, the social, the news, etc. An average 20 year old is not well equipped
with deep domain knowledge, a good example is flexport, I do not know much
about founders but its a business, you need to have a deeper understanding
where a 30+ would usually have. So, you will see start-up coming from much
older people at the helm and not the younger people. May be this is my bias,
but Software fed a cultural need, a communication and information need, we are
moving into different realms. Realms which are distributed across the country
and world and over all need DEPTH(in Domain) rather than horizontal trends.

~~~
philrapo
The average founder is (or was) already 30+:

[https://hbr.org/2014/04/how-old-are-silicon-valleys-top-
foun...](https://hbr.org/2014/04/how-old-are-silicon-valleys-top-founders-
heres-the-data/)

~~~
toomuchtodo
But will it trend upward as the gold rush ends? I'd argue yes.

------
rm_-rf_slash
Here's the problem: most VC firms understand that 9/10 investments will fizzle
out or make modest returns. 1/10 is the unicorn, the 100x. Everything depends
on finding the unicorn and growing it like a weed, so every investment has to
be treated like a unicorn - grow fast grow large NOW NOW NOW - whether it's
actually beneficial for the company or not.

There's so much money sloshing around in the valley that when stupid apps that
make no money like Yo or Yik Yak get enough attention, there is inevitably ONE
investor who will think "what the hell, if I throw in 10k it could end up
becoming the next Instagram or snapchat." As long as people keep joining, more
investors will pile in, then the VCs, then Titans like Google will hopefully
have their eyes on a shiny new acquisition.

The focus on huge fast returns when they seem to be happening all around you
inevitably crowds out investments in companies that can create modest growth
from real profit, and it makes investing in "slow" companies downright
unfashionable.

To inverse the old Wall Street expression: "Nobody ever got rich from buying
Big Blue."

~~~
x5n1
Unicorns are rarer than 1/10 and 30% of investments generally pay off,
according to research, with some positive results.

~~~
rm_-rf_slash
Ok so my numbers aren't exact but you are right, the aggregate return of VC
investments tend to be positive. Same with the stock market.

However, VCs are in more of a position to influence the growth of their
investments. There is nonstop hype for companies that make zero profit because
of the hope that it will enable bigger funding rounds, a buyout, or an IPO.

The only difference between overhyped no-profit startups and a Ponzi scheme is
that the latter knows the investment is a bust, while the former isn't sure.

~~~
twblalock
Actually, there are quite a few other differences, including the fact that
Ponzi schemes are intentionally fraudulent, and the fact that the many of the
"overhyped" startups actually do have a chance at succeeding, which is proved
by the fact that some do succeed.

------
gmarx
Surprise for me at the end of the article; I went to college with the Chicago
guy who sold his startup to IBM. I should be happy for the guy but all I can
muster is feeling intensely bad about my own startup failures.

Oddly, it felt good to confess that to strangers on HackerNews. Thanks for
reading

------
cmdrfred
Remember Yo[0]? Maybe it's just stuff like that not getting funded anymore.

[0] [http://techcrunch.com/2014/07/18/yo-raises-1-5m-in-
funding-a...](http://techcrunch.com/2014/07/18/yo-raises-1-5m-in-funding-
at-a-10m-valuation-investors-include-betaworks-and-pete-cashmore/)

~~~
Overtonwindow
LOL That's still around? You just reminded me of this:
[https://www.youtube.com/watch?v=vGFmJ631JBM](https://www.youtube.com/watch?v=vGFmJ631JBM)

------
Apocryphon
I've seen Detroit mentioned as a potential tech city due to low costs, was not
expecting to see that much funding there already. What companies/categories is
that $66m going into?

~~~
lojack
This may be a case where the companies largely follow the funding as opposed
to the companies following specific industries. The money is largely coming
from public funding, and from Dan Gilbert (and similar investors) who are
dedicated to growing the area. As far as I can tell, surprisingly few of the
startups are automotive related.

------
pj_mukh
"To be sure, the numbers outside the Bay Area are still relatively small. More
capital was invested in Bay Area startups in the first three months of the
year—$1.7 billion—than Boston and New York combined."

Have we seen anything to confirm that this statistic will change in the next
5-10 years? Boom and busts are quite normal but maybe the real-estate market
will make this slowdown permanent? Is that with precedent?

------
Apocryphon
How come Raleigh never appears in these lists? Does it just not have much of a
startup scene, despite being a tech hub with software company presence?

~~~
spitfire
It's not about software companies. It's about the cool kids' club.

Think city/country club membership You might be doing well, but if you aren't
in the club, you're nothing.

For all the talk of "techies" ruling the world, it's still the VC's that
anoint people to the club.

------
arrty88
What about the number of startups asking for money vs the number of startups
that received funding. I don't think you can compare dollar amounts here
making the assumption that there are a constant or growing number of companies
requesting money.

------
Balgair
Denver has not felt like it has slowed down at all, though it has seen a -45%
drop. I guess these numbers are somewhat divorced from the 'feeling' of an
area then. It'll be interesting to watch.

------
__derek__
I had no idea that the Seattle VC market was that much smaller than San
Francisco's (less than 10% the size), and I never would have guessed that San
Diego's is nearly 70% larger.

------
meisterbrendan
For markets with <200m of funding, a few big rounds could skew the entire
market as being way up or down.

------
Overtonwindow
I will be interested to see a study one day that shows the exact moment
silicon valley investors decided enough was enough, and stopped investing in
ventures that failed to generate returns.

~~~
rm_-rf_slash
That was around the year 2000.

People eventually stopped joking about how stupid "eyeballs" are as a metric
and forgot all about the late 90s. Now they make the same mistake because,
well, take your pick:

-Mobile phones aren't desktops

-Big data

-This time it's different(TM)

~~~
im3w1l
-Cheap money with nowhere to go.

~~~
rm_-rf_slash
-Someone you envy made lots of money on an investment you turned down and now you feel compelled to catch up.

