
Silicon Valley VCs tour the Midwest - rmason
https://www.nytimes.com/2018/03/04/technology/silicon-valley-midwest.html
======
danschumann
I live in Oshkosh, WI. We had Steve Case come to Green Bay last year, but it
seemed mostly pomp, and he only invested in a single business that was a sure
thing anyway.

I've been developing animation software for 2 years, and am set on getting
profitability without help, mostly because this is probably necessary anyway,
but also because it'll send the message to other folks in town that they don't
need an external 'go-ahead' to start a business that works.

I think part of the reason VC money isn't working as well in the valley, is
that people are more obsessed with raising money than they are with making
their business work.

There's a certain uncomfortable fatalism that comes when you take the mindset
that no one is coming to save your business. Not now, not ever. It's the same
feeling you get when you have a software bug, and you can't look up the answer
on google, because you're so deep into your own territory, that the question
wouldn't make sense to anyone else.

I welcome money, and I welcome interest, however, I think some people just
need to steel themselves and launch without help.

Some people need money, and other people need to just do it. That goes for
every area, but in the Midwest, sometimes we get this "we need to copy the big
cities" mentality, and I want to stop that, since 99% of the time, no one is
coming to the rescue, even if I'd like to see more companies coming in, and
lowering that %.

~~~
jldugger
> I think part of the reason VC money isn't working as well in the valley, is
> that people are more obsessed with raising money than they are with making
> their business work.

The other question one has to ask as a VC is what distinguishes a given metro
from the 50 other options, and it seems unlikely that a clear winner will
emerge. Instead you'd likely get a peanut butter spread of investment and
investors. The difference isn't that valley companies are less focused on
funding rounds than outside the valley. It's that outside SV, when it comes to
raise the series B, a startup has likely already fully tapped their local VC
market.

Any rational actor would at least prefer to have the option of taking VC money
later, even if they intend to bootstrap.

> Some people need money, and other people need to just do it. That goes for
> every area, but in the Midwest, sometimes we get this "we need to copy the
> big cities" mentality

Well, startups still have to compete for talent. When you look at big cities,
they have a lot of things working in their favor. They favor new immigrants by
providing reliable public transit and walkable downtowns so a car and driver's
license isn't mandatory. They have several major employers, which makes the
social and individual impact of a layoff less severe.

You're right that it's not something you can depend on, but these are also
conditions a lone bootstrapping entrepreneur can't just will into existence.
Even if you're successful, that success means more opportunities for growth
and there will come a time when your needs and the political status quo
conflict. Especially in college towns typically opposed to new development,
happily leeching rents off heavily indebted students. That building proposal
to hold 5,000 employees? Zoning not approved as out of character. The housing
annex developers need to build housing for your new hires? Didn't pass the
ballot measure. The public transit your H1-Bs need? Dismissed by the City
Council.

~~~
danschumann
> these are also conditions a lone bootstrapping entrepreneur can't just will
> into existence

Challenge accepted.

Seriously though, being an example of a high-performing business person is
pushing these conditions in the right direction.

------
swervo2
Honestly, this story has been repeated multiple times in the New York Times
and other publications.

When you see that happening，it reeks of PR. The fingerprints are there -
someone wants you to think that Silicon Valley VC are acting differently.

Reading the article, more red flags. This is a whole lot of deliberate
signaling and posturing. Smells like PR, walks like PR, flops around on the
dock like freshly caught fake news PR.

So why would prominent Silicon Valley VC engage highly placed PR services who
can plant their self serving fake news into the New York Times (if you believe
the New York Times is above this, I have very bad news for you)?

Answer: Politics.

These Bay Area VCs want one thing: Special government privileges from
desperate middle American cities. Like Jeff Bezos, they want cities to beg for
their money. Tax cuts, tax breaks, free real estate, special privileges, pork,
tax incentives.

These articles are becoming common because this is a campaign to influence
local politicians in these states, prepare the groundwork for later stages in
their campaign.

Just reading this, it stinks so highly of signaling, the fakeness of the
quotes are so over the top. The quotes have this fake “oh gee, we are just
these crazy VCs who never thought of middle America before, what is a milk
shake? How do I milk a cow?” Quality to them they cannot possibly be real.

Who is going to pay for all the special privileges these VCs are going to get
from state and local governments? Hint: Tax payers.

The real title of this article should be: “Silicon Valley VCs identify dumb
yokels in middle America willing to subsidize their future bullshit.” That’s
the truth.

~~~
dang
I was with you until you unveiled the villain; that doesn't seem plausible to
me. Stories about SV migrating to other areas—often the Midwest, in fact—have
been around for years. Usually it's regional politicians trying to attract
tech investment.

This is fun:

2009:
[https://www.google.com/search?q=%22next+silicon+valley%22&so...](https://www.google.com/search?q=%22next+silicon+valley%22&source=lnt&tbs=cdr%3A1%2Ccd_min%3A2009%2Ccd_max%3A2010&tbm=)

2010:
[https://www.google.com/search?q=%22next+silicon+valley%22&so...](https://www.google.com/search?q=%22next+silicon+valley%22&source=lnt&tbs=cdr%3A1%2Ccd_min%3A2010%2Ccd_max%3A2011&tbm=)

2011:
[https://www.google.com/search?q=%22next+silicon+valley%22&so...](https://www.google.com/search?q=%22next+silicon+valley%22&source=lnt&tbs=cdr%3A1%2Ccd_min%3A2011%2Ccd_max%3A2012&tbm=)

2014:
[https://www.google.com/search?q=%22next+silicon+valley%22&so...](https://www.google.com/search?q=%22next+silicon+valley%22&source=lnt&tbs=cdr%3A1%2Ccd_min%3A2014%2Ccd_max%3A2015&tbm=)

2016:
[https://www.google.com/search?q=%22next+silicon+valley%22&so...](https://www.google.com/search?q=%22next+silicon+valley%22&source=lnt&tbs=cdr%3A1%2Ccd_min%3A2016%2Ccd_max%3A2017&tbm=)

Where I'm from, they call it 'diversifying the economy' and have been trying
for 30 years. They build 'innovation centres' too. And send the mayor on trips
with 'delegations'.

As others have pointed out, the other big factor—growing recently, perhaps—is
that 'Silicon Valley' means clicks, so 'journalists' do it.

~~~
Kinnard
Why was the parent flagged?

~~~
dang
Some users flagged it.

~~~
Kinnard
People should have to give a reason when they flag.

~~~
dang
That would just lead to even more pointless arguments about the same things.

~~~
Kinnard
I was thinking just for the purpose of categorization.

------
jorblumesea
SV relies on dense loci of talent in order to function, Chicago is really the
only city that has this. The melting pot of ideas, poaching, engineering etc
is a huge reason for its success.

While I understand SV is looking increasingly unattractive for cheap big bets,
I don't think this will play out like these firms expect.

It's not about the money, it's about the culture that SV cultivated. And while
parts of it are toxic, other parts of it are enormously successful and
notoriously hard to replicate.

It also doesn't help that every state in the midwest has been slashing
educational budgets and in some states has enacted almost a war on education.
I think the attitude of "SV toxic culture" is ironic, after having grown up in
the midwest and seen horrible racism, anti-intellecutalism, anti-free speech
measures, and all others kinds of issues.

~~~
lsc
>It also doesn't help that every state in the midwest has been slashing
educational budgets and in some states has enacted almost a war on education.

Yeah, uh, this is going to end badly; I left the central valley for the anti-
intellectual culture. It's a long term problem, and I don't really see how you
combat it.

Educational funding, I think, might even be a trailing indicator of this; If
your culture doesn't value learning... you have a much bigger problem than
just underfunded schools.

~~~
jeron
Making higher education free would be a great start, but that's probably not
happening anytime soon

~~~
lsc
My argument is that not valuing education (as evinced by an unwillingness to
spend public money on it) is an even bigger problem than the actual lack of
money for education, though that is also certainly a problem.

~~~
rdiddly
Where there's no will, there's no way...

------
rmason
I remember Detroit when there weren't any VC's downtown and the startup scene
was spread among the suburbs.

Dan Gilbert set the Madison building as ground zero for a startup
neighborhood. He even wanted that stretch of Woodward Avenue, Detroit's main
street, renamed there as Webward Avenue. He filled the Madison with startups
that he funded. When they outgrew it they moved to other building he owned
nearby.

Now that zone extends for ten or fifteen blocks, I know because I visit my
friends down there regularly. One guys vision is all it took.

~~~
karpodiem
Detroiter here (typing this in an apartment right off Grand Circus Park)

Duo Security (in Ann Arbor) and Plex Systems (Troy) are the two 'Metro
Detroit' anchors - pure software companies doing over $100 million+ in
recurring SaaS revenue.

I was thinking to myself - who is #3-5 for SaaS in Detroit?

~~~
kayhi
Barracuda is right near 100 million

~~~
tachyoff
Do they count even though they’re headquartered in Campbell, CA?

------
swalsh
Paul Graham had this thesis that there was untapped potential by targeting
young people. I've always believed that same principle could apply to the
midwest. Where I grew up everyone wanted to be an entrepreneur. Not because it
was hip, but because there were no good jobs (the town was built around a
factory that closed down in the 80's).

The exceptional talent moved to the coasts, but what's left is still pretty
persistent, and given that the trends of technology have been to lower the
barriers to entry in startups, "exceptional talent" isn't required. In fact
what the midwest has is a plentiful supply of ambitious, and persistent
people... which arguably is more valuable.

~~~
sidlls
Almost all the most successful SV companies don't require exceptional talent.
Most of the "big names" have a tiny fraction of their engineering organization
that has to be truly exceptional.

The problem is that, at least based on my experience (I worked in the Midwest
and the south east for over a decade ending a few years ago), the vast
majority of "talent" in the midwest is below even the mediocre requirements of
most SV/VC companies. No amount of persistence can overcome that.

~~~
hylianwarrior
> The vast majority of "talent" in the midwest is below even the mediocre
> requirements of most SV/VC companies.

The poor education systems out there are to blame, IMO.

~~~
linkregister
I seriously doubt you've thought this comment through. University of Illinois
Urbana-Champaign, among others, are renowned for producing important research.
NCSA Mosaic and LLVM are just two noteworthy technologies coming from research
done at UIUC. Alumni have come to form Netscape, AMD, Oracle, and YouTube.

UIUC is the most noteworthy of midwestern universities, but is hardly the only
excellent education available to undergraduates and grad students.

~~~
askafriend
I think part of the problem probably starts way before college.

------
btrautsc
Going through YC in 2014 and every single VC asked (and were perplexed) when
we told them we were not moving our company to SF/ SV.

That strategy was effectively read as our team signaling we weren't "going for
it".

It was joked about how we would have to do board meetings in SF because people
wouldn't fly.

I wonder if times have changed or rents just finally got too expensive for the
younger tier of VCs.

------
hacknat
I’m in a weird situation in that I started my education and career on the West
Coast, but ended up on the Midwest a decade later for personal reasons. I do
have to say that the business culture differences are astounding. Obviously
I’m generalizing, but Midwest business culture is incredibly risk averse and
VC money tends to flow to niche high research fields that the investor either
came from or understands really well (e.g. Biotech). I’ve started to see some
small changes with some funds looking to invest in “general” startups, but the
capital is astonishingly weak.

Honestly though, I’ve come to appreciate it (even though it can drive me batty
- Midwest “nice” is a real thing and can be a severe hindrance to effective
communication), as I think it forces a level of creativity and resiliency on
me that I didn’t need in the West Coast. Finally the tech community out here
is so small that people really genuinely seem to look out for one another and
be genuinely interested in what other people are doing as you never know where
the next job is going to come from.

------
hn_throwaway_99
Somehow I feel like NYTimes writers have mastered the art of "it-almost-
sounds-sincere-but-nothing-like-skewering-with-an-undercurrent-of-sarcasm".
The whole recounting of the "trappings of hipsterdom", the mentions of the
vegan donuts and coal-infused kombucha, the portraying of VCs on a "safari".
Granted, not so sure if the target is the hipster-posh VCs or the local
yokels, but for this article I could appreciate a more straightforward style.

------
dmode
How many of this “Silicon Valley comes to Midwest” article do we need ? It’s
all feel good, but numbers don’t support it. And this PR move has been
happening for 3-4 years at least. Just other day DoorDash raised $535mn and it
is based in Palo Alto. SV startups continue to raise giant sums, grow
businesses at global scale, and make their investors money.

~~~
RickJWag
Having seen recent hiring data, I think SV is not sustainable.

Compare salaries to what you get for remote work (especially a timezone or two
away.)

It's only a matter of time. The numbers _will_ catch up.

~~~
xivzgrev
You would be amazed at how much companies still value face to face
collaboration even in this era of Slack etc. The salary deltas may be big yes
but there's often a large premium on being in the office.

------
tachyoff
> The trip, which took place on a luxury bus outfitted with a supply of vegan
> doughnuts and coal-infused kombucha, was known as the "Comeback Cities
> Tour."

I live in Detroit. It’s a city that has been pushed to the edge of oblivion...
and then into oblivion for several decades. It's fantastic that thers
investment, but at the same time, stuff like this feels so incredibly
patronizing. "It's nicer than San Francisco!" Yes, there are, in fact, nice
buildings outside of San Francisco, even in Detroit.

Midwestern cities don't exist solely to make money, and I'm rather disturbed
that they're seen more and more as nothing but investment vehicles. Detroit is
80% black. We didn’t even have working street lights until a few years ago
(shout out to the Public Lighting Authority). I just look at San Francisco and
the entire Bay Area, and I think to myself: "we don't want that here". Detroit
isn't just cheap rent and exposed brick. It's grit and soul and pain and
culture and 300+ years of history. I'm sure these investors got a lovely tour.
Did they talk about the 1967 riots? Did they show them northwest Detroit,
where entire city blocks are basically becoming urban prairie? Did they talk
to the regular folks living and working in the city for generations? They’re
lovely people, and they live here too. They're as much a part of Detroit as
the Madison Building or New Center or Dan Gilbert or the rotting houses or the
rich history.

~~~
Kinnard
Thing is (I'm a native, black, 3rd generation Detroiter, and a serial founder
who has lived in the Bay Area) none of that (unless and until it does) has
anything to do with starting startups or making startups succeed.

~~~
Apocryphon
You're right, but that's still sad.

~~~
Kinnard
And impertinent. That's the thing: people want the side effects of startup
success here but they don't care about successful startups or the things that
make startups succeed. The Genius loci is huntin 'em and killin 'em here. I
live it everyday. Maybe, just maybe a place like Detroit could overcome the
premier network effects of the Valley if people here cared about startups.
They don't.

In some ways it's unfair but true. In the same way that people with families
should not start startups. "This one is real. I wouldn't advise anyone with a
family to start a startup. I'm not saying it's a bad idea, just that I don't
want to take responsibility for advising it. I'm willing to take
responsibility for telling 22 year olds to start startups. So what if they
fail? They'll learn a lot, and that job at Microsoft will still be waiting for
them if they need it. But I'm not prepared to cross moms." ~
[http://paulgraham.com/notnot.html](http://paulgraham.com/notnot.html)

Unfair. True.

------
walterbell
> _When you invest in a San Francisco start-up, “you’re basically paying
> landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders
> Fund, referring to the companies that provide start-ups with messaging
> services and data hosting._

There must be a few other companies missing from this list..

~~~
sidlls
It's a facile statement. A significant fraction, if not the majority by far,
of most companies' expenditures is in salaries which go mostly to pay rent or
mortgages in most places.

~~~
jsmthrowaway
Which is what “landlords” means; not the company’s landlords. It’s far from
facile.

~~~
sidlls
askafriend's comment is correct: most companies, regardless of industry or
location, spend a significant fraction of resources on salaries. The notion
that "it pays landlords" isn't unique to the bay area or VC-funded companies,
by far.

~~~
jsmthrowaway
I could have sworn "in most places" wasn't present when I replied, but I might
be misremembering.

------
someguydave
Silicon Valley success _is_ Midwestern success. I would wager that the
majority of engineering talent working in the Bay Area was born and raised in
the Midwest.

------
droidist2
I love how they make it sound like the Midwest is another country, like they
visited Mumbai or something.

~~~
froindt
Sad as it is, lots of people on the coasts perceive it that way.

As an anecdote, I was born and raised in Iowa. My dad was on the board of a a
non-profit which primarily operated out of the DC suburbs. As the only person
from the Midwest on the board, he floated the idea of moving operations to
Iowa. Everyone thought he was stupid to suggest such a thing. "Could we even
find qualified people to hire in the Midwest?"

They weren't doing any lobbying or hosting events, it was effectively just an
administrative office. They moved to Iowa, paid a small fraction in rent, got
more space, could afford to pay a similar wage giving the employees much more
disposable income, and hired another person (I believe going from 3 to 4
employees).

------
e2e4
"When you invest in a San Francisco start-up, “you’re basically paying
landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders
Fund"

Only the first part "landlord" it's affected by location.

~~~
lsc
Eh, for amazon? I think it is location dependent. The majority of your
datacenter costs, if you want to run your own hardware rather than amazon? At
first, those costs will be dominated by people, and this is why it makes sense
to run on amazon until you're paying a quarter million or more a year.

Sure, you can get part time sysadmins. Not that bad for planned work. But
getting someone who will answer your pager? You pretty much have to hire
someone full time and they need to be really dedicated. (being the only guy on
pager is a rough experience.)

If you can find someone with my skillset in, say, Cleveland? they don't have
the option of super high paying local jobs where you get fed three times a day
and don't have to carry a pager. The me in Cleveland is gonna work a lot
cheaper.

The problem, of course, is finding a me in Cleveland. I'm sure you can, but
there just isn't the density there as there is here.

~~~
e2e4
AWS and Twillio costs are more or less location independent (w/in US at
least).

Good point about significant portion going to salaries. Somehow author of the
article wrongfully omitted it from the top 3 expenses. p.s. and then the
employees salaries to go pay for rent; so the "landlord" part is rightfully
there; I just have no idea how AWS and Twillio ended up on the list.

~~~
lsc
My point re aws is that aws is way more expensive than data center space and
hardware; if you have someone competent and inexpensive in the midwest to
handle the datacenter/hardware stuff, it makes sense to move off of aws much
sooner than in the bay area, where people to manage the hardware side of
things are going to cost you a whole lot.

Therefore, your amazon bill is, in a way, location dependent.

------
throwaway713
There seems to be no evidence that startups are significantly growing anywhere
outside of the already well-known tech cities. And the main reason is because
most of the talent that really wants to work in cutting-edge tech takes the
initiative and relocates there to be with all the other people that really
want to work in tech (barring some people who are taking care of sick or aging
relatives, etc.) I'm not saying another city couldn't eventually displace SV,
but it would require a huge shift in network effects.

Also, the cost of living argument is mostly nonsense. For large tech
companies, _even_ with spending $6,000 a month on an apartment, you _still_
have a lot more left over after California taxes than the best tech employers
in the Midwest or Southeast. When your total comp is 3x what you would make in
an "affordable" city, does it really matter that rent is 1/3 of your income?

~~~
closeparen
Tech workers can afford bachelor lifestyles. But raising families they way we
were raised would cost more like 9/3rds of our incomes.

------
austincheney
Every time I read an article about VCs it is either about chasing trends or
something bad. I guess this is what separates mature investors from corporate
executives.

~~~
dang
Perhaps it's what separates journalists writing about VCs.

------
ggm
At IETF Dallas 2015, I spoke to some people who had been west coast, now
located there. They all said the primary driver for them was cost-of-living.
Same salary could translate to a huge disposable income result, relocating.
For the companies (this was mainly Datacenter and comms people) the RTT to
east and west coast about equalizes. So, you can either have two DCs, one for
each major population center, or you can have a bigger investment somewhere in
the middle.

Relocation expense against first year hire costs is pretty big. If you could
shed $20k+ of excess cost to make somebody work for you, and get east-vs-west
quality to a median line, and get reasonable land rent for DC and offices,
wouldn't you talk to your CFO and board about it?

------
RickJWag
"...a city with more intellectual diversity"

I'm stunned the NYT printed this. In fact, I'm surprised the NYT printed a lot
of the article.

I owe them another look.

------
xivzgrev
I think its great VCs are expanding their worldview. I think there are
definitely good investment opps outside of SV. I think its a stretch to say SV
is over. Yes living expenses and salaries are crazy but there is a success
network here that is reinforcing. In order for SV to be over it would take a
new annoited tech hub, like we saw SF do recently. Many companies and jobs
moved up from SV to SF. Saying there are now 100 smaller tech hubs in the
Midwest South etc does nothing to combat SVs network effect. It is still the
densest (albeit most costly). So much of the new talent and entrepreneurs will
naturally flock there to maximize their chance of success.

------
aphextron
>When you invest in a San Francisco start-up, “you’re basically paying
landlords, Twilio, and Amazon Web Services,” said Ms. Bannister of Founders
Fund, referring to the companies that provide start-ups with messaging
services and data hosting.

This is the most absurd realization. Literally 50% of your startup's funds
will be sent directly to landlords if you locate in the bay area.

------
refurb
Is there really a lot going on in South Bend? Detroit I can believe, but some
of those other cities made me think "there are other mid-west cities that
would have been much better choices!"

~~~
weerd
Seriously, I was really surprised to see Youngstown instead of say.. Columbus
or Pittsburgh.

~~~
xtracerx
It says this trip was organized by a rep from north east ohio which is the
only reason they went there. Akron and Youngstown don't have the talent to
develop a website, much less support more than a few tiny startups.

------
geerlingguy
Midwest, in this case, seems to equal Ohio and Michigan?

------
kriro
Not so thinly veiled Zillow product placement article.

------
iamleppert
I guess now that they have used up all the social capital in SF, they need to
broaden their horizons and look for more people to make their slaves. I wonder
what terms they’ll offer to some naive kid in Ohio? They could probably get
away with a lot more and do exponentially more damage than what they have done
here.

