If you believe the hype, foreign investors are scared of failure, less willing to take chances, etc. Yes, investors have different risk tolerances, but most professional investors are not entirely risk averse.
Looking at the performance of most venture capital funds, and the venture capital "asset class" as a whole, over the past decade-plus, I think more intelligent investigation of foreign investors' preferences would reveal that there are very good reasons they aren't chomping at the bit to throw money at every tech entrepreneur in need of a few million dollars.
I run a startup in Sydney and raised $1M from angels and VCs in both Australia & the US.
When I first presented to angels in Sydney I found them initially "tight", and they laughed at the $2M valuation I was pitching.
After this I pitched at 500 and at a whim doubled the amount I was raising (and our valuation).
The response from valley investors was that it was refreshing I was only asking for a $4M pre and I was able to secure some investment (in the context of several YC companies wanting a 10-15M valuation post YC).
I found that with this strike price established by the Americans, the previously "tight" Australian investors then followed suit.
Just my 2c.
I feel like the one-time cash-drop is a terrible model for early-stage businesses. A good (1.5+) programmer is worth at least $300k/year working on his own stuff, because (a) he actually gives a shit, and (b) his competence will grow faster than it would in a typical paid job.
So for 4 years of a good engineer's work, $1.2M is a fair sight-unseen valuation. Scale this up for team size and include existing validations from the market, and $5-10M isn't unreasonable (with a 4-year vesting period on founder equity; unvested stuff going to investors).
The indefinite duration to profitability is a problem, because it's such a huge unknown that renders valuation calculation a joke. When you're valuating a person, any number that comes without an amount of work (e.g. a duration) is meaningless.
I feel like an Autonomy Fund model is better. Broad-strokes overview, minus the regulatory stuff and incentive problems and adverse-selction protections: there isn't a specified time line, but you get 75% of your market salary, and investors get a passive 30% equity in whatever you build (including side projects, that being the one downside for employee). The going assumption is that you're worth 2.5x more to the economy when you work on your own stuff than when you work for a typical company.
Of course, there are various protections that need to be in play to prevent people from scamming it (i.e. quitting the Fund, then launching something next-day with 100% equity) and there would be a need for some kind of audit cycle (to push out people who are coasting) but I think the overall model is superior to anything that exists now.
One thought I had is that local governments would have an interest in setting these kinds of things up, because even if the concept fails and they "lose" money, it goes back into the city and the network effects also build up the technology ecosystem there.
[ PDF here : http://www.digitalpulse.pwc.com.au/wp-content/uploads/2013/0... ]
I enjoy many things about living in New York-- you fucking hate it when you sign a rent check or change jobs; other than that, it's quite nice-- but it pisses me the fuck off to pay these ridiculous rents (and the real estate costs reflected in restaurant pricing; I wouldn't mind paying $20 for sushi if the money went to the chef and wait staff and not real-estate fuckers). The reason the city's expensive is because top-talent people like me come here and work their asses off, providing a healthy substrate for economic activity that generates lots of value. I'm bringing the real fucking ingredient (talent) and not these unproductive and fucking uncultured absentee landlord fucksticks (half of whom don't even live in the city, and what the fuck are we doing allowing foreign speculators, i.e. third-world despots and their henchmen, to own property here when we can't even provide for our own fucking people?) who've stolen most of my savings. Who the fucking fuck thought "Talent Pays" is a fair or good fucking system? It wasn't fucking me, I'll tell you that much.
The talent argument for startups only being in star cities is specious. All it would take is for a few hundred top engineers to move to any city X in unison and that would start something. Fuck, you might be able to build a kernel with 20. You could use a #4-10 tech hub (Austin, Seattle) or somewhere that's not even on the map (e.g. Iowa City).
Now, if you're selling to a specific clientele, living in a star city makes sense. If 80% of your clients are going to be financial firms, you want to be in New York. I get that. But there's so much that can be done from anywhere; so why is all the investor money limited to a couple of cities?
I am a genetic contrarian so I tend to be one of the first to see when going assumptions are wrong. I think that if you want to build a stable company, you want to be outside of the fuxpensive star cities right now. When the culture is one where you have to become some parasitic VP who doesn't do anything, and then "exit", just to own a house, you're not nurturing the lifelong software engineers who will actually be motivated to build awesome shit. Whereas outside of the star cities, your burn rate is lower, and the "job hopping" climate isn't as fluid (which is good and bad) so you can really invest in people and build for the long-term, instead of being fucking toast if Facebook doesn't buy you before trick-or-treat night.
But I was deceived by craigslist apartment ads. The apartment locators in the city were posting beautiful downtown apartments for ridiculously low rents, it seemed amazing. When I got there I found that occupancy at the mega rental complexes was running over 99% and it was incredibly difficult to find a place to live. I also found that most of those postings were fake. The MO is to post a nice place for low money and when a prospect calls say that one is gone but they can show you others.
I eventually took over a lease from someone at a nice complex right next to the Google office. I had heard Austin was easy to get around without a car, but that wasn't really true. I was an hour ride from downtown on the bus and felt stranded up in NW Austin. The bus stopped running around midnight, and if you missed that the closest bus dropped you off an hour walk from your home on a desolate and dark highway.
The buses are ok if you are going north/south, but east/west involves a lot of transfers. I wouldn't want to live in Austin again without a car, as the summers get so hot (100+ for 60 days in a row) you can't show up for a meeting with a client without being a sweaty mess by the time you get there.
My rent was raised almost 20% when I renewed my lease, and I am sure the rents are even higher now. I moved to NYC and am only paying $150 more a month to live in great studio in Astoria. It's a little smaller, and I miss the outdoor pool and hot tub I had in Austin but other than that everything else is better here.
Austin can definitely be cheap if you buy a single family home, but beware the insane rental market as the city is growing rapidly.
NY, SF, Boston > Every other city in America
I'll admit that those cities are not for everyone, but they are irreplaceable for most people that live in them. If you make enough money to live in one of those cities, the lifestyle cannot be replicated outside of those cities.
VCs can choose where they want to live, most of them choose tier 1 cities. Talent also chooses tier 1 cities so the collocation benefits everyone.
The Midwest is the perfect place for a startup. Now that being said, Chicago has an entertaining startup scene. Entertaining in that I feel like they are trying too hard to be like San Franscisco.
What about Chicago? Great city, not as expensive; problem is, not much VC money. I would rather the worst thing about where I live be called "January" than have it be called "rent".
VCs can choose where they want to live, most of them choose tier 1 cities. Talent also chooses tier 1 cities so the collocation benefits everyone.
Talent doesn't get as much "choice" as HN likes to believe. Sure, good programmers get solicitations for jobs all the time, but often that's just an invitation to waste time on a phone screen, spend six hours on a code test (because you actually care about doing things right) and then get rejected because your choice of language (for the test) fell on the wrong side of that company's ever-shifting internal language wars. Or it's an invitation to work at some startup with shitty cargo-cult culture that'll fire you at 4 months with no severance if you don't go to the strip club with the other brogrammers. Good jobs are goddamn rare and hard to find no matter who you are.
Talent should have the kind of leverage that HN believes it does, but right now, 90+ percent of talented people are poors who still need to adapt to bosses and market trends and landlords.
Also, DC is pretty good too.
Arguably, NY and SF are far better than Boston, and you could probably safely lump Boston in with Chicago and DC as far as desirability.
I agree with you that talent doesn't have as much leverage as they think they do. Good jobs are nearly impossible to find. That is why living in a great city is so important. Talent will never have the type of leverage HN believes it does except for in rare individuals who have built social credit along with their skills.
Now that I'm almost 30 and aware of my mortality (my mother passed away recently, which had more to do with my "mid-life crisis" than chronological age, since I'm still quite young by the standard outside of Wall Street and VC-istan) I'm starting to wonder about the best way to change this. How do we take this garbage-pile of an industry and fix it? How do we clear away the crap and build something we can be proud of?
Social trends are such that we're on track for a violent worldwide revolution (widespread, permanent un(der)+employment will be the norm by 2030) unless we fix our society in a major way (basic income, necessitated by said underemployment) but we also have the tools available to be smart and not burn/kill our way to a better world. We don't need to overthrow the corporate bastards with force (at least, I hope we don't; the problem with real-world holy wars is that the unholy have guns and better aim) because with technology we can outperform them. We should take this opportunity to rewrite all the assumptions, if we can.
As far as your first question... who knows? One thing I know for certain, it doesn't matter what you do, or how you do it, there will be trade-offs, always. As a much older than you... 30 year old, I've come to sort of just enjoy what I can and brush off the unpleasant stuff while I keep up with a rigorous search for knowledge and improved skills.
I'm certain that opportunities will present themselves, and I'm positioning to always be ready to take advantage of them. Fulfillment for me partially comes from the knowledge and skills gained. I know that I will have a high level of achievement over my career and because I am confident it will all work out, I am relaxed while I push myself.
In 2 years, maybe I'll have a totally different outlook? I guess that is the fun of the whole thing.
Or it's an invitation to work at some startup with shitty cargo-cult culture that'll fire you at 4 months with no severance if you don't go to the strip club with the other brogrammers.
Chicago is ok but be aware that it's bro central if that's something you are trying to avoid.
There are tech startups and VCs here. If you're a good programmer and need a big software company job for the (pretty high) salary and benefits, then Microsoft and Amazon are headquartered here, Google is expanding their presence here (although you've obviously burned that bridge), and there are lots of other software and internet companies like Expedia, Adobe, Real, Redfin, Zillow, and even I Can Has Cheezburger? that employ a lot of programmers and are suffering from a talent shortage because UW can't crank out CS grads fast enough.
It also doesn't even rain as much here as it does on the East Coast.
So, basically, Seattle:
-has programming talent
-has a lot of jobs for programmers
-has VC capital
-has startups and startup incubators
-is not fuxpensive
-has ok weather if you don't mind it just being 50 degrees and cloudy 8 months out of the year.
I'm sorry, but this is a really poor way to look at things.
First of all, while I appreciate that you're unhappy about having to pay a lot of rent to live in New York, I don't think it's really fair to make ad hominem attacks on a (pretty diverse) group of people you know nothing about.
Second of all, the reason that it's expensive to live in New York basically boils down to the fact that a lot of people want to live there. As you pointed out, talented people flock to the city and are a key ingredient of the incredibly rich economic substrate - but there's also the cultural opportunities, schools, social scene, etc etc. Of course, all of these things are interlinked and reinforce one another - but at the end of the day, the price of housing is dictated by supply and demand.
Thirdly, real estate developers are entrepreneurs, too - they typically take on huge risks over long periods of time to create actual products that are (hopefully) incredibly valuable for their customers. I'd argue that housing is a lot more important to most folks than another social media app or whatever.
Finally, in the case of property owners (not developers), they're simply holding onto an asset and trying to optimize their returns. I don't see how this is morally objectionable as long as they don't do anything underhanded (which certainly does happen). But at the end of the day, they're simply trying to ask for however much money people are willing to pay for their products.
Actually, it's demand inelasticity (small shortages => huge price spikes) and regulatory corruption/malfeasance that prevents the supply from properly expanding to meet the need.
"A lot of people want to live in New York" is not a useful statement because there's also "a lot" of housing here. It's just tied up by foreign speculators (who really shouldn't be allowed to own; we need a six-months-and-one-day rule in NYC where if you don't live here, you must sell) and rent-control (I have no problem with the people for whom it was originally intended having it; not their upper-middle-class grandkids) and worst of all, those NIMBY assholes who block supply expansion.
the price of housing is dictated by supply and demand.
There's way too much malfeasance in the urban real estate markets of most big cities for there to be a fair market. See above.
Thirdly, real estate developers are entrepreneurs, too - they typically take on huge risks over long periods of time to create actual products that are (hopefully) incredibly valuable for their customers.
Actually, RE developers are not the ones I am talking about. I agree: if you build something, you have the right to earn for the work you did. Land ownership makes no sense in urban areas. The fact that the concept still exists makes me feel like I'm in the 1700s.
Finally, in the case of property owners (not developers), they're simply holding onto an asset and trying to optimize their returns.
If you're passively earning rents, fine. Good for you. If you're one of those assholes who votes down new development for the purpose of keeping your properly values high, then you deserve to be eaten by piranhas.
Real estate demand is extremely price-inelastic, which is why a disaster that destroys 5% of supply would actually double (at least) the supposed "value" of the remaining land. Regulatory corruption often has the same supply-destructive effects.
High rent is an undesirable (and, one hopes, temporary) byproduct of urban health, but not a real correlate because its long-term effects are disastrous.
the thing is, though, isn't that what makes new york so unique? you don't think the right and attraction of a billionaire to go there and spend tens of millions might have something to do with it?
isn't that the very thing that separates it from bumfuck, iowa?
It's about the location problem in general.
SELECT FROM places WHERE funding_avaliable = true AND cost_of_living < fuxpensive