Tony Wright

I admit that I am a bit of a contrarian. For a long time, the contention that “if you’re doing a startup, you HAVE to be in Silicon Valley” didn’t sit well with me. Sure, talent is important– but for many startups you need only a few talented folks to prove that you’ve got something and companies like WordPress have proven that you can build a great team (literally) anywhere and everywhere (they are virtual and across the world). Sure, energy is important– but the biggest source of energy isn’t your peers– it’s the people who are finding value in your product (users and customers). And sure, you need money… Well, the Valley wins hands down here. If you need to raise money, that’s where you need to be. But more and more early stage investors seem willing to invest outside of their little patch of Californian dirt. After our stint at Y Combinator and a bit of fundraising, the decision about our startup (an employee time tracking tool) was pretty clear to us. We headed back to Seattle, where we had a rich network of geeks to work with and talk with and (more importantly) we could live cheaply and not die.

So it was with great glee that Jim Karsten took the gauntlet I threw down in my last post and mined the vaunted CrunchBase for some real live data. Now, CrunchBase is obviously NOT scientific… But it’s the biggest and most consumable dataset that I know of. Without further ado, here is a table showing startups by location and the percentage of startups in that location that have been acquired. Note: Jim has kindly put up the full scrape of data here – there are other interesting bits worth looking at.

Startup Count & Acquisition Rate, by State
	Startups	% of Total	Acquisitions	% of Total	Acquisition Rate
CA	2739	41.2%	188	53.3%	6.9%
NY	692	10.4%	34	9.6%	4.9%
MA	386	5.8%	20	5.7%	5.2%
TX	323	4.9%	19	5.4%	5.9%
WA	317	4.8%	26	7.4%	8.2%
FL	254	3.8%	3	0.8%	1.2%
NJ	227	1.8%	8	2.3%	6.6%
IL	180	2.7%	9	2.5%	5.0%
VA	164	2.5%	7	2.0%	4.3%
CO	133	2.0%	7	2.0%	5.3%
PA	131	2.0%	2	0.6%	1.5%
GA	117	1.8%	2	0.6%	1.7%
MD	94	1.4%	4	1.1%	4.3%
NC	80	1.2%	1	0.3%	1.2%
AZ	77	1.2%	1	.3%	1.3%

Disclaimer: Yes, CrunchBase is flawed for this. No, ~5% isn’t REALLY your chance at getting bought if you start a company tomorrow, etc., etc. Please don’t troll about the quality of this data. It’s still thousands of records, which is better than the alternative.

At first glance, the key number (acquisition RATE) doesn’t seem markedly different. Heck, if you live in Virginia, CrunchBase tells you that you have a 4.3% shot at an exit… Why move to California for a measely 6.9%? But I think it’s better to focus on the fact that you’d be increasing your exit shot by *over 50%* with such a move. With acquisition rate being as vanishingly small as it is, nudging up a few percentage points is a huge deal.

But overall, as a contarian (AND as a resident of Washington State– the big winner by a nice margin), I was pleased by the results. The bottom line? It’s hard to quantify the COST of moving to a startup (months of distraction, expense, stress, loss of social network, etc), but my gut says (as it always has) that if you live in a technology hub like Seattle, NYC, Boston or Austin– hunker down and start building value- your success is based on how much value you can give versus how much you take.

Edit: some interesting insight from John Cook over here.

http://www.techflash.com/ John Cook

Good post Tony. I am actually writing about this today, wtih Gaurav Oberoi moving back to Seattle and Jeff Lawson at Twilio moving to the Bay Area.

Mind if I use the chart?

John Cook
abscondment

Interesting — but it looks like you've made one of the statistical mistakes written about here: http://bit.ly/19CJAd

The short version is, California's percentage is more probable because there are more data; Washington's is less likely because there are fewer data.

Using the formula provided in the post, the percentages at a 97.5% confidence interval appear as:

{“CA”=>[2739, 188, "5.98%"],
“NY”=>[692, 34, "3.54%"],
“MA”=>[386, 20, "3.38%"],
“TX”=>[323, 19, "3.80%"],
“WA”=>[317, 26, "5.66%"],
“FL”=>[254, 3, "0.40%"],
“NJ”=>[227, 8, "1.80%"],
“IL”=>[180, 9, "2.65%"],
“VA”=>[164, 7, "2.08%"],
“CO”=>[133, 7, "2.57%"],
“PA”=>[131, 2, "0.42%"],
“GA”=>[117, 2, "0.47%"],
“MD”=>[94, 4, "1.67%"],
“NC”=>[80, 1, "0.22%"],
“AZ”=>[77, 1, "0.23%"]}

(See methodology at http://gist.github.com/128830)
http://www.socaltech.com/ Ben Kuo

I think you're going to get lots of sampling errors here, due to self-selectivity of the dataset in Crunchbase (or any other database, for that matter).

We collect our own data (we run a subscription database with similar data covering venture capital and mergers/acquisitions) and a quick query finds that we have WA with 67 acquisitions and 941 startups/tech firms in our database, or a 7.1% acquisition rate; CA has 681 acquisitions and 8,050 companies in our database, or 8.4% acquisition. But, you can skew the data any which way based on what the date range you select is, how comprehensive the coverage is of that state (for example, we have good data on California, Washington, Oregon, Colorado, Utah, and Texas–because that's the focus of our sites–but less in-depth listings of acquisitions in Georgia, Florida, Massachusetts, etc.). The same goes for any database which isn't 100% comprehensive (and there aren't any out there, IMHO).
http://www.socaltech.com/ Ben Kuo

btw, relevant site for PacNW:
http://www.nwinnovation.com
http://www.rescuetime.com webwright

Yaw, I know there is a sample size problem and vaguely recalled math from my stats class a decade ago which could do better things with the data than I did. I knew there's be someone with better stats-fu than I have!

Still the “discount” for the smaller states seems pretty dramatic. In Evan's example of consumer ratings for example. If you took a product with 188 out of 2739 reviews as positive (6.9%) and ranked it above one that had 26 out of 317 reviews as positive (8.4%), I think that would feel weird/wrong to most consumers who weren't mathematicians (“but, come on, consumers! You WANT a 97.5% confidence interval, don't you?!”). Maybe a lower confidence interval? I dunno.
http://www.rescuetime.com webwright

Yaw, CrunchBase is a limited dataset. On my last post, someone pointed out that the question is dangerously close to dissertation country… It'd be a pretty big task to do the question justice.
abscondment

Yep. Lowering the confidence interval causes each item to gravitate towards the raw percentage – which will definitely (I think) be a higher value than the lower bound.

I'd bet consumers don't spend that much time scrutinizing the percentages of ratings – they look, read reviews, and make a decision. To me, this seems less jarring than putting the “1 out of 1″ item (or state) above the “99 out of 100″ one.

But I guess the good news is that (sampling questions notwithstanding) even using a statistical *lower bound*, Washington stacks up very well against California.
http://www.myhightechstartup.com/ Eric Koester

Good Post. I always love the post backed up by some data.

The other interesting point is that is oftentimes over looked or forgotten is the importance of having your business be in the right location relative to your industry. For companies that would be a good target of MSFT or AMZN, locate there. Or if you are a business that will need talent or technology from one of the US National Labs, then locate near there.

I don't think any choice can be black or white — obviously lots of shades of grey.

Great post.
http://www.rescuetime.com webwright

True!

One of the things obvious common traits with states that did “well” is that
they have lots of companies with great cash positions that love to buy
startups. While I'm sure that Google and Microsoft will buy companies
anywhere in the world, it's easier to start the conversation if they are
local (and probably much easier to do the deal). And, as you say, the most
important thing is to be near your customers. Entertainment startups might
do better in LA and advertising startups might do better to be in NYC.
Gene

For CA, can you break out by SF-Bay Area versus LA & San Diego?
http://www.rescuetime.com webwright

That'd be interesting, but it'd require some map research or some geocoding
work. I believe Crunchbase has city info, but I don't know the location of
all of the suburbs of the big two (who the heck knows where Santa Milano or
Los Fractos or San Barbarino are? I sure as heck don't off the top of my
head).
blah

In this page, theres a Tony trivia “Currently bouncing around between Silicon Valley and Seattle, WA.”
If valley isnt a big deal, why bother bouncing?
http://www.socaltech.com/ Ben Kuo

Our numbers say Silicon Valley = 6.2% acquisition rate, Southern California (LA/San Diego) = 9.0% acquisition rate. We already track the two areas separately (http://www.silicontap.com = Silicon Valley, http://www.socaltech.com = Southern California).

Due to our tracking/historical I believe Southern California is probably very accurate (we've got 10+ years of data), Silicon Valley not as much.
bobv

NY and NJ are really the same place. You're basically separating a city from its suburbs.
http://www.marinamartin.com MarinaMartin

Okay, I won't quibble with your dataset, but I will quibble with your definition of success. I'd die before I sold a company of mine to Yahoo or Google; it's like volunteering your seven-year-old child for ritual Mayan sacrifice. (Yea, I realize that walking away from many millions would be difficult, but if I'm not seeking a buyer, I'd never be in the theoretical position of being able to refuse.) If profit is your sole incentive, then sure, acquisition is the ideal, but I'm not putting in 90-hour weeks to watch my hard work be killed (Dodgeball, Jaiku) or irreparably maimed (Flickr). A better success metric would be “still operating and in the black after five years” regardless of acquisition.
http://www.rescuetime.com webwright

I don't recall ever defining success in that post, or any other. But one
measure of success is certainly having a line of previously-spurned buyers
waiting in line when you're ready to move on.

Regardless, whether you or I define an exit as the target isn't really the
question. Every single early stage investor defines it that way and a large
percentage of entrepreneurs want to eventually sell their company and move
onto other things. When you're ready to move onto other things, liquidity
is very common measure of success. Which is not to say that building to
flip is a smart path. That data doesn't talk about the truth of exits–
which is that the vast majority of exits aren't 1-2 year flips. The
idea-to-exit-in-18-months bullshit isn't the norm. Most companies that are
bought in this world are real (and oftentimes profitable) businesses that
have been built and run for many years.

The truth is that success is complicated and subjective, which is why you
won't see me trying to define it any time soon.
http://interviewpattern.com/post/Merging-Arrays-Interview-Question.aspx Array

Actually, I remember Bellevue was called number one of 100 best places to live and launch new business.

http://money.cnn.com/galleries/2008/fsb/0803/ga…
http://blog.sciodev.com/ Michael Dunham

There's always the PWC Money Tree https://www.pwcmoneytree.com/MTPublic/ns/nav.js… – it's more about the funding end – but interesting
http://www.precisiontrials.com/ clinicaltrials

If you move to CA for your 50% increase in chance you have to factor in how the expense of moving will limit you cash flow
http://www.precisiontrials.com/ clinicaltrials

If you move to CA for your 50% increase in chance you have to factor in how the expense of moving will limit you cash flow

Should you move your startup to the Valley? Depends on where you are (Data included!)

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