Startup Success Outside Silicon Valley: Data from Over 200 Exits in 17 Cities

There’s never been a better time to build a company outside the Bay Area

By David Frankel, Managing Partner & Joe Flaherty, Director of Content & Community

[Note: Data as of 8/15/2019, for up to the minute numbers, review this Google Doc]

A key caveat

We decided to exclude Asian tech companies in this overview, a decision which will surely strike many as shortsighted. India holds tremendous potential, but so far, its story is more about funding than exits. Japan’s tech industry tends to reward existing players rather than upstarts. China’s absence is harder to defend, as it’s currently home to four of the top 10 highest-grossing companies on the internet. Its omission is further complicated because Chinese companies like Tencent are major acquirers of Western companies, like Riot Games and Supercell. Despite the sheer number of unicorns it has produced, the Chinese domestic market is more difficult for many operators and investors to enter. It’s also a bit more challenging to accurately evaluate given the highly synergistic relationship between the state and its startups. Again, this piece is not meant to be an authoritative study. Our focus is selfishly, and parochially, on the hubs in which we and our peers are most likely to invest.

To be clear, Silicon Valley is unrivaled

There’s no doubt that the Bay Area is home to the most successful startups in the world. For this exercise, we stopped counting at 20 Bay Area companies which collectively are worth over a trillion dollars. The point wasn’t to enumerate San Francisco’s dominance down to the penny, just to establish that it is in a league of its own. Still, there’s probably never been a better time to start and build companies outside of it.

Boston is big (And surprisingly strong in consumer tech)

The narrative surrounding Boston is that a combination of Yankee thrift and bad policy (like non-competes) has turned Boston into a backwater, which has been superseded by New York, LA, and even Boulder or Austin. This isn’t remotely close to being true. Outside of San Francisco, Boston has more unicorns than any other geography — and as a reminder, this tally does not include life science startups.

LA is home to tech’s blockbusters

If Boston bats for average, LA hits for power and is the only non-SF geography to spawn multiple double-digit billion-dollar exits in the form of Snap and The TradeDesk. It’s also impressive in that half of its top 10 companies are hardware/vertical ecommerce players, demonstrating a depth of technical expertise not usually attributed to the media-focused region. Mark Suster’s knack for spotting talent has led to an enviable portfolio, but I don’t know if he’s made a smarter bet than going #LongLA.

New York is a hard tech center?!

Boston isn’t the only city suffering under misapplied stereotypes. The most successful startup in NYC over the last decade isn’t a direct to consumer brand; it’s MongoDB, a database company. While the Tri-state area can count Etsy and Jet as wins in ecommerce, their other top successes include Liveperson, a leader in commercial AI, and Flatiron Health, a drug-discovery tool. Peloton, Casper, and Roman may very well prove that NYC is the best place to build a consumer product startup, but at present, it’s also a place where serious tech is built.

Seattle suggests anchor companies are overrated

One of the folk beliefs about what makes for a good startup hub is the presence of influential anchor companies. The theory is that large companies serve as spawning grounds for founders, recruiting pools for startups, sources of exec talent during the scaling period, and acquirers, or employers of last resort if the new enterprise fails.

“Startup Nation” lives up to its name

It takes a healthy dose of chutzpah to call your country “Startup Nation,” but the Israeli tech community is doing everything it can to make the claim a reality. With a population just shy of nine million people, their startup output surpasses those of Germany and France combined.

There’s magic in the Mountain West

Utah strikes some as a surprising tech hotspot, but really shouldn’t. The University of Utah was host to one of the first four nodes of the ARPANET, and the school graduated engineers who would go on to found and lead Pixar, Adobe, and Silicon Graphics. Combine that with Brigham Young University’s robust alumni network and it’s not terribly surprising to learn the state has produced over $20B worth of exits in the last ten years, in industries as diverse as education, makeup, mattresses, and consumer electronics.

Nordics > Germany/England/France

Europe’s tech scene is fascinating. Sweden, a country of 11M, edges England, nearly doubles Deutschland, and quelle horreur, crushes France in terms of startup output. If combined with its Nordic neighbor Finland, Scandinavia is in contention with Boston and SoCal as the second-best performing startup hub overall.

Great startups can be built anywhere

CB Insights recently published an infographic showing notable startups in all 50 states. Over the last few years, there have been billion-dollar tech exits in Raleigh, Bethesda, Indianapolis, Nashville, Phoenix, Columbus, and Wayne, Pennsylvania. There’s no reason to believe those companies couldn’t have continued to grow; Atlanta-based MailChimp has a valuation thought to be somewhere close to $10B; Electronic medical records leader Epic generates billions of dollars a year in revenue, and it’s based in Madison, Wisconsin; Raleigh-based Red Hat was just acquired for $33B.

Power laws & you

Critics of this piece will surely point out that our data is actually evidence of a power law that makes the case again for the Bay Area. They’ll note that Facebook’s market cap is roughly the same size as all the other US/EU exits combined. This is watertight logic if you’re a GP at a $1B fund and can’t survive without a steady stream of $10B+ exits.

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