I often hear entrepreneurs talking about how they need to leave Chicago or Austin or Denver to be in the Valley in order to succeed. This has puzzled me since results would indicate otherwise. Yes, a lot of the high profile firms (many still not exited) are out there. However, each region has its strong ecosystems that are capable of generating industry leading opportunities. Over the past 3 years, our firm has had exits worth nearly a $1 billion in enterprise value. Of these, only 1 deal representing $125m, was in the Valley. Nearly 90% of the liquidity (when little is coming out of the Valley or industry overall), came from elsewhere. This is the reason that many of the Valley firms have located offices in Asia, India and that DFJ has over 30 offices worldwide. Innovation takes place and can succeed anywhere.
I will not deny that the Valley has a strong culture of innovation and that it produces an array of marquee firms. However, it also suffers from higher deal valuations because of all the capital there, which often leads to overfunding & high burn rates. Talent is expensive and hard to hold onto. For new entrants, there is a lot of noise, so it is harder to be recognized either for a job or for funding.
In fact, I can not think of a single company that went on to become successful that couldn't get funding in my backyard, then went to the Valley, got funding and became a huge success. It is a little like the pretty Kansas farm girl who goes to Hollywood to become a star, enticed by the glitter. The landing is often much rougher than expected and the success more elusive.
Fred Wilson had a great post today, Startup Hotbed Inferiority Complex, in which he discusses this topic succinctly:
But at the end of the night, the 'silicon valley' question came out. A participant in the audience wanted to know if it was crazy not to do his startup in Silicon Valley. This is what I call the startup hotbed insecurity complex. Deep down inside, every entrepreneur working outside of the bay area worries that they are not as competitive and will not be as successful because they are not in Silicon Valley….
…To which I responded that the idea that you cannot build an important tech company outside of Silicon Valley is 'a crock of shit'. Somehow that line was tweeted numerous times as 'silicon valley is a crock of shit' which I found humorous.avc.com, A VC, Jul 2009
Like anything, there are situations where it makes sense to move (starting a router company in Indianapolis) and there are often others where it does not (starting an e-commerce or internet services business in Chicago). However, too many people feel insecure if they aren't in the Valley. Just be certain why you have come to your conclusion…because the ecosystem can't support your idea or because you're just following the herd.