If you have a startup in a city outside of the San Francisco Bay Area, ecosystem is a word you hear pretty frequently. And Montreal is no exception. I’ve been part of Montreal’s startup scene since I moved here from the Bay Area in 2002. I’ve been active in local events and projects since our first BarCamp in 2006. And I’ve taken an amateur’s interests in other cities’ efforts to kickstart their own startup virtuous cycle – New York, Portland, Vancouver and others.
But why should entrepreneurs like me care about whether there are other startups flourishing locally?
After all, there’s one really good reason that founders like myself shouldn’t be worrying about our cities’ ecosystems: we’ve got startups to run. We owe it to our investors and our employees to do what it takes to make these new companies successful. We have to put our companies first – OK, maybe third, behind health and family – and anything else is lesser priority. We simply can’t put the advancement of any programming language, business model, or our home city’s technology market ahead of the company’s success.
I think there are a number of reasons, grounded purely in founders’ self interest, that founders should care about the local ecosystem:
- Local investors. Investors like to put their money into companies near their headquarters. Some have a mandate to do so. If there are local seed funds, angels and angel groups, and VCs willing to do full-sized rounds, you are more likely to get the investments you need to grow your business. Those funds exist because there are local startups to invest in – yours and others. You may already have investors; you’re more likely to get more if there are more local funds.
- Out-of-town funding. It’s hard to get out-of-town funding. Especially in places where there’s a healthy ecosystem already, investors are resistant to considering investments outside their area.
If there’s some buzz around an area, though, it helps remote investors feel comfortable about bringing their money to your town. When raising money in other cities, I’ve had lots of investors mention Tungle and Beyond the Rack. Investing in companies in places with other strong startups doesn’t seem so ridiculous to them.
Also, if there are local funds willing to co-invest, out-of-town investors feel more comfortable. The more times they’ve done this, the more likely they are to do it again. Local investors may be more attractive to out-of-town funds than local startups.
- Local hiring. Hiring great people is hard – especially in a city without a lot of great people. If there’s a local startup community with lots of interesting jobs, talented people won’t leave the city to get jobs elsewhere. They may even be attracted to the city from elsewhere. A startup job pool means students coming out of university will investigate startups as a career option. If there’s a good startup job pool, there will be experienced developers, executives and even founders looking for jobs.
- Out-of-town hiring. If you’ve got a buzz around your city, people from outside won’t think it’s ridiculous to move there for a job. Even in existing tech hubs, people want to be part of the Next Big Thing – especially if they’re looking for cheaper real estate or less stressful living.
Technology people aren’t stupid – they know the odds are stacked against their job (at your company) being around in 12 months’ time. But if there are other companies around, it may not seem like such a risk to pull up roots.
- Government. Local, regional and national governments can either get in your way as a startup or help you along. Government cooperation on tax credits, facilities, and even immigration issues will be easier to get if there’s an acknowledgement that your industry is important and a mandate to encourage it. Some governments put money into infrastructure and actively make connections for business opportunities. The more startups that exist and thrive, the more likely government is going to be to foster them.
- Peers. I’ve benefited incredibly from the advice and example of other local entrepreneurs. Some have steered me towards better strategies; others have warned me away from the wreckage of their bad experiences. Nobody else has the same perspective on technology as founders do. It’s awesome having someone, or a group of someones, that you can meet for cocktails after work who know what you’re going through because they’re going through the exact same thing.
- Partners. Those peers can end up forming strategic or technological partnerships. These kinds of things are startlingly informal most of the time – just a few emails and a bit of code to make it work out. Having relationships with local companies that you want to succeed, and that want you to succeed, is key to partnerships that can move the company forward. People who know you from around the scene are the perfect candidates.
- Networks. Even if you don’t end up working together with other local entrepreneurs, they can be a great resource for networking. I’ve had great introductions and connections made by other local founders to potential investors, partners, and job candidates.
- Morale. Feeling like they’re laboring in a backwater is no good for your employees. They’ll be psyching themselves up to lose. “Nobody can build a successful startup in [Name of City],” they’ll tell themselves. “Why even try?”
But feeling like they’re part of an exciting and inevitable New Wave can be exhilarating. They’ll feel like they’re part of something bigger – something important. They’ll see people they know on TV or in the newspaper – maybe even themselves. They’ll hear about exits in their home town – which will put that kind of success within arm’s reach.
- Infrastructure. If there are other startups in your area, it’s more likely that there will be corresponding infrastructure. Co-working spaces and Web hosting services will be around to use. Professional services like lawyers and accountants will be familiar with the kind of deals you have because they’ll have seen them before.
- Angel investment opportunities. After your successful exit, you’re going to have a ton of experience relevant to newer startups and (hopefully) some money that you’d like to invest. If there is a culture of entrepreneurship in your local technology community, you will have some opportunities to participate as an angel.
If there isn’t, you’d need to invest elsewhere. That makes you less valuable, since your experience and connections are less relevant; you become really only valuable for your cash. That’s going to be less rewarding for you, and less likely that you’ll get a good deal.
- Your next job. Whether your company exits successfully or not, chances are that you’ll be looking for another job in the not-so-distant future. If there is a local startup ecosystem, you may have a lot of options to choose from: working for a new company, or helping out with a fund. You may even do another startup yourself.
Founders can’t carry the entire city on their backs. It’s not our responsibility and we can’t afford to lose focus. But there is an upside for us that can make our lives easier and our businesses better. Next week, I’ll discuss some simple things that founders can do to improve the local ecosystem.
Evan Prodromou is the Founder & CEO of StatusNet, a Montreal-based startup. They’ve raised financing both locally and in New York.
Image courtesy of Phil Telio.