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Does Location Matter for Startups?

You often hear the mantra “location, location, location” as the most important thing in real estate, how true does it ring when opening a new business and specifically technology startups? While it is true that Silicon Valley is still the leader in tech, there are cities all over the world that may suit a founding team better than purchasing a one way ticket to the Bay Area.

First, let’s look at the benefits of starting a company in the startup hubs like Silicon Valley, New York and Los Angeles. The access to venture capital is the top incentive for these places. According to Startup Genome, “Silicon Valley raised 32% more capital across all stages of development than other global hubs. It also had 35% more serial entrepreneurs or people who go on to found more than one company, and mentors.” There is also an abundance of talented, ambitious individuals looking to disrupt the status quo. A slew of Stanford grads start companies in Silicon Valley, and New York City startups attract the East Coast Ivy League grads. There is just a larger talent pool in these places.

While there are numerous benefits to starting a company in Silicon Valley, New York City and Los Angeles, there are a couple issues founders should take into consideration before taking the leap:

1. The cost of living – According to CNN Money, housing is 259 percent more expensive in San Francisco than in Indianapolis. Groceries, transportation and utilities are respectively 33, 15, and 5 percent extra. New York City housing is an eye-popping 448 percent more than it is in Indianapolis. Groceries, transportation and utilities are respectively 60, 27, and 45 percent more.

2. Access to a visa – If you are an international company with its eyes fixed on the United States, there are a few hurdles to overcome before the transition. A new visa, known as the X-visa, “would allow an entrepreneur to remain in the U.S. for three years. Entrepreneurs would be eligible to renew the visa for an additional three years if they can demonstrate that they’ve raised at least $250,000 in venture capital or generated $200,000 in annual revenue. X-visa holders are also eligible to apply for two one-year waivers of these requirements if they can demonstrate that their business is economically beneficial to the U.S.” Keep in mind that the complexity increases as the company raises more rounds or proves unprofitable within the time period given by law.

Fortunately, advances in communications technology and social media have made it easier than ever to work from practically anywhere. Here are some places to consider when starting a tech company:

– With companies such as ExactTarget (acquired by Salesforce.com for $2.5 billion) and Angie’s List, Indianapolis is considered to be a thriving tech hub in the Midwest. For information technology, Indianapolis ranked right up there with Baltimore, Boston, Chicago, New York and San Francisco according to “An Analysis of the Geography of Entrepreneurship” of Inc. 500 companies.

– If you want to go overseas, Israel is a major startup hub with successful companies like Waze, Wix and Conduit, to name a few.  Here are some interesting facts about its startup culture. It is currently ranked #1 in the number of startups per capita at 1 startup per 1,800 Israelis. It ranked #2 in absolute number of startups (behind the United States). It’s ranked #3 in number of companies traded on NASDAQ after U.S. and Canada. Venture capital investment per capita in Israel is 2.5 times more than the U.S. and 30 times higher than Europe. Israel is the world leader in number of patents per capita, and it’s also leading in R&D spending per capita.

– When it comes to the financial and legal ease of starting a business, New Zealand has come in first for the second consecutive year according to the World Bank ranking. “In New Zealand, it takes only one step and one day, the ideal number, to incorporate a company. Someone who wants to open a business just has to apply for registration online. According to the report, the process costs $163.55 New Zealand dollars (US$129) and does not have a minimum capital requirement. By contrast, the U.S. ranks 13, needing six steps in order to start a business with no minimum capital. The report based the U.S. statistics on requirements in New York City, as it used the largest business city of each country it studied.”

The biggest thing that startups have to consider is the formation of their founding team and building their product. Location only matters to a limited extent. The proof of traction with a viable product or service matters more to investors than your office location.

Founders have it easier than ever before in finding capital for their venture without having to be in the same city as the investors. Crowdfunding sites offer visibility for early stage projects and many investors can also be accessed through their personal blogs and Twitter accounts. Savvy entrepreneurs can utilize these tactics to get a chance to pitch their company.

If you are one of the lucky ones already located in the tech hubs, by all means utilize all the resources available to help build your startup. However don’t be discouraged if you live far away from these hubs. Great ideas and execution can happen anywhere in the world. Focus on building the business first, and worry about the location as you grow.

Are you looking for the latest startup news and trends? Follow us on Twitter for daily updates.

 

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