Do I have to build my tech startup in Silicon Valley?
In recent years, an impressive number of tech ecosystems have emerged in both the U.S. and abroad, making it possible to choose a location outside of the Bay Area from which to build your tech startup.
From Toronto to Tel Aviv, Austin to Singapore, tech-friendly communities are challenging the status quo of having to head west to find success. However, in terms of resources, opportunities, talent, and capital, one city stands out from the rest: London.
As Sachin Dev Duggal, Founder and Chief Executive Wizard at Emgineer.ai (and RocketSpace alum), notes:
London will always be home, but I decided to build my company in the Bay Area for the oft-quoted reasons: talent, knowledge, capital. That said, I now live between the two cities and can say that while SF still holds the advantage over the smaller scene in London, the bubble of the Bay Area can be overly insular. Whereas, London tech is scrappy, driven, and becoming a major part of an already pulsing globally minded, international capital.
For the remainder of this article, we'll be comparing two of the tech startup world's biggest ecosystems: London and Silicon Valley.
Let's get started:
How London Compares to Silicon Valley for Building a Tech Startup
Over the years, Silicon Valley has developed a reputation for being a place of unbridled optimism and infinite possibility for tech-related ventures.
Here, entrepreneurs work furiously on holidays and outside of the typical nine-to-five work day to build fast traction. Do that full-heartedly, and you will never be considered a failure around here. The Silicon Valley culture actually encourages failure, and views it as a learning experience to help prepare you for your next project.
Comparatively, the attitude in London is a bit more cautious. As the city's startup scene is still coming into its own, you may find that there is a stronger fear of failure, more of a hesitancy toward unproven innovation, and lack of aggressiveness. However, as more and more startups emerge, that sentiment is changing.
Case in point: Silicon Valley entrepreneurs are 120 percent more likely to estimate their market size as greater than 10 billion than entrepreneurs in London. Additionally, pivots happen 33 percent more on average in Silicon Valley than London.
With that said, London isn't trying to be Silicon Valley. In addition to the city's booming FinTech market, experts are increasingly pointing to an emerging marriage between tech and design.
“Silicon Valley might have billion dollar companies on its doorstep, but London has some of the brightest minds in fashion and design — all you’ve got to do is add a little bit of technology," noted Alex Wood, editor-in-chief at tech publication TheMemo, during a London Business School event.
Sprinkle in London's booming financial industry, prominent media sector, and some of the world’s biggest advertising firms, and you have a recipe for an inspiring startup hub. First time entrepreneurs launched 196,146 new ventures in the British capital last year, according to StartUp Britain, a government-backed campaign to support aspiring entrepreneurs
“Is this the new Silicon Valley?" Wood said. "Hell no. We’re actually building something much bigger. I’m talking about fashion, media, finance, design, marketing and property. We are the world leader in all of these spaces, and that’s what makes London unique."
One more thing to keep in mind? Though London does provide entrepreneurs with a higher level of diversity and sophistication, it may not quite match Silicon Valley when it comes to networking and mentorship.
Martin Macmillan, founder of Pollen VC and RocketSpace member, has experienced the difference between the two startup communities firsthand:
In London, the community is not nearly as evolved. While the meetups are better than they were before, the greater volume of events in Silicon Valley (and the propensity of people prepared to go to them) fuels some of the famous serendipity of 'just being there' in the Bay Area.
While tech meetups and networking events do happen in London, they aren't nearly at the same scale as in the Bay Area. Silicon Valley holds as many as 20 tech events on any given day, London usually holds one or two. Additionally, as reported by The Startup Genome Report, Silicon Valley companies have 46 percent more helpful mentors than companies in London.
One of the largest differences in startup culture can be found in how a community answers one particular question: Which should come first, revenue or growth?
Considering that most U.S. startups compete against a larger market from the get-go, they often require more initial capital to penetrate the market. On average, Silicon Valley startups raise 2-3 times more money in the first three stages of development than London startups.
Conversely, European founders often have difficulty attracting VCs until they have proven they can generate large amounts of revenue. Not only do European VC firms tend to be more risk-averse, there are also less of them. Both of these factors combined translate to less early-stage investments and acquisitions in London.
My biggest criticism of London and Europe in general still remains the lack of real venture investors who are ready to bet on a young company. There is still just a handful, but this is changing and has already changed tremendously in the past five years.
According to London Partners, there are currently 3,000 tech companies in East London, thus making the area Europe’s fastest-growing tech cluster. As reported by the Telegraph, London currently provides a more favorable environment for investors than San Francisco, with a ratio of three investors for every one startup in the city.
While London does have fewer investors — seemingly putting it at a disadvantage over Silicon Valley — young companies desiring greater autonomy, less equity dilution, and international market penetration can benefit from the ratio. If you know you want to go global right away, London's proximity to other European countries makes it more desirable.
For Larizadeh, London's global presence influenced her decision to base her startup in the city: "I made the conscious decision with my co-founder to build our fashion e-commerce start-up, Boticca.com in London," she said. "Boticca is the online destination for jewelry and fashion accessories by the best independent brands from around the world. We wanted to build a global business from the start and knew that London, not Silicon Valley or New York, would provide the best springboard."
Thus, while raising capital in Silicon Valley could be "easier," there are definite advantages to building in London.
It's no secret: London and Silicon Valley are two of the most expensive metropolises in the world to call home. But many newcomers are shocked to learn just how high the cost of living really is.
As of the writing of this post (July 2017), your average 1-bedroom apartment in San Francisco will set you back $3,200 or more. Want comparable digs in London proper? Plan to spend £2,019. Expect everything from groceries to transportation to entertainment to be more on the expensive side in both cities.
Another costly reality of building a company in both London and Silicon Valley? The surging price of office rentals. Due to increased demand from the tech industry, escalating commercial rentals have forced many tech companies away from London's Shoreditch area. And we don't blame them! Paying £51,600 a year for a mere 600 square feet is enough to make any founder pause.
In Silicon Valley, the average cost for the same amount of space will set you back $43,356 a year. The area actually experienced a whopping 14 percent increase in the cost of office space from 2014 to 2015. The good news? The escalating rental prices have served as the impetus for some pretty awesome coworking spaces and incubators.
By splitting routine office expenses amongst members, founders are often able to set up shop in desirable locations that would otherwise be out of reach. The cost of coworking in both cities is refreshingly affordable, with an average cost of $400 a month in Silicon Valley and £450 a month in London.
Finally, both cities demand hefty budgets for talent acquisition. According to PayScale, mid-career employees at San Francisco's biggest tech companies rake in more than $100,000 a year. While you can expect salaries for similar experience levels to be comparable in London, attracting top talent might come easier. With less competition than the Bay Area, there might be more negotiating room when on-boarding new employees.
Which is Better for Building a Tech Startup: London or Silicon Valley?
Both London and Silicon Valley are great options for tech startups for different reasons.
Seeking mentorship, an established tech community, and the best possibility of raising significant capital fast? Silicon Valley is probably your best bet.
Seeking access to a global marketplace, a close knit and energized tech community, and entry into FinTech, e-commerce, or design sectors? London is worth investigating.
Look no further than the likes of Skype, Spotify, and TransferWise for examples of European companies who have catapulted themselves into huge exits and global brands. A decade ago, if you wanted to become a global force, you had to build in Silicon Valley. However, things have changed.
Increasingly you are seeing companies (like we have done with Pollen VC) build product and run operations in the UK before thinking about moving to the U.S. The old theory was that all the tech had to be in the U.S. But investors increasingly value companies who have engineering and operations outside of the U.S., due to the exorbitant cost of hiring and general living in the U.S.
While London may not yet be producing as many "unicorns" as Silicon Valley, the city offers less competition, more diversity, and a fresher vantage point for entrepreneurs interested in innovating outside of the Silicon Valley bubble.
Save Money (and Grow Faster) with RocketSpace
No matter which city you choose, we recommend shortening the path to success by basing your tech startup at RocketSpace.
Both our San Francisco and London coworking spaces provide Seed to Series C funded startups with premium amenities in amazing locations. Our members enjoy access to a community of like-minded tech startups and entrepreneurs, corporate partners and advisors, and high-caliber networking events designed to accelerate progress.
Our model has inspired several success stories over the past six years, in which we have seen 18 “unicorns” raise more than $21 billion in funding.
Come see if RocketSpace is right for your tech startup. Get a free day pass, and come for a visit.