Whenever you move somewhere new, getting the lay of the land can
take time. The advantage in San Francisco is that there are loads
people who are doing similar things to you and are very willing to
share their thoughts. This has been particularly helpful when it
comes to figuring out the growth and funding strategy for our
Initially I was surprised that, when I spoke to other entrepreneurs and said we were looking at funding options, they immediately assumed that we would be deciding between who to pitch to, not whether to seek funding at all. If you're building your company in Silicon Valley, there is a standard path to take - created in part by the large number of start-up incubators and accelerators that promote this. Going through an incubator, raising money from angels, and then securing a VC round is baked into most companies' trajectories.
I attended an event about investment in the education technology space. A group of venture capitalists was very much in favour of businesses that can grow really fast by offering a free service directly to teachers and pupils, bypassing the larger and more bureaucratic entities such as schools and local authorities. It's assumed that you will take investment to keep growing and then add in some kind of revenue model once you have a big user base. In fact, we spoke to the people behind a funded company who said they weren't even thinking about ways to make money yet, just how to grow.
Saying that, there might be a change in the wind following the Facebook IPO debacle. There have been recent warnings of tough times ahead for start-ups raising investment, and a need to focus more sharply on making money. Our product ValoBox is based around making paid content such as eBooks more web-friendly and as such it has a revenue model built into it from the outset (we take a cut of all content sold). But we've also included a freemium element (we give free credit when you sign up).
If we are going to try and raise money, the next question for us
is whether it is better to do this in the US or UK. The funding
ecosystem is far more developed in the San Francisco Bay area but
as well as a massive amount of competition for that money, there
are extra costs involved if you establish yourself here - and most
investors will want you to. Hiring developers is not cheap - you're
competing with the likes of Google, Facebook, Twitter and an ever
increasing number of companies willing to pay them whatever it
takes. The average developer salary is around $100,000 (£64,000) so
it's no wonder start-ups need to raise cash. Some companies we have
talked to are even outsourcing their development to London!
In addition, in March, it was reported that rent in San Francisco was the highest in the US - one key contributing factor is the current boom in the tech industry. We've found that to rent a room in a shared apartment in a reasonable part of town you're looking at at least $1,300 per month, which translates to almost £800. Even coming here after renting in London, that's a bit of a shock. With rents on the up, it's hard to see salaries coming down.
However, if you're trying to do something innovative, nothing beats physically being in a place that boasts some of the most inspiring people and exciting events. It's been great to meet with people from O'Reilly Media for instance, a company whose books are available on ValoBox, and who have been fantastic to work with. My co-founder will be going to Foo Camp at the company's HQ (Foo = Friends of O'Reilly). This is a gathering of hackers invited by the legendary Tim O'Reilly, which creates opportunities for cross-pollination between people and technologies that are on O'Reilly's radar.
Top three questions spinning round my head at the moment:
1. Is it better to spend my time chasing funding opportunities - which would enable more rapid growth - or building up a customer base?
2. Does London's commitment to Silicon Roundabout and Tech City mean that it would be a better bet to stick in the UK?
3. Why isn't everyone learning to program? It seems like that's the route to a future paved with gold - plus people don't think you're evil, like they do if you're a lawyer or banker.