So You Want to Change the World Through Tech? Go to Silicon Valley.

Attention Non-Silicon Valley Residents,

            Is your dream to change the world through technology? I know it’s mine, but I’m going through an internal crisis. Because I can’t live in my city (Montreal, Canada) if I want to follow my dreams.

Don’t get me wrong, I love Montreal. The quality of life is unmatched.  My friends and family are here and I recognize the importance of that. I also strongly believe that the city can produce companies with exits in the 1-50MM range. But, people who believe they can come up with the next Facebook in a city like this must realize the huge disadvantageous forces at play.

 I’m not talking about 1-50MM exits; I’m talking about changing the world. To change the world through technology means creating a startup that seriously disrupts huge markets. For example, Paypal (payments), eBay (commerce), Facebook (social), Zynga (gaming) and Google (information) have all achieved this.

My thesis is that these world-changing companies are ripe only in first tier cities (NYC, London, Hong Kong…), and the ripest in Silicon Valley. It is substantially (100-1000x) harder to successfully create a startup that changes the world in other cities. It is naïve to think otherwise.

There are three main reasons:

1)   The high level of social capital concentrated in these areas. I.e: if you have a Facebook gaming startup, perhaps you have a connection at Zynga headquarters in San Francisco that can give you some pointers that makes the difference between success and failure.

2)   The abundance of capital and access to sufficient follow-on financing to really scale the business. In places like Montreal, there is no VC firm that can scale a company the size of  Twitter, for example.

3)   The sheer experience of entrepreneurs and employees .  I.e: in Silicon Valley, there are bigger failures and bigger successes, and employees have the opportunity to learn from the experience of this elite set of entrepreneurs. In cities like Montreal, the amount of 100MM exits are a small fraction of what they are in the Valley. The management of those companies have a tremendous amount of knowledge that they can convey to other tech entrepreneurs. With less big exits and successes, less knowledge is conveyed, the talent is less knowledgeable and thus the ecosystem is less competitive.

 A startup is like a plant. The environment in which a plant is in is like the city where the startup is located. Sure, a plant can grow with just sun and water, but with the perfect combination of water, sun and even vitamins, the plant has a much better chance of reaching record growth heights than an environment with not the right mix of variables.

I wanted to write this post, because I believe there are many entrepreneurs and future-entrepreneurs, who have the intellectual capacity and entrepreneurial vision to be the ones to shape the new world, but they are stuck in environments which inhibit them.

We must come to terms with the reality of the situation and the continued significance of geography in terms as it’s significant factor in seeing success.

What are your thoughts?