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Business and Markets

Startups In Other Parts of the Map

I read this piece on venture capital with some interest, because it addresses a topic I’ve thought about (and which has come up several times on this blog): where startup companies get funded. It’s been clear for some time now that that the biopharma industry has been concentrating more and more in the San Francisco Bay area and around Boston/Cambridge, for example, and it’s a trend that’s seen with both startups and large companies. New Jersey still has some big pharma, for sure, but they’ve lost quite a few facilities as well over the last twenty years. San Diego is still hanging in there, although people I talk to from there have been saying for a long time that the biotech scene is either not what it used to be or not what they’d like it to be, or both. (It did get a lot of votes in my “most scenic biopharma location” question, though).

And those are the big ones. There are other centers that have had their ups and downs over this span, but the downs have been big ones – Michigan, Research Triangle, Seattle. All of these (and others) have had some really big biopharma organizations leave, gradually or suddenly, and although some of them are surviving, there’s no doubt that they feel the losses. The situation can look different if you expand your focus to agricultural biotech, or if you count in university funding and not just companies, but they still cluster in defined spots around the country.

So that brings up the question that the VC article addresses: what happens to you if you try to start up something well outside these regions? What if you want to get a small biotech off the ground in Phoenix, Spokane, Memphis, Columbus, or Miami? That’s going to be more of a challenge, because the ecosystem isn’t nearly as robust in these cities (or a lot of others). One reason it’s easier to start something in Cambridge or the Bay area is that there are plenty of people around who’ve done it before, who have funded startups, been on their boards, and have personal experience with how things work. There are also larger talent pools to draw from, at every level from top management down to entry-level bench scientists. Getting people to come work at your new place will also be easier if people know that there are other options in the area, whereas they might feel as if they’re going more out on a limb in Charlotte or Sacramento. (This older post on “most isolated company” has some thoughts on that as well).

The thing is, there are people out in these cities with ideas, and with potential companies. Many of them may not know the ropes at all, since the local ecosystems are not so robust. But the opportunities can be there, which is what that AVC post I linked to is talking about:

Beyond the third tier lies a lot of even smaller markets. I am in one today in Nashville. It has a huge health care sector that produces a lot of entrepreneurial and executive talent. It has a decent amount of local seed capital. But it is not a major VC destination. The southeast VCs will come here regularly looking for opportunities. But it suffers even more from the issues I talked about in the third tier. The same is true of places like Pittsburgh, Des Moines, and Kansas City. I mention those three cities because USV has investments in companies in all three places.

The truth is you can build a startup in almost any city in the US today. But it is harder. Harder to build the team. Harder to get customers. Harder to get attention. And harder to raise capital. Which is a huge opportunity for VCs who are willing to get on planes or cars and get to these places.

There is a supremacism that exists in the first and second tiers of the startup world. I find it annoying and always have. So waking up in a place like Nashville feels really good to me. It is a reminder that entrepreneurs exist everywhere and that is a wonderful thing.

Speaking as someone who grew up in Arkansas (and who has spent a good amount of time living in Tennessee), I’m very glad to hear things like this. Getting a startup going in Little Rock is definitely going to be harder, but it shouldn’t be impossible. Boston and San Jose have a lot going for them if you’re trying to start a company, and just picking up and moving there (or nearby) might still turn out to be the right solution. A lot of smart people have done just that over the years, and it’s worth remembering that some of them have moved from just one of those to the other for better prospects. But whatever magic those places have, or seem to have, is because of those migrations, which are eventually self-catalyzing.

Other fields have similar concentrations, and some of them make biopharma look rather widely distributed in comparison. If you’re going to make it big in acting, you’re probably going to move to either LA or New York. New York’s probably the place for you if you want to make a big splash in the art world, too. As Tom Wolfe put it in The Painted Word back in 1975:

For getting away from the bourgeoisie there’s nothing like packing up your paints and easels and heading for Tahiti or Brittany, which was Gauguin’s first stop. But who else even got as far as Brittany? Nobody. The rest got no farther than the heights of Montparnasse or Montmarte, which are what? – perhaps two miles from the Champs Elysées. Likewise in the United States: believe me, you can get all the tubes of Winsor & Newton paint you want in Cincinnati, but the artists keep on migrating to New York all the same. . .

Universities and research hospitals keep biopharma’s possibilities spread out more widely, as does the internet, of course. And I’ve only been talking about the US here, where the startup culture in places like Boulder or Atlanta, if transplanted somehow to a lot of other industrialized countries, might still be the wildest thing going. I’m not even going to get started on the nonindustrialized world; if there has been a great inventor’s mind born in Afghanistan, Haiti, or the Democratic Republic of the Congo in the last fifty years, that’s been too bad for them and too bad for the rest of the human race, because odds are that we never got to see what they could do. Some people find comfort in Thomas Grey’s Elegy Written in a Country Churchyard, but the section of the poem that talks about mute inglorious Miltons has always saddened me. It may have done the same to Grey; it’s hard to tell. He tries to balance things out a bit by pointing out that people born to obscurity didn’t have as much scope for great disruptions and crimes, but I’m not so sure about that, considering that some real rousers have come from various boondocks in Macedonia, Georgia (the country), Sardinia, and Austria, among others.

But from what I can see, we in the United States live in one of the countries where it’s easier to get your wild ideas funded, on balance, than anywhere else on the planet. And while it may be still easier to do that if you’re within driving range of the Charles River or the San Francisco Bay, those aren’t the only places to do it. I hope as many people in as many places as possible keep having those wild ideas and finding ways to realize them.

34 comments on “Startups In Other Parts of the Map”

  1. Al says:

    You’re going to have a tough time convincing diverse talent pools to move to states that aren’t so progressive. In my 20 year career, I’ve worked with many talented people from diverse ethnic backgrounds and sexual orientations . Good luck trying to convince them to move to one of the red states mentioned.

    1. Bagger Vance says:

      In my experience it is white Americans that are most chauvinistic towards the ‘red states’. Internationals aren’t so picky, and there’s not a lot of other diversity in biomed research.

      1. Komm says:

        I don’t think that word means what you think it means.

        1. Bagger Vance says:

          If you mean “chauvinism” then “displaying excessive or prejudiced support for one’s own cause, group, or sex” is a great description of “coastal Liberal awesome, Red State nothing but close-minded hicks” attitude virtue-signaled in the previous comment.

          If you meant another word you’ll have to be more specific with your language policing next time.

          1. zero says:

            Red state citizens tend to be a reasonably balanced population. Red state politicians are so unbalanced as to be unhinged. The result is an area full of nice enough people under the rule of oppressive laws. For someone who isn’t white, christian and conservative, why take the risk? Better to move somewhere that welcomes diversity and actually invests in things like infrastructure and education.

  2. Anon says:

    Why do all the Indian restaurants crowd together on one street, and is this connected in some way?

  3. Hap says:

    There are probably at least some people who would like to move somewhere else, for family reasons, economics (most of those other states are a lot cheaper to live in), politics/culture, or something else. Having places where some of those people could work and where good ideas could be more efficiently harvested would help. (It also seems strange for industries who seem to believe that their work can be done by people in faraway places with little management control or idea of qualifications to believe that only a few people in mystical places can make their businesses successful – Jose’s comments about outsourcing and architecture come to mind).

    One of the problems noted before in looking at pedigree for labor is the facility in separating wheat from chaff. The more work you have to do to find good ideas and to ignore bad ones, the less time and work you have to make the ideas work, and if there are fewer (though not zero) people producing good enough ideas to work, then the value of your time there is likely to be lower, and people are likely to look elsewhere instead. (This assumes that the batting average of people from those mystical places is higher, and that a power law isn’t in effect, where one really good idea from someplace you don’t expect can outweigh everything else you have).

  4. CMCguy says:

    While there certainly may be legitimate rationale as you describe for the concentration of biopharma but just like with grad schools there is a significant contribution of Big Nameism prejudices that carry with it nepotism and elitist attitudes that directly discourages wider distribution. Concentration may indeed be beneficial to a degree but can promote humongous mindsets that dull innovations whereas having a few more isolated individualist organizations could spawn more originality even though will have greater struggles to implement well because less experience association not as readily available. The view of acceptability between 1st tiers and 2nd tiers is huge anyway and so when you get down to 3rd tier the amount of effort required to garner attention is an overwhelming barrier to all but the most promising or persistent. It analogous to MLB with have and have-not teams where there is not a level playing field yet occasionally circumstances will align for one of the less extra funded teams can reach or even win the World Series.

  5. Isodore says:

    This operates even within a small state like Massachusetts. Worcester, for example, is only 40 miles from Boston, it has a world-class medical university plus a dozen colleges and it is cheaper to live around Worcester than around Cambridge/Boston. Yet, in spite of the city’s and the state’s efforts to attract smaller biotech companies by giving incentives and establishing a Biotech Research Park across the street from UMass Medical School, only Abbvie (formerly Abbot and before that BASF Bioreserach) has moved and has remained there (for three plus decades).
    Surely access to managerial talent or scientific and technical expertise or venture capital should be readily available given how close Worcester is to Boston. But there’s something of a mystique in having a Cambridge or Boston address that appeals to people. However, there’s also the active environment with a constant stream of lectures, seminars, etc. not only at the universities but also at other venues by the many local professional organizations, which is very hard to reproduce and which is very attractive.

    1. Joe Q. says:

      I think this is a good point — intellectual people typically want to live and work where there is intellectual energy “in the air”, and it takes a certain critical mass of activity to reach this level.

      There are a couple of places in Canada (Toronto and Montreal primarily) that have a lot of potential in this area — solid academic / hospital environment, attractive to “diverse talent pools” as @Al puts it, lots of entrepreneurial activity — unfortunately the VC activity isn’t at the same level.

      1. Been There, Done That says:

        Montreal had a thriving pharmaceutical scene (think Merck Frosst, creators of Vioxx) before it was ‘streamlined’ into oblivion…maybe startups can recapture some of that prominence

        1. simpl says:

          One reason for the bunching of smaller firms is that there are relatively few places with real support. Montreal is good example, as the state had a political agenda which was not supportive to businesses of international scope. The larger company I then worked for felt compelled to uproot to Ontario, to better support its Canadian operations.
          Of course, there are some who see established Pharma businesses as a cash cow – I’d put the New Jersey of 20 years ago in that category, for instance. Not much room for startups in that sort of climate, so starting in Boston was the easier choice.

    2. I worked at a startup that was located, unambiguously, in East Palo Alto. Which is not Palo Alto, legally or culturally. At All. But mail addressed merely “Palo Alto” still worked just fine, as that great city starts only a few hundred yards away. Guess what appeared on all the corporate materials from business cards on up?

      People seem to think the right zip code is REALLY important.

      1. NJ BugHunter says:

        I once worked on American Cyanamid in Lawrenceville NJ and they had a PO box with a Princeton mailing address for this very reason.

  6. anonao says:

    It is similar in UK with Cambridge and Oxford for biotech. And like in the US, big companies relocate to Cambridge by closing a site and building a new facilities in science park in Cambridge. And VCs would invest more if Cambridge/Oxford/London than Manchester or Glasgow

  7. Fred the Fourth says:

    Look at it a bit from the investor-relations side.
    For instance, in the “extended” SF Bay Area, including Sacramento and Lake Tahoe / Reno, there are at least 16 active angel investor groups. Each has it’s own personality, process, and specialization. There are super-angels. There are micro-VCs and VCs. There’s institutional money.
    This means it is much easier for a startup at any stage to get “smart money”, that is, investors who brings suitable knowledge and connections to the table. It’s much easier to form a syndicate among investors in order to fill a round. It’s easier to find investors with the right risk appetite for your particular proposition.
    And since all of these folk are going to want face-time with the company, and a smart company is going to want involved investors, it’s logistically simpler if everyone is within a hundred mile radius.
    Carol Sands, a prof at Stanford, also an active investor and startup board member, says the single most important factor in startup success is the quality of the board. (I know, a bit self-serving, but…). It’s simply more practical to get time and attention from quality board members if you are local.

  8. Amilloyd says:

    At some point hopefully the sheer ridiculous cost of living in the Bay Area and Boston would attract people to places with a decent cost of living as well as a decent pool of talent such as Atlanta, Boulder and Charlotte.

  9. Magrinho says:

    A big factor are the absolute deal breakers for prospective employees (at any level) and their partners. The “What?! There is no *&^% way I am moving to —- (with you)!” conversation that always ends badly.

    1) weather hurts cold cities like Madison and Minneapolis 2) politics/social climate/diversity hurts red states 3) ‘boring’ definitely hurts some otherwise pleasant places.

    Cost of living can be addressed up to a point.

    Having said all that, why San Diego never bounced back has always been a mystery to me.

    1. Lyle Langley says:

      Cold weather doesn’t hurt Boston. What hurts Madison and Minneapolis more than cold weather is they aren’t Boston.

      1. Isidore says:

        In fairness, Boston does not get nearly as cold in the winter as Madison or Minneapolis, and when it does the cold never lasts as long. The difference between bearable and unbearable cold.

  10. MikeB. says:

    Sorry, I’m not moving to SF-Bay area no matter what. A recent labmate moved out to SF for a job and now has to pay close to $4000/mo. in rent.

    1. BayArea says:

      Only if you insist on living in the City of San Francisco do you pay $4000/mo! Most biotech jobs are in South San Francisco. Rents for 1200 sf townhouses in the cities just south of there (SSF itself isn’t that nice) are $4000/mo. 1 bedrooms are half that.

  11. Shazbot says:

    I live in a small city with a dirt cheap cost of living. I’ve seen dozens of smart and talented people from here who have ended up in fields that most would consider them wasting their lives in.

    In the end, it’s because you can’t get money, and you can’t get people to move here, for many reasons, most simple inaccurate prejudices. ‘It’s boring, or the people there won’t accept me, or the weather is oppressive.’

    It comes down to ‘I will not go there’, which can really hurt personally from someone who is supposedly dedicated to the acceptance of others.

  12. TX raven says:

    I believe a lot of the these reasons are self-indulgent.
    I’m familiar with colleagues working in the Boston area. Housing is crazy expensive, and a pain in the ass to move around. Is this the price for pseudo job-security? (I can always find a job nearby if I lose the one I have now). Nahhhh… we can do better.

    You’d think that in the age of internet, geographic co-location is not a bottle neck…

  13. Buckyball says:

    Are there any regions with concentrated biopharma activity for startups in continental Europe?

  14. MoMo says:

    Having a drug company in Boston does not afford any special advantages, I can assure you. The costs are astronomical, you can’t have more than a limited number of gallons of solvent past the 2nd floor, and just because the big schools are nearby it means nothing.

    The companies are insulated from each other, they don’t interact unless at some Biotech event, and when they do, the scientists are smart enough to keep quiet about their work.

    But this Boston as Center-of-the-Universe started in the late 1990’s, when the cool cats at Millenium cleaned up selling their only drug to Takeda, establishing that’s its relatively easy to make billions off the indigent.

    Now its the VCs making the money (at times) while the scientists have their commutes and taxes killing them slowly while the life sciences managers use overseas CROs to save money.

    It doesn’t make any sense and the Smart Companies can discover drugs anywhere, then shop them to the Bostonian crowd. After all, a good molecule can come from anywhere, and you don’t have to worry about parking.

    1. Mark Murcko says:

      MoMo, you might want to read this – it would be interesting to hear what you think of KK’s perspective.

    2. Anonymous says:

      Unfortunately, money doesn’t travel very far; and if a drug comes from Boston, it is inherently better than from somewhere else.

  15. MoMo says:

    Thanks MM, Loved your insights into Kinase compounds/fragments and molecular frameworks, BTW.

    SF Pharma is definitely more bohemian and loose compared to BTown, but institutional paranoia and executive/employee dysfunction straddles both coasts, along with cost of living, quality of life issues for employees, etc blah, blah. I see the glaze and problems in the eyes from both coasts.

    So MM, I propose we start MoMo’s Organic Synthesis Colony, right in the geographic middle of the US, in Lebanon, Kansas, and staff it with the disenfranchised, creative and bohemian chemists from both Coasts. I bet I can draw the VCs to my place just as fast as to Sydney Street or South SF.
    And the parking will be free.

    1. Mark Murcko says:

      But, is there a good Indian lunch buffet in Lebanon, Kansas?
      Upon such minutiae do empires hang.

      1. MoMo says:

        No. Good point. Nevermind!

  16. Recycler says:

    If you look at it from another point of view, all you get in the traditional centers is the same garbage people, recycled over and over, trying another pump and dump,. They only hire their buddies, who are willing to play along and the s#&t rises to the top rather than the cream.
    The VC’s are on to it, they don’t bite anymore and the result is that smart, ambitious people go do something else, because they can.

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