To Become The Next Silicon (Fill In The Blank), Take These 5 Lessons From Silicon Valley

From Silicon Prairie to VegasTech, startup founders are actively trying to cultivate local hotbeds of startup success. And there's a lot to learn from Silicon Valley to attract the money—and the talent—they need.

VegasTech, as the Las Vegas technology startup scene is collectively called, has discovered that it can compete with any Silicon Valley launch party. Case in point: Tracky, a VegasTech startup in the social collaboration space, kicked off their launch by throwing an extravagant party hosted at Mike Tyson's former "Hangover" house, complete with over 400 attendees, free-flowing food and alcohol, and plenty of local tech entrepreneurs.

But one key difference was that Tracky didn't spend tens of thousands of dollars of VC money to throw the party—they had sponsors for everything. The veteran entrepreneurs of VegasTech understand the importance of being resourceful and getting the community together when needed to help promote each other.

Of course, Sin City's startup landscape still has a lot to learn—especially how to grow an ecosystem that's flush with founders, talent, and lots of cash. Growing startup ecosystems like VegasTech can take notes from their more successful predecessors, from Boulder to the Bay Area.

Here are 5 valuable takeaways from successful startup hotbeds:

1. Repeat founders usually invest close to home. When a founder's company is acquired, serial entrepreneurs think, "Let's go bigger!" They won't be going far to pursue their next startup idea, nor do they need to, since they can easily source deal flow in their own backyard. Serial entrepreneur Caterina Fake wrote, "I have made investments in Etsy, Maya’s Mom (acquired by BabyCenter), Cloudera, Daily Booth, TypeKit and many others." This is a perfect example of taking newfound money and redistributing it to other Silicon Valley startups that, in turn, can build themselves to a successful exit—and start the process all over again.

For the VegasTech community and other burgeoning ecosystems to start really growing, they need more big mergers and acquisitions (M&As) so the money can be redistributed to other companies. With Zappos being acquired for $1.4 billion, Tony Hsieh has kicked things into gear in Vegas—he's a rare exception, in that outside money (Amazon.com) was spent on a Vegas company, and the founders decided to stay and reinvest that money locally. Unfortunately, the current community doesn't have many other tech companies of that size, so it's going to take time before a local M&A cycle appears in Vegas.

My call to the new startup communities: If your startup gets acquired and you suddenly find yourself with a cash windfall, reinvest some of that cash back into the community—and use the rest to create another startup for yourself. And make sure that the acquirer is committed to keeping local resources on the ground. Where would Vegas be if Amazon forced Zappos to move to Seattle after it was bought?

2. Startups are fertile recruiting tools. Another thing Silicon Valley does well is talent acquisitions or "acquihires"—acquiring companies for their talent, not the product or service produced. This unlocks money that can be effectively used by those investors cashing out on a deal within a relatively short amount of time. Most acquihires are less than five years old and consummated by the giants of tech. In the traditional sense, five years is a short time frame, but Silicon Valley sees that as "old" since technology—or, rather, the flavor of the month—changes so rapidly.

One thing the Bay Area and other successful startup communities do well is attract both talent and cash needed for the different stages of a startup. Boulder's recognizable startup accelerator, TechStars, has a program for young companies that helps connect entrepreneurs with investors. Brad Feld, venture capitalist and TechStars' cofounder, moved to Boulder from Boston (another hot startup area), and brought with him many connections to investors and top executive talent. For example, veteran software executive Jim Franklin was brought in to run TechStars graduate SendGrid, Inc., headquartered in Boulder. On Franklin's watch, the company raised most of its more than $27 million in total capital.

3. Media coverage and tech events only help so much. With participation in events like 4SqDay (April 16) and Social Media Day (June 30), Vegas began its branding as a community with tech-related activity. Local media suddenly "discovered" VegasTech and posted stories everywhere, both on air and online, about a few hyped local companies.

Media coverage is great, but cash and talent need to follow. Most events in Las Vegas, including the big conventions like CES and NAB, draw thousands of technologists, media, and Fortune 500 companies, but they aren't focused on what's happening within the Vegas community. People arrive, spend their money on the Strip and leave—and very little of that money finds it way from gaming and tourism into the local technology community. Without capital and executive talent dedicated to the technology community, startup growth will be limited.

One solution is for local communities that host events like CES to organize their own events, off the main fairway. Many tourists like to experience the local flavor, so if you tie local events to the main reason they're in town, and even make it exclusive to some of the high-profile conference attendees, more exposure—and hence more capital and talent—can flow more freely.

4. Revenue trumps users. Both Instagram and Foursquare have incredibly high valuations not because of their revenue models, but because of their vast user growth. User growth for Silicon Valley companies is like a blockbuster drug; investors will pay tons of money to acquire them. That's just not going to happen in smaller communities like Vegas; it's unlikely that we'll see our companies purchased for amazing user growth. A few Vegas companies have been able to raise between $500k and $1.5 million recently, but they'll discover very quickly that there aren't many options available to them unless they have revenues and can fund on their own. Users aren't the drug of choice for our companies, and non-Valley startups that don't have a viable revenue model beyond users early on will find it tough to survive.

5. Survival requires creating something worth acquiring. VegasTech does have high value in that there are a number of seasoned entrepreneurs here. Since we never really had a tech boom and bust cycle, there was very little "easy money" floating around to take companies from idea to user growth to exit without ever generating revenue and profits. To survive here, you needed to go beyond vanity metrics and actually make a profit, because profit has always been the only thing that drove survival (with a few exceptions).

To survive outside Silicon Valley, you actually need to make a profit. Create something profitable, practice your pitch at entrepreneurial meetups like VegasJelly, and keep hopes high. Unlike founders in many new startup hotbeds, the veteran entrepreneurs of VegasTech have already earned their battle scars and bruises in one of the worst technology capital-raising climates imaginable. If they've survived in the desert without access to capital, there's a good chance that with greater access to capital, they'll be able to do some incredible things.

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Mark Cenicola is the President and CEO of BannerView.com and the author of The Banner Brand: Small Business Success Comes from a Banner Brand, Build it on a Budget.

The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

[Image: Flickr user Jef Harris]

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8 Comments

  • Michael Schaecher

    That Caterina Fake example is a bit odd. Those investments listed are on both coasts. She also has mostly been in NYC past years no?

  • Mark A. Cenicola

    I did forget to mention that Caterina Fake was involved with Chris Dixon in Hunch, which when purchased by eBay, I know Dixon moved to New York.  He got connected to the tech scene there and this could have also been why Fake was connected to NY deals.  As you may have her, Dixon was brought back to the Valley to continue reinvesting in the community.  Therefore, both the Silicon Valley and NY startup ecosystems are thriving because of entrepreneurs with local connections reinvesting. 

    I'm sure that both Silicon Valley and NY will be on both of their radars for a long time to come.  Vegas for example, has been on very few radars until recently and we need more reinvestment opportunities to take by entrepreneurs connected to the community.  We starting to see some of that, but certainly doesn't preclude them from also investing in other areas.  My call to entrepreneurs was to invest "some" of that money, not "all" back into the community.

    Thanks for the opportunity to clarify Michael.  You certainly brought up a great point.

  • Mark A. Cenicola

    You're correct in that she's made investments outside of Silicon Valley and it's not to say that you can't make investments outside of your local community.  However, a significant amount of her money was used to invest in local opportunities.  Since I was quoting her directly, I didn't modify it to exclude investments outside the valley.  

    Tony Hsieh has many investments outside of Las Vegas, but he didn't move away and turn his back on Vegas.  The idea was that money is recirculating from successful entrepreneurs back into the community for new startups.

  • Jennifer Gosse

    Thanks for highlighting Tracky's launch party, Mark! It was our goal to make it a party for the community, by the community, so to speak. Just one year after Vegas Tech's humble beginnings, to gather the tech community under one (famous) roof and celebrate the very real tech scene was a satisfying moment. We do have a lot of work to do to be a long-term, sustainable community, but I think we can get there with the right ingredients. You touched on a number of those in this article. Let's keep pushing forward, #VegasTech! 

  • Phil Simon

    Nice post, Mark. Great question: Where would Vegas be if Amazon forced Zappos to move to Seattle after it was bought?

  • Mark A. Cenicola

    Vegas wouldn't not be on the map and this article wouldn't have been the same if Zappos was forced to move to Seattle.  I don't think Tony would have done the deal either if that was part of the offer.  Vegas needed a pioneer like Tony to kick start the community.  However, it's going to take a lot more than even what resources he has to build a sustainable startup ecosystem.

  • Alex

     Does Vegas lack the college and university ecosystem that other tech markets have?

  • Mark A. Cenicola

    Vegas doesn't lack the university system - UNLV has nearly 30,000 students.  Plus, we have one of the largest community college systems in the country.  No, they aren't Stanford, Harvard or MIT, but the casinos have successfully recruited top technology talent for years outside of the state where/when we couldn't find local talent.

    Those people either bring or start families here which helps the community as a whole.  It's BS to say, in a valley of 2 million + people, you can find qualified employees.

    Outside of the casinos, there hasn't been a big need for those jobs.  Where there's a need, the talent will follow.  If startups get funded, they can afford to compete with the casinos in terms of wage and benefits.  

    Right now, nobody is leaving a successful IT career in the casino business to start their own or join another startup if there isn't a likelihood of success.  The startup ecosystem has to grow and along with it, so will the talent pool looking for the next great opportunity.