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.
For the latest startup news, sign up for the Fast Company newsletter.
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]