For those of you who don't follow me on Facebook, or have somehow managed to convince the LinkedIn gods (i.e. Satya Nadella) to not send you update emails, I have moved to New York City.
I'm super pumped about the move, but as always when I move to new cities, there is a feeling of wistfulness of the places I have been, and the places I might still be. It's also a moment to consider all of the changes that have happened with startups, technology, politics, and society these past few years. While these decisions are individual, the wider strains of society's trends always seem to mark their influence.
In short, it is time to take account of these personal experiences. I have lived in Cambridge/Boston for the past two years , so I want to talk a little bit about Boston today, and will talk about my plans in New York in a future post.
Scale, Scale, Scale
As many know, I have not always been the most enthusiastic booster of Boston. After two years of living there, I will say that those feelings have perhaps intensified, but at the same time, have become more nuanced. All cities have their positives and negatives, especially when it comes to their startup ecosystems.
Part of the challenge of living in Boston for me was the immediate comparison to the two cities I had lived in previously: San Francisco and Seoul. Boston is incredibly small compared to Seoul, and even compared to San Francisco. Boston's direct population is only around 650,000, with 4.6 million in the metropolitan region. San Francisco proper is 840k (7.15 million metro), while Seoul's population is 10 million with 24 million in the Capital Region.
Scale matters a lot! Seoul has a small yet burgeoning startup scene, but in a city of ten million, small still means of tens of thousands of people engaged in the community. SF is obviously just one massive startup factory. So when you head to Boston, not only are you getting less people, but a smaller proportion of them are involved in the tech startup scene.
If you believe in the power of network effects, then already you are going to notice the challenges of building a startup in a smaller ecosystem. There are less mentors, advisors, and other people to help think through the challenges of building a company. The talent base exists, but it is more diffuse, making it harder to build the networks to succeed.
At CRV, we have a general rule that Boston-based founders need to be traveling at least 1/3 of their time (i.e. 10 days of 30), and probably even more. Founders and VCs have to make up the lack of local network density through sheer hustle and initiative, getting out to where the people are. Thankfully, Boston Logan airport is well-laid out, refreshed, and remarkably close to downtown.
I could complain about Boston's mass transit infrastructure (an unmitigated mess, although its core operations seem to be improving under new leadership), but I think the focus has to be on the local policy culture for technology. It's just not that hospitable for (software) tech startups.
Today, the Massachusetts legislature will consider a bill to reform noncompete clauses. As of now, it is still legal for employers to ban an employee who leaves from working in the same industry for a year (and potentially even more) – all without pay. There is a massive debate going on today about "garden leave," which would force companies to at least compensate employees who they have banned from working in their field.
It shocks me that this is even allowed. I think it is unconscionable that knowledge workers cannot use their knowledge for a period of time and be completely left to fend for themselves without any compensation whatsoever. But what is more shocking is that there is even a debate, let alone that the debate is actually in favor of keeping this wretched state of affairs. Incumbents like EMC have been the major drivers behind this system, and continue to wield heavy influence on Beacon Hill. These rules continue to actively thwart startup formation.
If that wasn't enough to demonstrate the local policy problems, there are others. The legislature banned car-sharing services like UberX and Lyft from serving Boston Logan airport as well as the convention center, all in the name of safety. Consumers had the option to choose which transit method they wanted before. Now they don't.
Why do technology interests always seem to take a backseat locally? I would argue it's because two of the most powerful industries in Boston are wealth management and academia, which also happen to be two of the most conservative institutions in our society. Even when it comes to technology, the voice is still that of the old massive conglomerates like EMC rather than the voice of local startup founders. Change is just incredibly hard.
Boston skews its policies to the older resident at the expense of the young and adventurous entrepreneur.
It is no surprise then that while Boston can attract the smartest minds in the world to spend several formative years in the city, the vast, vast majority of them will graduate and leave to other cities. I regularly ask the question "why did you choose to live in Boston" to local professionals and almost invariably the answer is either that the person grew up in the city or currently has family living there.
That's a real shame, because Boston and Cambridge have great quality of life, well-developed cultural institutions, a good food scene, and all the other amenities you would expect from a major city. It should be attractive to a whole host of people, and indeed, Boston has seen an influx of residents over the past decade (which has caused rents to skyrocket). By and large though, those people aren't in the software technology space, but are attracted instead to Boston's other anchor industries.
This exodus of talent is intensified by two trends that I haven't seen written about frequently in the Boston tech media. The first is that founders in Boston who fundraise from Silicon Valley almost invariably receive term sheets that require them to move out of Boston. That is a widely used tactic now, even at the series A. One of the reasons that the startup activity appears to be so small is that Boston's successful startups are often leaving based on where the capital is coming from. I dislike this practice, but also understand why founders feel that the option is their best path forward.
The other trend that is causing this exodus might be called the Reverse LP Migration. A decade ago, venture capitalists regularly headed to Boston in order to meet up with limited partners. Boston's concentration of wealth management and endowments meant that almost every private equity investor headed to the city relatively frequently in order to catch up with their LPs.
With the excitement of Silicon Valley and the concentration of venture capital there, LPs who want to get into competitive funds now need to make the trek the other direction. In fact, many enjoy getting out of Boston and spending time in San Francisco, and are more than willing to make the trip. So all of that VC flow to Boston has now slowed to a trickle. That obviously has a direct effect on the ease of fundraising for local startups. A board meeting in Boston was a useful trip to connect with a bunch of LPs as well, now it is just an annoyance.
So where do I stand? The hub of all biotech is in Boston, and if that is your industry, the city really is a wondrous world of startups and excitement. But when it comes to software startups, it seems the city is really starting to punch beneath its potential.
Like any major city today, Boston does have its local success stories and great startups (some of whom are in CRV's portfolio and others by other great local investors). But it is definitely a rebuilding decade for the ecosystem if it ever wants to come close to the pinnacle of what it once produced.
That's not a message many local enthusiasts want to hear, but I think it is necessary. Boston has a defensive posture toward startups and its ecosystem (trust me, wait for the tweets to come), when it really needs to get past what happened in the 1980s and 1990s and start to focus on building up what it has today in 2016. There are great founders who are building their companies in Boston, and there are great exits too (just look at Demandware recently – $3.2 billion is a massive exit). The potential is there if it is cultivated.
But for god sakes, get rid of the noncompetes.
Image Credit: Wikimedia
Posted on June 28, 2016