Demystifying San Francisco

This morning I woke to a cold fog enveloping the hill on which I have spent the past week. As the sun rose from behind the skyscrapers and the fog began to lift until I could see the unmistakable sight of the Gateway to California.

I have been fortunate to spend the week in San Francisco helping support the Invest NI backed Landing Pad in which 5 Ignite alumni are spending three months exploring the US as a possible market for customers or potential route to venture investment. Coincidentally, Webflow were also hosting the inaugural NoCode conference showcasing how people without coding ability can now build and ship products. After speaking to founders and investors I came away from the week thinking about the ways you can create and build a company and how it differs between Northern Ireland and San Francisco.

Speaking with the Ignite teams one thing was immediately apparent — there is little difference. Exposure to the US market has lifted the veil of mystery about Silicon Valley and what it takes to succeed. Founders on both sides of the Atlantic are reading the same blogs, watching the same videos and going after the same opportunities with the same technologies.

In my discussions with founders two topics kept reoccurring which I wanted to highlight — fundraising and recruiting talent.

Fundraising

There is undoubtedly a magnitude of capital in SF which is not available in the UK, or anywhere else in the world. In theory this should mean an easier route to investment. However does not appear to be the case — if you think of seed investment as a marketplace, startup demand increases to match the venture supply (or vice versa). I spoke with SF founders who had raised pre-seed rounds of between $1–2m whereas in Northern Ireland the accepted norm is in the £300–600k range. The naming of the round as pre-seed or seed isn’t important, what is important is that this is the first real money invested in the business. Valuations are fairly consistent around multiple of money raised which means founders are giving away similar equity stakes. When you consider cost of salary, housing and office space the amount raised is irrelevant, it is all about giving the founding team 12 months runway to prove out the business.

How companies approach investment is different though.

In the UK, fundraising can be portrayed quite negatively, with fewer people having been through the process. In SF, the opposite is true. There are many founders who have gone through it and they are happy to pass on learnings which makes it easier for people who follow. It is a very structured process using a large initial funnel, well documented, to ensure you eventually get matched to the right investor or VC firm. It’s true I heard some horror stories but these mostly pointed at inexperience on both sides of the table.

The most significant difference in fundraising is that in the US, the company takes ownership and the onus is on them to be investor ready. If they are, they see the process as a relatively straightforward one. There are 2 things US based founders told me that stood out:

1. Founders are prolific networkers. Networking and referrals act as the primary route to capital in San Francisco. US founders are constantly building their personal networks to achieve warm introductions to the correct investors.
2. They are laser focused on traction. Anything they are doing which does not move the needle is jettisoned. Traction above all else will get positive investor interest

Recruiting Talent
Once investment has been secured, part of the focus shifts to recruiting the right team to go after the opportunity. The following quote from Sam Altman resonated strongly with me:

“Adding people before product/market fit slows you down, after speeds you up”

Post investment, companies feel the need to hire instantly. It is not always the smartest thing to do. You will need to add resource but do so thoughtfully and slowly. Every hire you make shortens your runway so better to wait for the right person than hire someone you feel may not be the best fit for your company.

Both in Northern Ireland and the US there were similar sentiments in how difficult it was for seed stage companies to recruit talent. Remember a majority of the best people work for someone else. Large companies (particularly technology companies) are home to the best talent and trying to lure that talent out of employment is very, very difficult. Employees are being well paid and the best ones will be incentivised with stock options to ensure their long term commitment to a company. As a startup you will never be able to match the salary for top talent so you need to find a talent niche to exploit or offer a vision of the future no-one should miss out on.

Side Note: The Talent Niche

The best example of a talent niche I can think of is the remote team. Due to increasing costs of living in a large city people are choosing to reside elsewhere. This is an arbitrage opportunity. If you are confident you can run a good team remotely why constrain yourself to a certain geography? Look broader and you will find hidden talent. Hat Tip to Wade Foster at Zapier who helped build a 200+ person remote team to drive their insanely good product and business.

A final similarity in recruiting was how to identify when you have a good prospective employee. Non-technical founders have trouble assessing technical talent and technical founders have no idea what a good sales or marketing person looks like. The best advice around this was to get some mentorship either from your investors or network. Look at other companies who are a stage ahead of you, reach out to the CEO and ask them how they approached the hiring process. Generally, founders are always willing to help those following close behind. Hiring the wrong person can set you back months at a stage when time is your scarce resource.

A part of the talent chain where SF does appear to have an advantage is that it can be easier to find a co-founder. There are just more people willing to take a chance on an idea than in the UK or Ireland. That could be symptomatic of city size, or it could simply be the exposure to so many more success stories that it engenders a greater risk tolerance.

Companies are never built in the same way but increasingly geography doesn’t matter. How you build a product is universal, fundraising obeys the same rules and perhaps the only thing we need to change is mindset. Silicon Valley is not a mystical place — when the fog lifts over San Francisco you can see US founders struggle with the same dilemmas as UK based ones. Starting, building and growing a business is never easy but where you do it is becoming less important.