Written by: Ash Rust It’s no secret that San Francisco is a mecca for startups. According to the Center for American Entrepreneurship, the San Francisco Bay Area accounts for 13.5% of global startup deals. With its sheer volume of capital, investors, and talent, the city is an entrepreneur’s dream location.However, reality is often different. San Francisco may be the epicenter of startup capital and talent, but the cost of living is high, the competition for hires is fierce, and the crime rates are a genuine concern. At least 50% of my fund’s investments are outside the Bay Area, and I’m not alone. The City by the Bay may not be the best place to build your company, but it still holds potential opportunities.While you might have trouble finding funding in Los Angeles or New York City, where a customer base is often a prerequisite, the strength of your idea alone could be enough to snag investors in San Francisco. If you’re determined to launch your business in the Bay Area, here’s how you can make the best of its current startup realities:
The Bay Area is a great place to launch a company, but it’s not always a viable long-term location. Even mature startups with the money they need, like Stripe, have had to leave the city. In my portfolio, there is a company led by a Bay Area-born Stanford graduate who still decided to be in New York after raising a $4.5 million seed round. This is a strategic move for early-stage companies made possible through the increasing prevalence of remote work tools (e.g., Zoom and Slack).Keep your monthly costs low by building the first elements of your startup in a convenient location and then come to San Francisco to raise capital. Most of the time, you need only one or two contacts within the city’s investment community to get started. Plan to be in town and stacked with first meetings for two to three weeks, go back home for second meetings on the phone, and then return to San Francisco to close the round (if necessary).
If you don’t have any connections to the Bay Area, you can join an accelerator program. It’s the easiest way to find pre-seed funding in San Francisco, and there are plenty to choose from. Some options include Y Combinator, Alchemist, and Techstars, but there are also ones associated with educational institutions like Berkeley’s SkyDeck and StartX at Stanford.For most teams, this is a great first opportunity to get a Bay Area investor. These programs provide initial investment (usually $50,000 to $150,000), local office space, and a Demo Day at the end of the program for pitching to dozens — if not hundreds — of investors. The catch is that most accelerators are expensive in terms of equity. For example, Y Combinator takes a set 7%. Early-stage founders tend to worry about dilution too much, but it is a factor you will need to consider.
San Francisco can work, if you have the capital. For serial entrepreneurs and others in high demand, raising $1 million or more at the pre-seed is possible, and if you want to be in San Francisco, that’s possible, too.The significant network advantages of San Francisco lead to all sorts of opportunities. It’s a global talent hub, especially for founders and executives, which in turn attracts a wide variety of people and ideas. Even if you’re only interested in how blockchain affects the construction industry, you will still find a community here.The Bay Area startup ecosystem encourages everyone to help others, usually through introductions to people who can help you more. In other parts of the U.S. (and the world as a whole), people are much less willing to open their network to others. According to LinkedIn, almost 80% of professionals associate success with networking, so it’s easy to understand why founders start businesses in San Francisco, despite the costs.Building in a convenient location and securing funding in San Francisco is the best approach for most teams. Getting into a good accelerator program in the Bay Area can help immensely, and it can even lead to an opportunity to stay in the area. Just remain flexible when considering your company’s location, and it’ll be much easier to get off the ground and running.
Related: Welcome to the Start-Up World