As I'm sure Patrick knows a first degree of accuracy you could of course substitute "Ireland" for "outside Silicon Valley" and the point about acquisitions is especially well made.
Even in London we're seeing that the companies here are giving investor valuations that simply 1/5 of the valley and on most levels I have to say that I can't blame the investors for their pessimism as there are so, so few exits here.
Exits (large or small) perform three important roles for establishing a startup scene:
1. They create wealth for founders who are themselves much more likely to become investors
2. They create wealth for investors. Whether an investor is actually in on a deal or not this changes their attitude and their optimism and makes them more likely to invest due to the perceived good climate
3. As Patrick said, they increase the likelihood of high calibre individuals doing startups. Good people can do very well in other jobs and if they see the likelihood of success in a startup as being negligible, they'll stay elsewhere.
All of these three tend towards self reinforcement which is powerful. It's worth noting that none of them depend on the net P&L from angel investment to be positive, only that the net gain in perception to be positive.
One of the simple reasons it's very hard to sell the types of companies we discuss on HN outside the valley is that to sell a company you really need to actually meet someone willing to buy a company. These things still tend to start face to face.
Outside the valley there are far fewer biz-dev teams and, perhaps more importantly, far fewer engineering teams. The types of companies that create a lot of wealth are usually product focussed and get bought by product / engineering teams. Most of those acquiring teams are based in the states. FB only has a very small outpost in London and while Google's is huge and does include engineering it's predominantly sales support and does not (as far as I know) make many purchases.
I was fortunate enough to be able to sell my last startup (Clickpass) but there is no way that would have happened outside the valley. For that reason among many others we're moving back out to SF in January. I love SF and I'm happy to move back but sad to leave London and my life here too. However I too have come to the conclusion that it simply doesn't make sense to be outside the valley, you just set the odds too far against yourself.
To add a little colour to your engineering comments: Facebook actually are in the process of building up a substantial engineering team in London, and they moved into new offices about 4-5 months ago to facilitate that. Google's been expanding their London engineering teams for some time now - both companies have a pretty significant focus on mobile.
From my perspective (I work for a Valley based company, but head up the London engineering team) I see lots of large players and established start-ups creating engineering centers outside of the valley. I think there comes a point as a start-up where the benefits of scaling up your local engineering are outweighed by the advantages of opening up new global locations, especially when you're globalising your product..
I have to say that I can't blame the investors for their pessimism as there are so, so few exits here.
Let's celebrate that. People are building successful, long term businesses making long term profits in the British and European way. Good, long term businesses get investment.
Let's celebrate investors who invest for the long haul and take dividends or sell on their shares over time.
The last thing we need in London is SV-style bubble-o-rama. We have enough of that with the financial industry in the City.
If you're not planning on trying to sell your company early, it doesn't matter whether there are companies nearby who might buy it. I agree it's still going to be harder to do elsewhere at present as getting funding for further expansion might be harder, but it is possible to bootstrap to success, and going for an early exit is not the only route startups can take.
Yes of course, I just think it's unhealthy to focus on selling a company early, when the ideal result would be to be a grow to a point where you have a choice of selling or expanding. I'm sure in your case this wouldn't apply, but focus on an exit at all costs can distort perspectives and encourages companies like color which spend a lot of money without bothering to produce anything people want.
Could you describe in detail some of the "We can do either X or Y, but because we are building this to sell, we will do Y" situations, for specific values of X and Y?
it is possible to bootstrap to success, and going for an early exit is not the only route startups can take.
It not only is possible, it's how it's (usually) done! What a bubble this site is in when the way 99% of businesses work is portrayed as an alternative approach ;-)
Domestic market size is also a huge factor. The market in Ireland and indeed many other countries is simply too small for a startup like Stripe to be viable. It would have to target international markets/the US from the get go with all the complications (regulatory and otherwise) that go with that.
In theory yes but not really in practice. The market is not nearly as integrated as the US market, still regulatory differences, language differences, cultural differences.
I really don't understand. What will stop “tech giants” from buying startup in Ireland? What the difference? All majors are international corps and it's really doesn't matter where the promising company located, moreother Ireland is an english speaking country that's a huge bonus.
It doesn't matter much if the potential acquirer is international. Most acquisitions happen because one specific part of the potential acquirer wants the startup in question, and unless that part is also in Ireland, which is unlikely, they would not want to buy an Irish startup and leave it in Ireland.
The people at the "tech giants" who would be involved in such a buying decision are by and large located in Silicon Valley, and by and by likely to hear about things happening in Silicon Valley.
Furthermore if a tech giant buys you, they are hoping that you will grow. This requires making hires that are easier if you are in Silicon Valley. Questions about your prospects for making those hires somewhere else limit the top-line growth that they can hope for.
Moreover if they wind up buying something away from Silicon Valley, they know that there is likely to be less competition for the company, so they can probably get a better price for the same prospects.
In addition, talent acquisitions rely on the high cost of getting engineers. That means there has to be high demand relative to supply. In SV there is high demand right now even with a large supply, allowing talent acquisitions of $1.5m per dev.
But I’m not sure that asking whether Stripe could have been started in Ireland is the right question. Most technology start-ups don’t have to convince banks to work with them.
Then again.. difficulty getting banks to work with them is itself am instance of something. Confidence & interest potential partners, customers, employees and such have in startups may be one of the factors making a place favourable.
Having never been there. Are silicon valley hires really that much better than those found elsewhere? The most ambitious surely. Perhaps very hard working (as a consequence perhaps). But really significantly more able?
Well, the issue is not hiring one or two good people, which is completely possible in Dublin. It's how to go from a team of 5 to a team of 40 or 50 within a year. Silicon Valley is one of the few places that have the depth of talent to do that.
It's also worth remembering that this article and discussion is all about engineer-heavy tech businesses. Silicon Valley is the nexus for that industry but if you were trying to launch a magazine, say, SV would be as pointless a place to start as Ireland, when instead New York or London would be the equivalent of SV.
The usual reasons, although i suspect the real stopper is #1 , regulations and having to work with banks. Don't forget paypal been established as a bank in europe and often has to walk though regulatory mazes.
I was quite surprised there wasn't more discussion of regulatory issues. I guess Patrick is trying to talk in more general terms about starting up in Ireland, but if the question is "Could Stripe have been started in Ireland?" then I would imagine the primary, if not the only, reason is because of financial regulations.
The payment industry is highly regulated, and you would have to assume an Ireland-based Stripe would have to target the entire of the EU (the Irish market being simply too small). And that brings additional regulations - Stripe themselves clearly would like to support EU customers, but have no timeline themselves yet.
Conversely, you'd have to be utterly nuts to base your online-gambling start-up in the valley (...although I'm pretty sure a couple have. I still maintain they're nuts).
Whilst founders would probably like to be working on a business model that can be applied globally, there are many start-ups where scaling up outside of your home market can be very difficult. Square faces a similar problem with Chip & PIN in the EU. Given that, it makes sense to not just base yourself somewhere where investment is easily found, but to base yourself somewhere with a large number of potential customers. Ireland is probably not that place for Stripe!
The banks in Ireland are another affair entirely, but in terms of government regulations, things are surprisingly light weight for a country in the euro zone, and are probably better than the US in many domains.
As I heard a startup founder say recently: "One of the strengths of Ireland is that we will happily adopt the business practices of any foreigner in replacement of whatever use to stand for business practices the country had in the '80s."
It would be quite funny, although also given the tax structure pretty much inevitable, that if/when Stripe launched their product in the EU they set up a Irish subsidiary to take advantage of those tax arrangements.
In many countries tax is masked various ways. For example there is 'social insurance' and 'health insurance' calculated from income and de-facto is income tax. Also your employer has to pay 'contributions' which also depends on your income.
Real income taxation in country like Germany is typically between 50% to 80% for any decent software developer.
I guess that the size of the country and the talent pool would be an issue but it's worth remembering that Ireland also has state help for new firms with Enterprise Ireland. The banks are pretty conservative organisations but their current woes may lead to a rethink of how they are going to do business in the future.
Even in London we're seeing that the companies here are giving investor valuations that simply 1/5 of the valley and on most levels I have to say that I can't blame the investors for their pessimism as there are so, so few exits here.
Exits (large or small) perform three important roles for establishing a startup scene:
1. They create wealth for founders who are themselves much more likely to become investors
2. They create wealth for investors. Whether an investor is actually in on a deal or not this changes their attitude and their optimism and makes them more likely to invest due to the perceived good climate
3. As Patrick said, they increase the likelihood of high calibre individuals doing startups. Good people can do very well in other jobs and if they see the likelihood of success in a startup as being negligible, they'll stay elsewhere.
All of these three tend towards self reinforcement which is powerful. It's worth noting that none of them depend on the net P&L from angel investment to be positive, only that the net gain in perception to be positive.
One of the simple reasons it's very hard to sell the types of companies we discuss on HN outside the valley is that to sell a company you really need to actually meet someone willing to buy a company. These things still tend to start face to face.
Outside the valley there are far fewer biz-dev teams and, perhaps more importantly, far fewer engineering teams. The types of companies that create a lot of wealth are usually product focussed and get bought by product / engineering teams. Most of those acquiring teams are based in the states. FB only has a very small outpost in London and while Google's is huge and does include engineering it's predominantly sales support and does not (as far as I know) make many purchases.
I was fortunate enough to be able to sell my last startup (Clickpass) but there is no way that would have happened outside the valley. For that reason among many others we're moving back out to SF in January. I love SF and I'm happy to move back but sad to leave London and my life here too. However I too have come to the conclusion that it simply doesn't make sense to be outside the valley, you just set the odds too far against yourself.