David Beisel’s Perspective on Digital Change
Do Startup Location Matters Even Matter?
About a year ago, I wrote a post about how office space is the face of a startup – it communicates both an outward message and provides insight into what’s going on underneath, as the physical environment in which startup employees work inevitably match the company’s story and culture. Recently I’ve been thinking that it’s not just the space of a startup itself which matters, but that perhaps also the location of that office which matters as well. Startups invariably seem to cluster together, and there’s perhaps something meaningful to that phenomenon.
So just as a thought-experiment, I plotted both NextView Ventures’ Boston-based and Manhattan-based companies on a map to see what the picture looked like. I kind of knew the answer beforehand, but not to the extent until I actually went through the exercise. (My partner Rob Go recently took a stroll through the NextView portfolio in a post which only briefly touched upon geography.)
First, take the startups in our portfolio based the greater Boston + Cambridge area. In reality, though, that “area” isn’t too large. In fact, with one exception, the office locations are fairly binary – either they’re located in/outside Kendall Square in Cambridge [green + purple below] or in the Leather District in Boston (which is sometimes but not always counted as part of the Innovation District) [orange]. In fact, what is interesting to note which isn’t on the map below, is that an overwhelming 70%+ of our Boston/Cambridge portfolio started the company either at One Broadway in the Cambridge Innovation Center or within two blocks of it (including at Dogpatch or other VC’s offices) [purple]. But then as headcount grew along with the importance of a dedicated space and the need for better per-sq-foot pricing, our portfolio has fanned out further from the Kendall Square epicenter [green] or hopped the river but stayed on the T redline.
View NextView Ventures Portfolio Companies in a larger map
In Manhattan, the map our portfolio company locations is similarly consistent. Again, with one exception, all of the startups in our portfolio are one east-west block from Broadway, running from 30th street through the Flatiron to just south of Union Square.
View NextView Ventures New York Portfolio Companies in a larger map
So what’s the takeaway here? Do we at NextView Ventures only invest in companies which are located in these shaded areas, using it as a selection criterion for investment decisions? Quite the contrary; rather we see a trendline because it’s a correlated reflection of the choices of the company types which we invest in. Internet startups are the starving artists of the corporate entity set – they optimize around relatively cheap rent, accessibility to transportation, and a certain intangible “vibe.”
On the other hand, venture capitalists are lagging, not leading, indicators for startup locations. There has been much ballyhoo about the migration of venture capital firms from Waltham to Cambridge over the past five years. But to me, it’s a non-story… the startups were already there, so of course VCs had to follow. It’s interesting to note that when we at NextView selected our own office location as the Leather District for us a year a half ago, one Waltham-based VC told us point-blank that it was “terribly stupid decision.” Today we’re now neighbors in our building with Uber, our portfolio company TurningArt, and social media marketing firm Likeable Media, among others… including three other portfolio companies on the above map a stone’s throw away [orange]. But again, as VCs, we’re here because that’s where startups are, not the other way around.
In the end, I think that startup location matters because it’s indeed correlated with success… but of course it doesn’t cause it. Startups gravitate towards each other because they have similar needs and employee profiles, and there is actually something to innovation density breeding additional innovation. So the right way to go about finding a location isn’t to figure out what peer startups are doing and copy, but rather figure out what’s best for the company itself… but you might just end up in good company in the same neighborhood anyway.