The Next Big Idea: What Makes Cities Good Homes For Startups
San Diego is one of the top cities in the country for launching a startup. What is it about San Diego or Silicon Valley that makes them such great homes for entrepreneurs? Trenton is taking a closer look at San Diego startup economy this month in our series the next big idea. Michael Lipkin's book with Natalie Novick who studies startups and what policymakers can do to attract them. >> Reporter: Are you able to boil down to a few things that make it city conducive to have a strong startup ? >> There are a number of reasons why we see things in Silicon Valley why they happen they're not elsewhere. A lot of it has to do with the history and how these institutions developed. Things like the homebrew computer club which is where they help work out their first HP computers. You had people that came together because they were interested in trying things out, hacking things together. They created different sorts of organizations and groups that led to the formation of different sources of venture-capital. Accelerators helping to support different sorts of business, and creating all of these things happened in an organic fashion. And then when you have new cities that tried to adopt some of the practices of Silicon Valley, they bring a lot of the institutions on board. But they don't have that organic structure. >> Reporter: There was a line in one of your recent reports where you said cities to understand how the modern entrepreneur thinks. How do they think ? what a cityscape getting wrong about that? Spin something that cities often get wrong about entrepreneurship is by looking at it as a simple economic fashion. So opening a business to make some profit or make some economic gain. What you really see talking with these entrepreneurs is that they are really driven by omission. They are driven by some sort of unique problem or question. So offering different sorts of incentives that would support an economically minded entrepreneur does not always work for these missions or these very idealists entrepreneurs. This is not something that is lost on many of these entrepreneurs today. If they were doing it for the money only, many of them would not have gotten started. Doing something for a financial gain is not what sustains them to take the high risks and really work to create something that is completely new and different and often very difficult. Sometimes you don't realize what the end will look like when you get started. That is why it is part of this problem-solving exploratory enterprise and this freedom to create and build something new. >> Reporter: A lot of your research is focused on Europe and European startups. What did you learn there about successes cities have seen about a startup economy and how California and San Diego might be able to apply those? >> What Europe is dealing with is a restrained financial situation compared to California startups. You are dealing with a lot higher regulations. Startup entrepreneurs in Europe have to really be creative to get around some of these different challenges. Travel in Europe is a lot cheaper than it is in the U.S. oftentimes. So you have entrepreneurs presenting their work and connecting with entrepreneurs across the continent. Instead of saying so staying so localized that you would see in the U.S. so often were entrepreneurs would stay in San Diego and go to Silicon Valley every now and again, Europe they will take a more different approach. Getting to Silicon Valley is difficult sometimes when you dealing with the company that is not making much money or any at all. So you had them going to different events across the continent. That gives them a diverse perspective and creating new connections, different practices of how you can do business which is a very unique and refreshing. Often times, one of the main creek takes about Silicon Valley is that it kind of supports one method of success which involves taking on a lot of venture-capital to scale very fast to outcompete all others. >> Reporter: By taking on a lot of venture-capital, the startup would give away equity or some of the ownership in the company to investors who would get them a lot of money to get there IDF the ground? >> That is right. That venture-capital allows American startups to grow quickly to hire the best talent that they can and to outpace their competitors. It also requires American startups or any company that takes on a lot of venture-capital to hopefully have something to return to investors. It forces them to do business in certain ways. The current challenges that are with some of these platforms that are trading their data, their users data for advertising or sales, that is a way of returning on that capital venture investment. For companies that don't have the access to that money, they often don't grow as large or as quickly. But they are forced to try different ways to raise money. Some of them are using token sales, you heard the term ICO initial coin offerings a company that gives a little equity to a large number of shareholders, or they are doing micro investments. So regular every day individuals can invest in startups. >>> This is the European model? >> This is a method that some European companies are using. That is what it's exciting because you don't have the same access to money as you do in the U.S. Companies have had to be very creative about where they get their money. >> Reporter: Some European countries and recently the U.S. have something called startup visas. What are they? >> Individuals who have come from abroad to the United States that have created companies while they are on a different sort of visa can apply for what is called role that will last two years which can be renewed. And the international entrepreneur role allows individuals to stay in the United States after their secession of their the existing visa they came in under. Unlike startup visas and other countries where you have individuals that are from outside the country applying for a startup visa to come to that country to start their Enterprises, this international entrepreneur role only works for entrepreneurs that are already in the United States and their companies are already in the United States. It has a high threshold. The company has already be enjoying a high level of success. It is not always feasible for some companies especially at an early stage. >> Reporter: Dear expect a lot of people in San Diego or California in general to take advantage of this role? >> What is great about San Diego as it has his country's highest percentage of international residence. For some international residents like individuals working at companies like QUALCOMM or working in the biotech industry that might be working on a site project, oftentimes, you have individuals that are already working in high-tech fields that are working on projects on the side and developing them along. The international entrepreneur role might them the opportunity to say in the United States to work on their company's full time.
San Diego companies raised between $350 million and $550 million in the first quarter of the year, according to the two main reports that monitor venture capital funding.
The quarterly MoneyTree and Venture Monitor reports used different metrics to track the investments, but both found San Diego businesses received more investment dollars than last year, though the money went to fewer companies this year.
Natalie Novick, a graduate student at UC San Diego’s Center for Comparative Immigration Studies, researches what makes cities like San Diego attractive for startup founders seeking those investments. Many city leaders don’t understand how modern entrepreneurs think, she said, which means their outreach may be ineffective. Access to local investors was actually the least important of four major factors that founders consider when deciding where to locate their business, according to her findings. A talented worker pool and an ecosystem of major research institutions, mentors and other entrepreneurs were most important.
“What you really see, talking with these entrepreneurs, is that they’re really driven by a mission, some unique problem or question,” Novick said. “So offering different kinds of incentives that would support an economically-minded entrepreneur doesn’t always work for these mission-driven, often very idealist entrepreneurs.”
She also cautioned that San Diego’s marketing has historically focused on its tourist appeal.
“For San Diego to be a great destination for startups it will need to share its strengths with the world and let it be known for them,” Novick said. “It has much to offer but people must see this as a ‘serious’ place and not just a vacation spot.”
As part of a special series, The Next Big Idea, on KPBS Midday Edition, Novick discusses what American startups can learn from how European founders get their funding.