How does distance affect acquisitions?
sansovi.ch
sansovi.ch
If one were to take the complete bipartite graph of [All Startups, All Fortune 500s] and plot the distances between connected vertices, I would not be surprised to find a distribution graph similar to the one shown above. Most companies are in population centers, and most population centers are on the coasts.
I have no reason to doubt that the subset of that graph that contains acquisition relationships is, in fact, more heavily skewed towards proximity. But, that is currently a conjecture, and the data does not support the conclusion (although it does not disprove it, which is something).
I've done two startups in the same space. The first was located in Cincinnati, OH and my current one in SV. They are frighteningly similar though the space has changed dramatically.
It depends on your market to know where the optimal location is for fostering relationships. Hint: it's not always SV (though it often is).
You hear it time and time again that relationships happen very serendipitously. And by serendipitously I mean you meet someone in a coffee shop that will later introduce you to someone that changes the course of your start-up forever.
The depth of the network in SV is extremely deep. My experience in Cincinnati (albiet 8 years ago) was that it wasn't as serendipitous and it wasn't nearly as deep. Things may have changed and in places like NYC it might actually be similar to SV.
My $.02 is that relationships are critical. Making location equally critical.
Zynga has acquired 20+ companies on crunchbase. Is Zynga biased towards acquiring companies in the bay area, or are companies that Zynga would be inclined to acquire mostly located in the bay area anyway? Or is it that bay area startups tend to perform better / receive more funding than their non-bay counterparts?
The Bay Area has capital, talent, customers, users and (most of all) clueless corporate executives who will acquire anything, rescuing the careers of even the most brazenly failed founders. You're not taking much of a risk because everything is there.
Other regions have some or most of those resources, but the VC is skewed heavily in favor of the Bay Area and that shows no signs of abating. NYC venture capital exists, but there's even more pedigree-whoring in that scene (mostly favoring MBAs and banking flame-outs) than in SV.
I don't like that it's that way, but it is. If you want to do a startup, you're best off to be there.
VCs (the only investors in this game, sadly, because bank loans require personal liability, precluding anything that has any real risk) assume that if you're not in the Bay Area, you're not serious because "all the talent" wants to be there. It causes a vicious cycle. You hear a lot of murmuring about second- or third-tier hubs picking up when, in reality, things are probably the most skewed they've ever been.
It's not healthy for all the innovation to be allowed only in one area. The real investors (the people with the money) don't care where their money is spend as long as it makes a profit. But we have a system that forces people to compete for scarce space in what has become a congested and hideously overpriced part of the country... even though rent and living costs exert a gigantic drag on new business formation.
The only people who win under placism are VCs, big-city landlords, and HR departments (because they can look at a resume and evaluate it based on geography).