It wasn’t too long ago that the Boston startup scene seemed to be panicking a bit. Lots of discussions started to form around how to step up our game and get our groove back. There were talks of rebranding, convincing newly-minted college graduates to stay in the area, and about the sting we felt every time another young company headed out to the west coast to follow their dreams.
It seems we have come a long way since those days, and they weren’t that long ago. TechStars is booming. Amazing programs like Founder Mentors and DartBoston have been established to support young entrepreneurs in their quest to build companies. And it doesn’t stop there, Dogpatch Labs emerged, Microsoft NERD stepped up to host/sponsor all kinds of great events, and most importantly, there is a heck of a lot of new startup activity here in Boston. Not that I have been around for THAT long, but I am seeing far more activity than I’ve ever seen before.
Increasing startup activity and the framework to nurture these startups is a big piece of the puzzle. Not all of them will be successful, but more and more are emerging with strong founders, seed funding, great products, real user traction, solid revenue models, and some good hype and media attention around them. This just wasn’t the case when I quit my job to start RunKeeper in 2008, and we should feel really good about the strides that we’ve taken.
While this is all amazing progress, we are still missing a critical piece of the puzzle. The first step may be to get these vibrant startups with real momentum off the ground, but at some point, large corporate acquirers start knocking. If you keep executing, they keep knocking and the knocks start getting louder. At a certain point, without much invested capital in the business, it may be tempting to sell. While the outcomes in these instances may not be ‘home runs’, in many cases, selling the company at this point is not the wrong move. Some wealth is created, the founders get a ‘win’ under their belts, and they can move on to the next one. Only next time, they can swing for the fences with a proven team, an established track record, and without having to worry as much about how to put food on the table along the way.
The problem is that most of these large acquirers are based out west. The implication is that, in many cases, the founding team moves to the west coast as part of the deal. Lock-up is maybe a year, then they’re itching to break free and go do it again, this time going even bigger. In most cases, when they do head out for the next one, they stay out west and don’t return to Boston. The most notable recent example of this is Quattro Wireless - A terrific founding team, a great exit to Apple, and a CEO that relocated out west as part of the deal. He stays for a time at the acquiring company, quits to go do the next big thing, and then joins Highland Capital Partners (which has a big Boston office), but will be working out of Menlo Park. Ouch! I am not close to that situation at all, and by no means mean to single Andy out. His decision may be for reasons that have nothing to do with any of this. But it seems that our promising young companies getting acquired by companies in other regions is a primary cause for the continued talent drain of some of the brightest entrepreneurs from Boston into other parts of the country. Until we stop the bleeding, Boston will continue to stunt it’s own growth.
What Boston needs is for more of these promising young companies to break out and grow into the kinds of large scale Internet powerhouses that become acquirers themselves. This will give the people that are along for the ride a phenomenal education and skillset, and the resources and network to go out on their own when the time is right (think PayPal mafia, or Xooglers). It also means that when these promising young companies get acquired for ‘base hits’, the acquirers will be other Boston companies that will keep this talent in Boston.
There are some local companies poised to go in that direction, such as Hubspot and Gemvara. And I would be lying if I said that RunKeeper doesn’t have similar aspirations and ambitions. But getting more of these emerging startups over the hump and on the path to build the next Amazon, Salesforce.com, or Facebook is the missing link to shift the pendulum dramatically in Boston’s favor. Not only would it stop the bleeding, but it would quickly turn the tide so that Boston can begin acquiring companies (and therefore talent) from other regions as well, thus dramatically shifting momentum as this plays out over a longer period of time.
The exciting part is that we have all of the pieces we need to make this happen! We have tons of large military/defense contractors and financial institutions stifling and underemploying a generation of ambitious, impatient, highly capable young engineers. We have more resources, both formal and informal, to provide mentorship and guidance than ever before. We have deep pocketed institutional investors that are terrified of letting the next Google or Facebook emerge out of Boston and head west. We have what we need, now we just need to go and do it.
We are in an age where everything is accelerating and nothing is immune to the seeds of disruption and change. It is happening with individual company growth (i.e. Zynga, Groupon, etc.), and it is happening with the shifting balance of power between countries at the macro level. There is no reason why it can’t happen in terms of regional technology hubs, and no reason why Boston can’t emerge as the next major technology mecca. Let’s make it happen!