Scott Kirsner of The Boston Globe has a business section front page article entitled Where are all the Massachusetts tech IPOs, sub-titled When it comes to going public, the sector remains in the long shadow of California.
This is scarcely news to anyone who has been or is in the entrepreneurial economy in Massachusetts. Silicon Valley has lead Massachusetts in every dimension of tech startups since the downfall of the Route 128 computer companies like DEC, Prime, Wang, Data General, and Apollo. I assume what prompted Scott to write the article is the current flock of IPOs and soon-to-be-IPOs from Silicon Valley, including Uber, Lyft, Zoom, Pinterest, and Slack.
Unfortunately the article, while accurate, is incomplete. It principally blames founders for several sins:
- Thinking too small – building million dollar companies that get acquired versus billion dollar companies that go public
- Inadequate PR – not creating the kind of buzz that attracts big investors and star employees
- Poor culture of mentorship – “We have a poor culture of mentorship relative to the Valley and now New York,” says Michael Greeley, an investor at Flare Capital Partners in Boston.
But he manages to mainly give a pass to both investors and the Commonwealth of Massachusetts. Having been in the “innovation economy” for 39 years, I can tell you there is a very strong investor culture here that is in one word conservative. The first generation of VCs came out of companies that were consistently profitable. In fact, back in the day of DEC and Data General, the rule was you could not go public until you had four consecutive quarters of profitability. Tell that to the investors in Uber, Lyft et al! These VCs also hated consumer plays. They told me there was no way they could perform their due diligence on B2C companies. With enterprise companies they could call all their CIO friends in large companies and get a reading on the viability of new products from these potential customers. They had no idea who to call to get a reading on a consumer startup like Uber. So they passed. I can’t count the number of times I was told by founders from California that the startups I couldn’t get funded here in Boston would easily have raised capital in Silicon Valley.
And Scott leaves out one of the major governmental problems with the startup economy in Massachusetts: non-compete agreements. In California non-competes are illegal. Period. You can leave your company on a Friday and form a startup on a Monday to compete with your former employer. And many entrepreneurial-minded employees do just that. It’s a fact of life in the Valley. But it’s more than that. The constant spawning of new companies creates the winners that go public and in turn spawn more startups. Not here. The large legacy companies and their lobbyists have kept the legislature from ending indentured servitude in the tech sector. Until the legislature wakes up and does away with non-competes, Massachusetts is doomed to fall further and further behind the Valley.
But founders also share part of the blame that isn’t mentioned in the Globe article. The best and brightest leave Boston for Silicon Valley. The canonical example being Mark Zuckerberg, who founded Facebook in his dorm room at Harvard, but as soon as he got traction he headed for the Valley. Perhaps far more importantly, but lesser known, is that Paul Graham, the founder of Y-Combinator, perhaps the most important early stage investor of the past ten years if judged by the sheer number of investments it has made, started Y-Combinator in Boston. For a while he maintained both an East Coast and West Coast presence, before shutting down his office here and putting all his focus on Silicon Valley.
The tech sector in Massachusetts has been second fiddle to Silicon Valley since startups moved from 128 into Cambridge and Boston. But it has fallen farther and farther behind to the point that Massachusetts is no longer even number two, it’s behind New York, and if we aren’t careful, we will fall behind Texas next.
And there is plenty of blame to go around: entrepreneurs, investors, state government all play a part in squandering the tremendous entrepreneurial engines of MIT and Harvard. Until the culture changes amongst all three groups my advice to the founders I mentor is, sadly, “Go west, young man.”