How to Nav­i­gate the In­no­va­tion Ecosys­tem

A thriv­ing en­vi­ron­ment for in­no­va­tion con­tains eight char­ac­ter­is­tics. Assess­ing them prop­erly sets the stage for a start-up to flour­ish.

Rotman Management Magazine - - NEWS - By Ajay Agrawal and Al­berto Galasso

Abra­ham Heifets had worked on ap­ply­ing FOR SEV­ERAL YEARS, re­cent ad­vance­ments in ar­ti­fi­cial in­tel­li­gence to drug dis­cov­ery. De­vel­op­ing a new medicine takes an av­er­age of 15 years, and Heifets had de­vised a way to shrink the process to a frac­tion of that time us­ing ad­vanced ma­chine-learn­ing al­go­rithms run­ning on a su­per­com­puter.

He en­thu­si­as­ti­cally pitched his idea to all the top ven­ture cap­i­tal firms in his home­town of Toronto, but the re­ac­tion was al­ways the same: Po­ten­tial in­vestors liked the idea, but weren’t will­ing to com­mit their cap­i­tal. They re­quested more ev­i­dence, wanted more-de­tailed busi­ness plans and demon­strated no sense of ur­gency. As his funds wore thin, Heifets be­came in­creas­ingly anx­ious, and even­tu­ally re­al­ized that he had to re­lo­cate his busi­ness to Sil­i­con Val­ley, where in­vestors would un­der­stand the po­ten­tial of his idea and be will­ing to get in­volved at an early stage.

The move proved to be a wise de­ci­sion: By June 2015, Heifets’ com­pany, Atom­wise, had raised $6 mil­lion in seed fund­ing from five lead­ing science-fo­cused ven­ture cap­i­tal firms, and soon af­ter, it an­nounced col­lab­o­ra­tions with Merck, Notable Labs and Har­vard Med­i­cal School.

The is­sues faced by Heifets are not un­com­mon among high-tech­nol­ogy en­trepreneurs dur­ing the early stages of their ven­tures. Sil­i­con Val­ley is widely cel­e­brated as a start-up haven be­cause of its abun­dance of ex­pe­ri­enced tal­ent, cap­i­tal and ex­per­i­men­tal cul­ture. How­ever, the Bay Area is also well known for its high cost of liv­ing and fierce labour-mar­ket com­pe­ti­tion. Thus, buy­ing a one-way ticket to Cal­i­for­nia makes sense only if the ben­e­fits of re­lo­cat­ing out­weigh the costs. For Heifets, the move may well have saved his fledg­ling busi­ness; how­ever, given the fi­nan­cial and other costs of re­lo­cat­ing, other high-tech en­trepreneurs might be bet­ter off stay­ing put in their home­towns.

What fac­tors should be con­sid­ered when mak­ing such a mo­men­tous de­ci­sion? Draw­ing on two decades of re­search in Strat­egy, Eco­nomics and Ge­og­ra­phy, we have de­vel­oped a sim­ple frame­work that high-tech en­trepreneurs can use to in­form their lo­ca­tion strate­gies. This frame­work — which takes into ac­count the key forces that shape regional en­tre­pre­neur­ial suc­cess — is use­ful not only for start-ups, but also for large cor­po­ra­tions, be­cause the lo­ca­tion de­ci­sions of en­trepreneurs are not only shaped by, but also shape the lo­ca­tion de­ci­sions of cer­tain types of large busi­nesses.

Eight Cru­cial Fac­tors

The en­tre­pre­neur­ial suc­cess of any re­gion is shaped by eight fac­tors that in­flu­ence the en­try of new high-tech firms and cre­ate

con­di­tions that af­fect the growth of those firms. En­trepreneur­ship tends to flour­ish in re­gions scor­ing high across mul­ti­ple fac­tors. Let’s take a closer look at each.

For high-tech en­trepreneurs, the avail­abil­ity of ven1. IN­VESTORS. ture cap­i­tal across mul­ti­ple lev­els of in­vest­ing stages — an­gel, seed, Series A and Series B — can be the dif­fer­ence be­tween suc­cess or fail­ure. In­vestors vary in terms of their tastes for cer­tain mar­kets and tech­nolo­gies, their risk tol­er­ance, their knowl­edge about spe­cific sec­tors, and hav­ing other in­vest­ments in their port­fo­lio that might present con­flicts. An am­ple sup­ply of ven­ture cap­i­tal­ists in a re­gion there­fore sig­nif­i­cantly en­hances the prob­a­bil­ity that an en­tre­pre­neur will be able to find a good match. More than half of the ven­ture-cap­i­tal of­fices listed in the Pratt’s Guide to Pri­vate Eq­uity and Ven­ture Cap­i­tal Sources are lo­cated in three cen­tres: Sil­i­con Val­ley, Bos­ton and New York. It is im­por­tant to re­mem­ber that ven­ture cap­i­tal­ists are more likely to pro­vide fund­ing and serve on the boards of com­pa­nies that are lo­cal be­cause ge­o­graph­i­cal dis­tance con­strains their abil­ity to mon­i­tor their port­fo­lio com­pa­nies and coach the man­age­ment teams of those busi­nesses.

It’s nat­u­ral for new firms to start selling their prod2. CUS­TOMERS. ucts lo­cally be­fore ex­pand­ing to na­tional and in­ter­na­tional mar­kets. Thus, the level and qual­ity of lo­cal de­mand will in­flu­ence the ini­tial growth of a start-up. Sig­nif­i­cant lo­cal de­mand can lead to cost sav­ings by al­low­ing firms to spread their fixed costs over a larger cus­tomer base. Lo­cal cus­tomers may also pro­vide cru­cial in­sights to de­velop and fine-tune a prod­uct.

Be­ing lo­cated close to a dense net­work of sup­pli­ers 3. SUP­PLI­ERS. is ad­van­ta­geous for a num­ber of rea­sons. First, it re­duces trans­porta­tion costs and wait­ing times for in­puts. CEO Jeff Bezos’ de­ci­sion to lo­cate Ama­zon in Seat­tle, for ex­am­ple, was pri­mar­ily be­cause of the short dis­tance from one of the coun­try’s largest distri­bu­tion ware­houses for books. Sec­ond, the tech­no­log­i­cal needs of a start-up are of­ten fully un­der­stood only with fre­quent in­ter­ac­tion with its sup­pli­ers. Third, the pres­ence of mul­ti­ple sup­pli­ers in one area al­lows the en­tre­pre­neur to shop for the best price, qual­ity and prod­uct fit. Lastly, some re­gions pro­vide a nat­u­ral ad­van­tage re­lated to in­puts for cer­tain in­dus­tries, and be­cause of­fice space is a key vari­able, an as­sess­ment of the regional real-es­tate mar­ket should also in­flu­ence a lo­ca­tion strat­egy.

Start-ups must as­sess the pres­ence of workers 4. LABOUR POOL. spe­cial­ized in rel­e­vant fields as well as their own abil­ity to at­tract key tal­ent to the re­gion. Larger labour pools have an im­pact on the num­ber, qual­ity and dif­fu­sion of en­tre­pre­neur­ial ideas. Stud­ies show that spe­cial­ized workers tend to ag­glom­er­ate in a limited num­ber of lo­ca­tions, and very of­ten, their sup­ply is shaped by the pres­ence of uni­ver­si­ties, hos­pi­tals and re­search in­sti­tutes in a re­gion. It’s im­por­tant to rec­og­nize, how­ever, that uni­ver­si­ties vary sub­stan­tially in their propen­sity to co­op­er­ate with in­dus­try and sup­port lo­cal en­trepreneur­ship. One of Sil­i­con Val­ley’s great­est ad­van­tages is that it has a dis­pro­por­tion­ately large labour force with ex­pe­ri­ence in scal­ing start-ups.

In­no­va­tion pro­duc­tiv­ity is greater where siz­able pop­u­la­tions of both small and large firms co­ex­ist.

High-tech en­trepreneurs must as­sess the com5. COM­PE­TI­TION. pe­t­i­tive land­scape, pay­ing spe­cial at­ten­tion to other start-ups in their re­gion. On the one hand, there are clear ben­e­fits to be­ing in­su­lated from com­pe­ti­tion; on the other, com­pe­ti­tion can play an im­por­tant role in spurring in­no­va­tion. When assess­ing a regional en­vi­ron­ment, en­trepreneurs should avoid hav­ing a nar­row fo­cus and con­sid­er­ing as com­pe­ti­tion only firms with sim­i­lar prod­ucts and tech­nolo­gies. They should also as­sess the na­ture of com­pe­ti­tion in terms of in­puts, tal­ent and fund­ing. Spe­cial at­ten­tion should be paid to large com­pa­nies present in the area, which can have a pro­found im­pact on a regional econ­omy by stim­u­lat­ing de­mand for new tech­nol­ogy and at­tract­ing a skilled labour force. Our re­search has shown that in­no­va­tion pro­duc­tiv­ity is greater in regional en­vi­ron­ments where siz­able pop­u­la­tions of both small and large firms co­ex­ist.

An ef­fec­tive lo­ca­tion strat­egy re­quires care­ful as6. IN­STI­TU­TIONS. sess­ment of the strengths and weak­nesses of regional eco­nomic and po­lit­i­cal in­sti­tu­tions. In par­tic­u­lar, high-tech en­trepreneurs should mon­i­tor lo­cal tax­a­tion lev­els, back­logs in regional courts and trends in regional busi­ness leg­is­la­tion. Trans­port in­fra­struc­tures such as air­ports, train sta­tions and roads may also have an im­por­tant im­pact on a firm’s abil­ity to in­ter­act with cus­tomers, sup­pli­ers, in­vestors and com­peti­tors.

Pick­ing the right lo­ca­tion re­quires a good grasp of the 7. CUL­TURE. cul­tural norms across dif­fer­ent lo­cales. Sil­i­con Val­ley, for ex­am­ple, is known for its for­giv­ing at­ti­tude to­wards en­trepreneurs who have failed in pre­vi­ous ven­tures. Par­tic­u­lar at­ten­tion must also be paid to the lo­cal ac­cep­tance of dif­fer­ent de­mo­graphic and

eth­nic groups within a re­gion, as this may in­flu­ence the ease with which for­eign tal­ent may be re­cruited to the re­gion.

In­di­vid­u­als are em­bed­ded in lo­cal net­works 8. SO­CIAL NET­WORK. of so­cial re­la­tions gen­er­ated by their fam­ily, friends and civic ties. The so­cial cap­i­tal de­rived from these re­la­tion­ships can be very im­por­tant for en­trepreneurs to raise cap­i­tal and at­tract em­ploy­ees, sup­pli­ers and cus­tomers. As a re­sult, the prof­itabil­ity of a move to Sil­i­con Val­ley is less clear when en­trepreneurs have deep so­cial net­works in their home lo­ca­tions. Re­gions where new­com­ers can quickly form and lever­age so­cial con­nec­tions are more at­trac­tive than those where in­te­gra­tion is more dif­fi­cult.

Toronto vs. Sil­i­con Val­ley

As in­di­cated ear­lier, Abra­ham Heifets had trou­ble rais­ing cap­i­tal for his promis­ing tech­nol­ogy break­through un­til he re­lo­cated his busi­ness from Toronto to the Bay Area. How­ever, other Toron­to­based en­trepreneurs have been able to thrive in Toronto. Mike Serbi­nis, for ex­am­ple, was suc­cess­ful in rais­ing a $25 mil­lion Series A round of fund­ing, largely from Toronto-based in­vestors, for his dig­i­tal health plat­form com­pany, LEAGUE. To bet­ter un­der­stand the cru­cial stay-or-re­lo­cate de­ci­sions made by en­trepreneurs like Heifets and Serbi­nis, let’s ap­ply our eight-fac­tor frame­work to com­pare Toronto with Sil­i­con Val­ley.

The Greater Toronto Area (GTA) is roughly IN­VESTOR COM­PAR­I­SON. com­pa­ra­ble to Sil­i­con Val­ley in terms of pop­u­la­tion size, but the level of funds avail­able for en­tre­pre­neur­ial busi­nesses is much smaller. In fact, the level of ven­ture-cap­i­tal in­vest­ment in the GTA is roughly one-tenth that of San Fran­cisco and one-fifth that of Bos­ton. Fur­ther­more, re­gions with smaller pools of early-stage cap­i­tal are likely to have thin­ner mar­kets of in­vestors with spe­cial­ized ex­per­tise.

Mar­kets can be broadly clas­si­fied as ei­ther CUS­TOMER COM­PAR­I­SON. con­sumer or en­ter­prise. On the con­sumer side, the pop­u­la­tion of the GTA is only slightly smaller than that of the Bay Area (roughly six mil­lion com­pared to seven mil­lion), so for con­sumer-ori­ented prod­ucts, these mar­kets are sim­i­larly at­trac­tive. How­ever, the de­mo­graph­ics and pref­er­ences of con­sumers may dif­fer in cru­cial ways across these re­gions. In the case of tech­nol­ogy prod­ucts, even though Toronto is roughly the same size, many ar­gue that the Bay Area is more at­trac­tive be­cause a high frac­tion of its res­i­dents are ‘early adopters’ who are ea­ger to try new prod­ucts and ser­vices such as house shar­ing ( Airbnb, for ex­am­ple) and on-de­mand valet park­ing ( Luxe, for ex­am­ple).

The ge­o­graphic distri­bu­tion of en­ter­prise cus­tomers is an­other im­por­tant vari­able. Con­sider fi­nan­cial ser­vices. By var­i­ous mea­sures, Toronto is the sec­ond-largest fi­nan­cial cen­tre in North Amer­ica, af­ter New York City but ahead of Chicago, Bos­ton and San Fran­cisco. Not sur­pris­ingly, Toronto is home to a num­ber of promis­ing fi­nan­cial tech­nol­ogy (‘fintech’) start-ups, such as Wealth­sim­ple. To date, how­ever, the high­est-pro­file start-ups in this in­dus­try are not based in Toronto, but Sil­i­con Val­ley ( Pay­pal and Square, for ex­am­ple). Even in Canada, a sur­pris­ing num­ber of prom­i­nent fintech firms are based out­side of Toronto: Shopify (Ot­tawa), Ver­afin (St. John’s), Light­speed (Mon­treal), Block­stream (Mon­treal) and Zafin (Van­cou­ver). This hints that even though there is a larger po­ten­tial cus­tomer base for fi­nan­cial ser­vices in Toronto com­pared to the Bay Area or other re­gions in Canada, the fi­nan­cial ser­vices com­pa­nies in Toronto may not be suf­fi­ciently en­gaged as cus­tomers of new in­no­va­tions to give fintech start-ups in the re­gion an ad­van­tage.

Toronto has limited man­u­fac­tur­ing of SUP­PLIER COM­PAR­I­SON. elec­tronic prod­ucts rel­a­tive to the Bay Area. Fur­ther­more, many in­puts that are not avail­able lo­cally are im­ported from the U.S., with non-triv­ial ship­ping and tar­iff costs. More­over, many other in­puts are im­ported from China. Thus, for hard­ware-re­lated com­pa­nies, Toronto faces a sup­plier dis­ad­van­tage rel­a­tive to Sil­i­con Val­ley. In con­trast, Toronto of­fers a greater sup­ply of of­fice space, which is sig­nif­i­cantly more af­ford­able than in Sil­i­con Val­ley, and the re­gion is at­tempt­ing to cap­i­tal­ize on that ad­van­tage. For ex­am­ple, Kitch­ener-water­loo in the Greater Toronto Area (GTA) re­cently an­nounced that it would build a large in­no­va­tion com­plex specif­i­cally aimed at new hard­ware com­pa­nies. This com­plex — which will ex­ceed the size of a sim­i­lar pi­o­neer fa­cil­ity in Shen­zhen, China — is de­signed to at­tract com­pa­nies spe­cial­iz­ing in con­tract man­u­fac­tur­ing, ra­dio fre­quency test­ing and cer­ti­fi­ca­tion, and IT law.

Two dis­tinct types of highly skilled laLABOUR POOL COM­PAR­I­SON. bour are hu­man cap­i­tal that is ei­ther in­ex­pe­ri­enced or ex­pe­ri­enced with re­spect to scal­ing. In­ex­pe­ri­enced highly skilled labour is well trained and may have years of ex­pe­ri­ence work­ing at small and medium-sized en­ter­prises. How­ever, these in­di­vid­u­als have

not par­tic­i­pated in the rapid scal­ing of an or­ga­ni­za­tion. Ex­pe­ri­enced labour is not only well trained, but has also par­tic­i­pated in the rapid growth of an or­ga­ni­za­tion that has in­creased its mar­ket cap­i­tal­iza­tion by, for ex­am­ple, one hun­dred times. Toronto ar­guably has a more at­trac­tive en­vi­ron­ment than the Bay Area for in­ex­pe­ri­enced highly skilled labour, be­cause Toronto-based tal­ent is equally well trained yet less ex­pen­sive and less likely to be poached than Sil­i­con Val­ley-based coun­ter­parts. How­ever, Toronto has only a limited sup­ply of highly skilled labour with ex­pe­ri­ence in scal­ing — which in­volves grow­ing a user base from zero to hun­dreds of mil­lions of users, rais­ing bil­lions of dol­lars in eq­uity cap­i­tal, tak­ing com­pa­nies pub­lic, re­cruit­ing thou­sands of en­gi­neers and soft­ware de­vel­op­ers, and out­sourc­ing hard­ware man­u­fac­tur­ing to China. Even when Toronto-based high-tech com­pa­nies do achieve prod­uct-mar­ket fit, when com­pared to Sil­i­con Val­ley start-ups, they of­ten strug­gle to at­tract ex­pe­ri­enced tal­ent to re­lo­cate. The rea­son? Prospects worry that if the op­por­tu­nity doesn’t work out, there might be limited other at­trac­tive op­por­tu­ni­ties in the GTA.

Toronto is home to for­eign tech comCOMPETITION COM­PAR­I­SON. pa­nies such as Cisco, Google, Uber and Face­book, but the size and na­ture of their op­er­a­tions (pre­dom­i­nantly sales of­fices) are mod­est and less con­ducive to mean­ing­ful con­tri­bu­tions to the en­trepreneur­ship ecosys­tem rel­a­tive to their pres­ence in Sil­i­con Val­ley. More promis­ingly, Gen­eral Mo­tors re­cently an­nounced plans to hire 750 peo­ple in the next two years to work on driver­less cars, par­tic­u­larly on cold-weather fea­tures.

It should be noted that start-ups in the GTA have flour­ished where com­pe­ti­tion has been high: Over the past five years, the re­gion has emerged as a front-run­ner in the area of wear­able tech­nolo­gies, led by start-ups such as Thalmic Labs, Nymi, PUSH, Muse and Mag­ni­ware, and in­spired by Steve Mann, who founded the Wear­able Com­put­ing Lab at MIT and sub­se­quently moved to the Univer­sity of Toronto (and is widely re­garded as the Fa­ther of Wear­able Com­put­ing).

The On­tario gov­ern­ment has im­pleINSTITUTION COM­PAR­I­SON. mented a va­ri­ety of poli­cies sup­port­ing small busi­nesses—such as the Youth En­trepreneur­ship Fund and the Starter Com­pany Pro­gram — and of­fers tax rates that are lower than the av­er­age of G20 coun­tries. More­over, tech com­pa­nies also ben­e­fit from the Sci­en­tific Re­search & Ex­per­i­men­tal De­vel­op­ment (SR&ED) tax credit, a Cana­dian in­no­va­tion fund­ing pro­gram that re­turns over CAD$3.4 bil­lion to com­pa­nies ev­ery year.

In ad­di­tion, Toronto has been ranked as the best city to live in North Amer­ica, ac­cord­ing to the 2015 Safe Cities In­dex. Fi­nally, health­care is sig­nif­i­cantly more af­ford­able in Canada than in the U.S. At the same time, sev­eral of the most dom­i­nant large in­dus­tries in the GTA are heav­ily reg­u­lated and thus pro­tected from global com­pe­ti­tion — for ex­am­ple, bank­ing, in­sur­ance and telecom­mu­ni­ca­tions. As a re­sult, these in­dus­tries do not seem to fos­ter tech­nol­ogy en­trepreneur­ship at a level com­men­su­rate with their size. Thus, start-ups in these reg­u­lated in­dus­tries are sig­nif­i­cantly more pro­lific in the Bay Area, de­spite there be­ing fewer es­tab­lished firms from those in­dus­tries in that re­gion.

Toronto-based tal­ent is equally well trained yet less ex­pen­sive than its Sil­i­con Val­ley coun­ter­parts.

Like the Bay Area, Toronto is well con­nected CUL­TURE COM­PAR­I­SON. to other prom­i­nent met­ro­pol­i­tan ar­eas in North Amer­ica, given its ge­o­graph­i­cal lo­ca­tion and its large in­ter­na­tional air­port. Over­all, Toronto has a vi­brant, cre­ative com­mu­nity and a num­ber of strong engi­neer­ing and science pro­grams linked to ed­u­ca­tional in­sti­tu­tions (such as the Univer­sity of Toronto and the Univer­sity of Water­loo) that are sim­i­lar on most im­por­tant di­men­sions to those in the Bay Area (such as UC Berke­ley and Stan­ford). Given that foun­da­tion, it’s not sur­pris­ing that the GTA has a healthy con­cen­tra­tion of tech­nol­ogy tal­ent: About 55 per cent of tech­nol­ogy workers in On­tario and about 26 per cent of all tech­nol­ogy workers in Canada are em­ployed in Toronto.

Al­though Toronto has a vi­brant and grow­ing tech­nol­ogy en­trepreneur­ship com­mu­nity, the dom­i­nance of this cul­ture does not com­pare to that in Sil­i­con Val­ley. The ex­ec­u­tive direc­tor of C100, an as­so­ci­a­tion for Cana­dian en­trepreneurs in San Fran­cisco, re­cently had this to say: “Tech is ev­ery­where [in Sil­i­con Val­ley]. It’s in the cof­fee shops, on street cor­ners, and in every­one’s con­ver­sa­tions.” This re­flects not only the den­sity of the tech­nol­ogy-ori­ented labour mar­ket in the Bay Area, but also a cul­tural mind­set re­gard­ing risk tak­ing, work ethic, growth as­pi­ra­tions and other char­ac­ter­is­tics.

En­trepreneurs lever­age ev­ery asSOCIAL NET­WORK COM­PAR­I­SON. set they have in their pur­suit of op­por­tu­nity. A wide and valu­able lo­cal so­cial net­work be­comes an im­por­tant as­set to lever­age for ac­cess to cap­i­tal, key re­cruits, cus­tomers, sup­pli­ers and reg­u­la­tors. Al­though Sil­i­con Val­ley is known as an open com­mu­nity where out­siders are able to es­tab­lish so­cial net­works over time,

such es­tab­lish­ment still takes ef­fort and re­sources and thus may be rel­a­tively costly for in­di­vid­u­als who al­ready have strong so­cial net­works at home.

Our Ad­vice for En­trepreneurs

Our eight-fac­tor frame­work in­di­cates the key is­sues that high­tech en­trepreneurs must ex­am­ine to as­sess the de­sir­abil­ity of po­ten­tial lo­ca­tions for their start-ups. In de­ploy­ing that frame­work, en­trepreneurs should also con­sider the fol­low­ing.

The ef­fects of a re­lo­ca­tion THERE IS NO UNI­VER­SAL ‘BEST’ STRAT­EGY. will dif­fer across start-ups. En­trepreneurs should use a two-step process when eval­u­at­ing the frame­work pre­sented herein. First, they should as­sess how im­por­tant each of the eight fac­tors is for their ven­ture. For ex­am­ple, cash-starved start-ups like Atom­wise should give more weight to in­vestors than to sup­pli­ers. In con­trast, start-ups that have se­cured cap­i­tal and aim to scale up quickly should give more weight to sup­pli­ers and labour pools. The sec­ond step is to con­trast the lo­cal ecosys­tem with the new lo­ca­tion by fo­cus­ing on the key fac­tors that were iden­ti­fied in the first step. Re­lo­cat­ing is likely to be the right strat­egy for a ven­ture only if the new lo­ca­tion sig­nif­i­cantly out­per­forms the lo­cal re­gion for the most salient fac­tors.

Pick­ing a lo­caMISPRICED FAC­TORS CAN UN­DER­MINE THE ANAL­Y­SIS. tion is a key strate­gic de­ci­sion that is dif­fi­cult to re­verse — so it is cru­cial to cor­rectly price the var­i­ous fac­tors. Some en­trepreneurs over­es­ti­mate the costs (both mon­e­tary and non-mon­e­tary) of mov­ing and treat their busi­ness sites as cast in stone, while oth­ers un­der­es­ti­mate those same costs. Par­tic­u­lar at­ten­tion should be paid to the value of a lo­cal so­cial net­work, which is one of the most likely rea­sons for an en­tre­pre­neur to stay at home rather than move. Al­though Sil­i­con Val­ley is well known as an open com­mu­nity where out­siders can es­tab­lish so­cial net­works over time, es­tab­lish­ing a net­work may be par­tic­u­larly ex­pen­sive for in­di­vid­u­als who al­ready have strong so­cial net­works at home. Such was the case at Nymi, a Toronto-based start-up pro­duc­ing wear­able de­vices that de­liver bio­met­ri­cally se­cured au­then­ti­ca­tion. A strong lo­cal net­work gave Nymi an ad­van­tage in build­ing a team and in ob­tain­ing early seed-stage fund­ing. Do­ing the same out­side Toronto would have been much harder and would have re­quired the firm to di­vert more time and re­sources away from its core busi­ness. STAY AND LEAVE ARE EX­TREMES ALONG A CON­TIN­UUM OF POS­SI­BIL­I­TIES. En­trepreneurs may also con­sider ‘strad­dling’ home cities and new lo­ca­tions, through fre­quent travel be­tween the two sites, the tem­po­rary rental of of­fice spa­ces or the open­ing of a satel­lite of­fice. For in­stance, Karl Martin, founder of Toronto-based Nymi, flies to Sil­i­con Val­ley ev­ery six to eight weeks to meet with his U.S. in­vestors. Ven­ture-cap­i­tal firms may also pro­vide dif­fer­ent mech­a­nisms for strad­dling lo­ca­tions. Cal­i­for­nia-based ac­cel­er­a­tor 500 Start-ups of­fers a pro­gram that al­lows se­lected start-ups to con­nect with men­tors and in­dus­try ex­perts in Sil­i­con Val­ley with­out leav­ing their home lo­ca­tion.

In clos­ing

The frame­work pre­sented herein in­di­cates the key is­sues that en­trepreneurs must ex­am­ine to as­sess the de­sir­abil­ity of a po­ten­tial lo­ca­tion for their ven­ture. Ig­nor­ing these fac­tors may lead founders to pick the wrong lo­ca­tion, re­sult­ing in dif­fi­cul­ties in at­tract­ing the nec­es­sary fund­ing, tal­ent, sup­pli­ers, part­ner­ships and cus­tomers. How­ever, assess­ing them prop­erly sets the stage for a start-up to flour­ish.

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