Why San Diego Is Better than Silicon Valley for AI Startups

Opinion

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San Diego’s Tech Coast Angels (TCA) is part of the largest angel network in the United States. Although TCA has more than 300 members, they have made fewer than 230 investments in their 20+ year history.

By comparison, every angel investor in Englue (so far) has backed at least 30 different startups. That’s 60 times more active than the TCA average. And TCA looks even worse when you consider the average size of investment or the time it takes to compete a deal. The size of TCA essentially centralizes many of the investment decisions made in San Diego. So if you don’t get in with TCA you need to look elsewhere. Although less convenient, there are many “elsewheres”—most notably more than 2,500 venture capital an angel investment funds operating in North America.

The best way to attract startup capital to San Diego is to build great companies that deliver fantastic returns on investment. Smart money knows no borders.

Funding technology startups is a “chicken and the egg” problem: Great companies (the chickens) attract investments (the eggs). So it is easy to see why it is more difficult to raise early-stage capital in San Diego than in Silicon Valley: San Diego has very few high-value high-tech startups. So it is rational for TCA to seek 10x returns, while Bay Area investors seek 100x.

The best startups are often called “unicorns” because they are so rare. A unicorn is a startup that is worth more than $1 billion at the time it raises new funds. Early investors in unicorns make crazy money – 10,000x in the case of Uber. Currently, Razer (in Carlsbad) is the only high-tech unicorn in the San Diego region. By comparison, Silicon Valley has more than 50 unicorns that collectively have created more than $120 billion of value in less than five years. Put into perspective, this is greater than combined value of all high-tech startups in Southern California. It is the equivalent of building Qualcomm from scratch eight times faster than the remarkable accomplishments of Irwin Jacobs and his co-founders.

Most San Diego investors have never seen a unicorn. So there’s no point in trying to find eggs where there are no chickens. Rather, the best solution is to follow the example of Razer, Neurovigil, Nervana Systems, and other San Diego technology companies that are raising big money from outside our region.

All of them are building great companies by recruiting the right people. San Diego produces far more technical talent than it consumes. Every unicorn (along with Google, Facebook, Amazon and the rest of Silicon Valley) recruits heavily at UC San Diego. And so do we.

We are winning because we have a great team—all of whom are committed to building a better San Diego. The proof: We founded Englue in 2013, and until last month, we had raised no capital. Rather, we built a profitable business one satisfied customer at a time.

We knew it would be difficult to raise money in San Diego—so we looked elsewhere. And now that we have profits, customers, and momentum, we find that it doesn’t matter if our investors come from Washington DC, New York, or San Francisco.

The passion of our team attracts customers and talented supporters who want to be a part of our success. I have no doubt that it would be far harder to build our company in the Bay Area where our costs would at least double. And where would you rather raise a family? Or buy a house? Or sit in traffic?

The next time someone tells you (like I did years ago) that San Diego is not an ideal startup community, remind them that every city has problems. It’s never easy to build a company, recruit talented people, or attract investors.

But San Diego offers far more than critics realize. Only in San Diego can you find a vast pool of academic support, technical talent, and a wide range of early-adopting business customers. The startup scene in San Diego has exploded since I arrived in 2006. And it is a blast to be a part of it. Thank you to all the San Diego startups and supporters who have made this the best place to start a technology company.

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Olin Hyde is the founder and CEO of Englue, a San Diego-based artificial intelligence software company focused on business-to-business lead generation and national security markets. He wrote his first line of code at age 12 on a home-built computer, and has started eight companies since then. Follow @olinhyde

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