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Will Boston Beat Silicon Valley in the Start-up Game?

January 30, 2013

With the New England Patriots knocked out of the Super Bowl and the San Francisco 49ers favored to win the big game by 5 points on Sunday, it looks like the same can be said about the Bay Area’s position in the start-up game.

That’s because if you measure leadership by the amount of venture capital headed towards a region, Silicon Valley’s position as the king of America’s high tech start-up hill — with $8.2 billion in venture capital invested in the first three quarters of 2012 (nearly four times Boston’s second place position) – is well-established.

But the success of the Silicon Valley Start-Up Common (SVSC) may contain the seeds of its own demise. That’s because tech workers there demand high salaries and quick payback on their stock options — if that doesn’t happen, they quit and try again. By contrast, in Boston, tech talent tends to stick with a start-up until it succeeds.

One start-up that has done extremely well in the Boston Start-up Common has some interesting views on the SVSC. As I wrote in October, Actifio is a Waltham, Mass.-based company that makes a device that delivers an enormous return on investment to companies that store, manage and protect their growing collection of corporate data.

For every dollar they invest in Actifio’s product, companies get $15 back in cost savings. And that compelling economic benefit has earned Actifio “over 200 customers in 16 countries and [a mind-boggling] 700% annual growth rate,” according to Actifio’s CEO, Ash Ashutosh.

As Actifio’s Chief Marketing Officer, Mike Troiano explained in a December interview, traditionally, the Boston Start-up Common has been very different than the SVSC. Boston-based start-ups have tended to emerge from universities like MIT and Harvard as technological innovations in search of markets.

By contrast, Silicon Valley companies often get started by people who work at a pillar company in the Valley who get an up-close look at a big, unsolved customer problem and start a company to tap the new market opportunity.

As Troiano explained, “You talk to two different kinds of entrepreneurs: guys who have problems and are looking for solutions, and guys that have solutions that are looking for problems.”

The latter is typical of the West coast. As Troiano said, “In a classically West coast model, someone puts their time in at a Google (GOOG) or an Oracle (ORCL), they become intimate with a customer problem that’s not being addressed in the current architecture so they start a company to solve that problem.”

The East coast has tended to take the technology-first approach. According to Troiano, “On the East coast, more often you have some technology incubated at MIT or Harvard and that technology is unleashed on the world in search of a customer base.”

In the past, start-ups could get access to deep technical resources and capital they needed much more quickly in Silicon Valley.  That’s because those resources were closer by in the Bay area but more dispersed in the land of the bean and the cod. According to Troiano, in Boston, “it was harder for the talent and capital to come together, because both were so geographically dispersed across the city, Cambridge, 128, and 495.”

But Troiano believes that Boston has recently overcome that challenge due to a concentration of start-ups and venture capital providers operating closer together in Waltham, Cambridge’s Kendall Square and Boston’s Seaport District.

As he explained, ”one of the things that’s changed a lot in the last four to five years is now you can find someone who has deep domain expertise just about anywhere in just about any domain and that person is likely to help you. You’re way more likely to run into that person from a mutual contact, or community social event. And when you get to that person, they’re more likely to help you.”

Boston’s start-up common is getting better. As Troiano pointed out, Ashutosh, “is more of a West coast style entrepreneur. He’s built a career formulating new solutions to a customer problem he knows intimately well, and his personal network includes connections with people behind the first generation of great local enterprise technology companies like Data General, Digital Equipment, and EMC (EMC).”

But Boston has added a new branch that is quite similar to San Francisco in that it attracts young technology talent that enjoys living and working in an urban setting. As Troiano explained, ”What you have going on in Kendall Square and in the Seaport today is a much larger and more inter-connected network of thriving start-ups like Hubspot, Gemvara, and Wayfair. These are companies that arose through much more of a [Palo Alto, Calif.] University Avenue or Sand Hill Road kind of social context.”

Ashutosh sees Boston enjoying an advantage over Silicon Valley when it comes to building start-ups that sell technology to business and government. As he said, “I think there is a depth especially in the enterprise sector, both of talent and almost the tenacity in this space that is not so prevalent in the West coast.”

Actifio is able to attract and retain world-class talent because it is clearly going after a big opportunity and is growing fast. As he said, Actifio “attracts some of the best talent in the world which is right around here, even more importantly — [we retain] that talent, with the exception of two people we lost at the beginning, our turnover is literally zero.”

And Ashutosh believes that this gives Actifio a competitive advantage. He said, “That is huge because if I am trying to build a company for the long term the last thing I want to do is worry about constant churn of people coming in and out [which is so common with West Coast companies].”

Ashutosh believes that once it gets off the runway, Boston is the best place for a start-up. As he said, “if you can get through the prototype, customer base and expansion phases, Boston is absolutely the best place to build it.”

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