When most people think of startups, they think of Silicon Valley and a few college dropouts starting tech companies in their garages. After all, that’s really the story of Steve Jobs and Steve Wozniak. After Jobs dropped out of Reed College and Wozniak dropped out of the University of California, Boulder, they started Apple Computer in Jobs’ parents’ garage in 1976. Between 1972 and 1982, Atari, Oracle and Sun Microsystems were born, all with Silicon Valley founders in their twenties.
Elsewhere in the US, college dropouts have found success in tech startups: Bill Gates founded Microsoft in Albuquerque after dropping out of Harvard after three semesters, Michael Dell (Dell, Dallas, University of Texas at Austin) and, decades later, Mark Zuckerberg (Facebook, Menlo Park, Harvard) are other famous examples of successful dropouts.
But the reality is that most startups aren’t founded in San Francisco. According to a report by the Silicon Valley Regional Institute, 749 new startups were founded in the region in 2023. This compares to 1.6 million new tech startups (out of a total of 5.5 million new companies) founded across the U.S. in the same year (Wall Street Journal). Silicon Valley accounts for just 0.05% of new U.S. startups.
The typical founder’s age and educational background belies the persistent image of a college dropout: In fact, the average age of a first-time startup founder in the U.S. is 42. A Harvard Business Review study of fast-growing, successful startups found the average age to be 45.
It’s easy to get fooled by the Silicon Valley startup mystique, and I think the reason this story persists is because most media coverage of startups focuses on venture investing.
I will admit to scratching my head whenever I see a major news story about a company that couldn’t grow from its own revenues alone and had to raise capital from outside sources. Raising capital can be strategic, especially if the company can grow rapidly through merger and acquisition activity, for example. And the positive media attention is a benefit.
But the vast majority of fundraising is just to keep a company afloat until it achieves profitability, with the added bonus of very favorable media coverage. Stories of companies that quietly grew through sales and the occasional bank loan don’t get as much attention as big fundraising. But the reality is, most startups don’t raise venture capital money. Many founders prefer a slower growth approach while retaining ownership and control themselves.
However, most bootstrapped startups don’t reach unicorn status ($1 billion valuation) at the same pace as VC media darlings. For example, Cary’s bootstrapped technology company SAS was founded the same year Apple hit $1 billion in sales in the mid-1990s. This privately held company doesn’t release accurate sales data, making it difficult for the media to write headlines. VC firms like Lawry’s Pendo hit the $1 billion status less than a decade after launch, which may be due to media attention fueling their growth.
Thanks to Silicon Valley, and California venture capital, the young, rebellious founder persona continues to dominate the startup narrative. Depending on the source, it’s estimated that 41-44% of all venture capital in the United States is concentrated in Silicon Valley. As a result, we regularly see big news stories about huge investments in Silicon Valley. With a very low supply of new startups (compared to national activity), normal supply and demand economics would tend to significantly inflate prices for companies in the region, further exaggerating media coverage.
We see the same thing in other concentrated markets. Given the relatively small supply of studios and the vast supply of capital in Hollywood, the prices of licensing and producing films are much higher than elsewhere. As a result, we see more “unicorn” films coming out of Hollywood. But that doesn’t mean we see a huge number of successful independent films.
Several prominent tech founders recognized early on that the opportunities outside Silicon Valley far outweigh those within it. AOL founder Steve Case launched Rise of the Rest in 2014, with a focus on investing in smaller cities. Since 2012, more than 1,400 venture capital funds have been launched outside of New York, Boston and San Francisco.
There’s a lot of startup activity here in the Triangle. Scott Wingo, who has started and sold multiple technology companies, tracks Triangle data. His Tweener List includes over 300 startups headquartered in the Triangle with $1 million or more in annual revenue and 10 or more employees. Achieving “Tweener” status is a sure indicator of business success. At RIoT, we’ve observed that the pipeline of “growing” small businesses is five times larger than Tweeners.
Scott founded Triangle Tweener Fund to provide early-stage capital to local startups. He is joined by newer investment funds such as Joe Collopy’s Primordial Capital and Jurassic Capital. More established funds in the region, such as Bull City Ventures and Cofounders Capital, are raising second and third funds. Even small towns like Danville, Virginia, an hour north of Durham, are home to multiple VC funds based out of The Launch Place.
I believe this story will continue to change over time to more accurately reflect the actual distribution of startup success. Consider this: There are 88 cities in the United States with populations over 250,000. If we assume that tech startups are much more likely to succeed when they launch in more populous areas, each of these cities would get 18,182 new startups each year (out of the 1.6 million mentioned above). We already know that the Silicon Valley region will see only 749 startups launch in 2023, of which San Francisco will see only 497, more than 17,400 short of this hypothetical reality.
The bottom line is that new business activity is happening everywhere. And investment capital is beginning to spread out to find them. The vast majority of new companies don’t follow the venture capital investment path, so they don’t get the same amount of media attention. But all of these tech startups are essential to our economy, and we should all be helping them grow.
If you want to learn more about what’s happening in North Carolina, there are two events you’ll want to attend: The Durham Convention Center will be hosting its third annual Grep-a-palooza event on Tuesday, June 4. You can register now for $199-$299 or pay an additional $50 on the day. The event will showcase the great things happening in Durham and the greater Triangle and bring together startup veterans and budding entrepreneurs.
A week later, I highly recommend driving an hour east of Raleigh to attend the Gig East Summit in Wilson, NC. This is an annual one-day event celebrating entrepreneurship, arts, science, and technology in Eastern North Carolina. Attendance at the Gig East Summit is free, and you’ll be pleasantly surprised at how much tech startup activity there is in the small towns of Eastern North Carolina. The keynote address will be from the founders of Mapquest, which was founded in Lancaster, Pennsylvania. Lancaster is not exactly a tech hub.
Both events will feature startup pitch competitions, networking happy hours and a friendly community, welcoming newbies who want to support and join the entrepreneurial community.
“There’s just as much startup activity and talent in North Carolina as there is in California or Silicon Valley. Entrepreneurship is everywhere; we just need to start telling that story.”
