Ambitious start-ups have hills to climb to succeed in Silicon Valley

Silicon Valley might seem like an obvious destination for any start-up with big ambitions. But making a go of it there is as difficult as anywhere else.

Wannabe tech entrepreneurs might assume Californian streets are paved with gold, but while access to finance is undoubtedly easier than it is in Ireland, making inroads in the market isn’t easy.

It’s also an expensive spot, which leaves many cash-strapped start-ups struggling to stay afloat while trying to build their reputation and secure deals.

"There isn't a single company I've worked with that wouldn't say 90 per cent of what they are doing is unglamorous," says Enterprise Ireland's Simone Boswell.

“Even the companies you hear about in the media aren’t overnight successes. Most of those have longer histories, but whenever a company raises money in the States their history tends to get a little whitewashed and shortened.”

Boswell should know. Her role is to assist companies considering setting up in the Bay Area and help those already there.

Customer numbers

“It is a lot harder and more competitive than people imagine. The companies operating in this market are larger than anywhere else in the world in terms of valuations, customer numbers and so on. Firms that have test-marketed their products and have a concept born in Europe can find that it’s a much bigger and more segmented market here than they anticipated. Some come to realise that Silicon Valley isn’t right for them,” she said.

The focus on a few highly successful Irish start-ups has meant most people don’t realise how difficult it can be to make it in the US, she added.

“I don’t like to be critical of the Irish media, but it feels like there’s been a bit of a sales job going on in terms of what really happens out here. It’s a lot more complex than is often reported.

"We've got about 50 Irish companies active in the market – either coming back and forth or who are with operations here – and these range from early-stage start-ups to companies such as Gridstore, which has been around for quite a while.

“There’s a tendency to focus on the same three or four companies, but there are other firms that may not have secured a major investment, but are winning customers and are succeeding.

“There are also plenty of people with their heads down working really hard for whom putting their name out and about publicly isn’t necessarily the right decision.”

Two years ago Enterprise Ireland launched Access Silicon Valley, a programme designed to assist Irish technology companies targeting the Bay Area.

“We are trying to get companies exposed to as much information as we can and as early as possible in the hope they don’t make the same mistakes that earlier entrepreneurs did,” said Boswell.

One of those earlier entrepreneurs who admits to finding success through trial, error and persistence is John McGuire, founder of Active Mind Technology and the creator of Game Golf, a wearable shot tracking device for golfers. It's used by US president Barack Obama and backed by heavyweight investors.

He’s the first to agree that making it in the US isn’t easy. He wishes he could have availed of programmes such as Access Silicon Valley.

Based in San Francisco and with offices in four other US locations, his company is well on the way to success. Operating out of a shared incubator space on Geary Street in the city’s financial district, it has raised over $15 million and generated over $10 million in revenues.

“ I did it the hard way when I came over here because I was fairly clueless about the dynamics of seed investment and angel investors and so on, and had no network here initially,” he said.

“People need to come here with some financial acumen because you’re talking to sophisticated investors. I had to learn all that as I went along, which in hindsight probably wasn’t that wise.”

Stranger’s couch

McGuire ended up sleeping on a stranger’s couch after he struck up a conversation with a fellow Irishman while waiting to collect his bags on his first evening in the city. Through this contact he met others who let him borrow a bed or a sofa on occasion for more than a year while he built up contacts and fine-tuned his product.

“Raising finance for sport, especially golf, has been a difficult journey. I realised at some stage that the global aspirations I had required millions rather than a few hundred thousand, which meant leaving Ireland.”

It took a few years and many setbacks to find success. Even with financing in place, he admits there’s always something new to learn.

“It took us a while to get our team right. There are a lot of people out here who know enough to get themselves jobs, but aren’t that good at doing them. With so many vacancies for engineers, it’s easy for them to get roles. It can take a while for you to realise that they aren’t up to it. We soon wised up, but it probably cost us six months,” said McGuire.

Keith Jordan, founder and chief executive of iTagged, a next-generation augmented reality platform, is a recent participant in the EI programme.

“Bootstrapping isn’t really an option. San Francisco is an expensive city with starting salaries for a decent engineer starting at between $120,000 to $140,000, and one-bed apartments going for $4,000 a month. You can live outside the city and commute, but most people find they need to drive. Parking can cost you up to $80 a day, so that’s not a great option if things are tight.

“I try and get over as often as I can, however, because it’s Disneyland for entrepreneurs. It’s not an easy place to make it, but it’s exciting to be somewhere that’s not as risk-averse as Ireland,” said Jordan.

Participant

Patrick Leddy

, founder and chief executive of

Pulsate

, a start-up focused on marketing opportunities provided by technologies like Apple’s iBeacon, is another recent Access Silicon Valley participant. He recently established an office in San Francisco.

PayPal and US investment fund Dunnhumby Ventures recently invested $1.2million in Pulsate, but as Leddy points out, this only happened after a previous deal fell through.

“It can seem glamorous flying in and out of San Francisco, but the reality is different. Enterprise Ireland helped get us some meetings there, but if you want to push things you really have to get off your arse and make it happen yourself.

“I started off going there every couple of weeks and sleeping on my mate’s couch. It was important to be there regularly because while people are open to meeting you, they can be wary as they get so many tech tourists passing through. Being there frequently made it look like I was serious,” Leddy added.

He thought he’d made the grade when he got an offer early on from a venture capitalist keen to invest, but the bank involved pulled the funding at the last moment.

“I had bet everything on the business. We were burning through cash and it was terrifying. In hindsight it wouldn’t have been a good deal for us, but I thought at the time we were finished.

“My experience of being here has taught me you need to have your homework done before you come. You need to have something demonstrable. When I arrived I had a fully working product and I could tell people that I’d invested €750,000 of my own money in the business. That said a lot to investors.”