RESEARCH TRIANGLE PARK – If your goal is to get the most competitive price on a new home, San Francisco may not be your best bet. The same paradigm applies to the high cost of starting a biotechnology or other high-tech company in the Bay Area. That according to a report by Xconomy—a media firm focused on business, life sciences, and technology in large metropolitan regions around the country. Startups often look to San Francisco and Silicon Valley for the venture capital (VC) they need. But they don’t have to locate there to attract funding. So it might be wiser to consider a lower-cost region like the Raleigh-Durham area instead.
Xconomy’s report is based on information compiled by Robert Moore, CEO and co-founder of Crossbeam, a Philadelphia-based software service business. Moore’s website, VC Arbitrage, looks at how startups that raise funds in San Francisco can benefit by operating elsewhere.
The crux of Moore’s analysis is that new companies can get more for their money if they’re selective about where they put their businesses. And, while it makes sense to assume startups in cities with lower costs will get less funding, it’s not necessarily true. Moore reports that new businesses aren’t hurt by those decisions because venture capital firms don’t discount valuations based on headquarters locations. He says firms in the Bay Area will pay the same for a good company, regardless of where it resides.
Xconomy recently published a comparison of startup costs in San Francisco and 12 other “innovation hub” cities, based on Moore’s evaluations. The comparisons are focused mainly on the technology industry, but the same core principles apply to life sciences and other companies, according to Moore.
The results? A $1 million investment in San Francisco translates to $1,394,805 in purchasing power in North Carolina’s Research Triangle, almost a 40 percent increase in operating capital. That’s a sweet spot for entrepreneurial magnets—slightly better than the high-flying Texas cities of Dallas ($1,363,389) and Austin ($1,356,092), and a bit less than Madison, Wisconsin ($1,421,613). These calculations factored in staff salaries, the cost of technology, sales, rent and other expenses. The data are weighted toward salaries, which can be the biggest chunk of startup costs.
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Of the 12 innovation hubs in Xconomy’s review, the Raleigh-Durham area was fifth best in total purchasing power. Not surprisingly, New York City—at $1,146,348—was among the worst and the closest to San Francisco. Milwaukee was the area with the highest purchasing power at $1,668,369.
“This report reinforces what we already know about North Carolina and the Research Triangle,” said North Carolina Biotechnology Center Senior Vice President Bill Bullock.
“We’re highly cost competitive with other major life science hubs in the county. And we have what it takes to support these companies as they grow and develop—world-class research universities, a skilled workforce, tremendous resources, and a business-friendly environment.”
North Carolina, home to more than 700 life science firms, is also admired for its natural beauty and other quality-of-life amenities.
Moore acknowledges that some startups can benefit by remaining close to the San Francisco venture capital firms that back them. But he argues that other cities are catching up fast in terms of resources, talent, and business models that accommodate remote workers.
Bullock couldn’t agree more:
“Our life science ecosystem — the unique combination of our business, educational and workforce strengths along with our comparatively low operating costs — make North Carolina a tremendous place to locate and grow a life science startup.”