SaaS and app startups can literally be anywhere in the world. With the cloud, both sales and support functions are virtual — a top-notch software company no longer needs a large local sales force to sell its product via tons of in-person meetings. This opens up the possibility of launching your startup anywhere from Bozeman, Mont., to Tampa, Fla.
To find the best entrepreneurial hotspot these days, you might look at the top locations for venture capital investments or where the cost of living is lowest. But where’s the best place for you to launch your startup?
You aren't necessarily going to depend on a list. You’ll probably factor in where you’re already living, where your current support network is and other personal matters. Maybe you prioritize cost of living, specifically the affordability of owning a home.
If you’re thinking about launching a new startup and aren’t sure where you want to land, here are a few factors to consider:
1. Your Personal Support NetworkLists of the top startup hotspots aren’t going to take into account your personal situation: where your friends and family are, what your interests are, etc. Building a business involves hard, often stress-inducing work. You may want an established support system of friends and family nearby.
Likewise, if there’s a particular climate or activity you’re drawn to (like skiing, museums or kayaking), make that a factor in choosing a location. Your goal is to build a happy, well-rounded life that includes being an entrepreneur — don’t sacrifice personal happiness to focus solely on a startup.
2. Cost of Living
Popular spots such as San Francisco, Menlo Park and New York City come with a price tag.For instance, the median rent in New York City tops $3,000 per month, compared to the national average of about $1,000 per month.There’s no question that monthly expenses can make a big impact in a young entrepreneur’s ability to bootstrap his or her business. NerdWallet offers a cost of living calculator with which you can compare salary needs, housing, transportation and food costs between two cities. However, you shouldn’t necessarily make a decision based solely on where things will be the cheapest; expensive areas such as Silicon Valley have more to offer in terms of mentors, talent, meetups and other resources.
3. Access to VC FundingIf you’re looking for angels or venture capitalists to fund your startup, then geography does matter. The top five cities for VC investments are San Francisco, San Jose, New York City, Boston and Los Angeles (see the full list of fifteen here).
Investors tend to be attracted to locally based startups, as it enables them to be more involved and draw from their local network of resources. Of course, few startups will actually get their seed funding or Series A, so it’s important to consider other options for capital, such as a business loan, grant or self-funding.
4. Healthy Startup EcosystemBy basing your startup in an established area like Silicon Valley, Boston or New York, you can more easily tap into an exciting ecosystem of peers, mentors and visionaries. You’ll find weekly meetups and co-located offices serving as the staging ground for startups. You can learn from others who have succeeded or failed, as well as find unique opportunities to collaborate with other startups.
Keep in mind that you can find pockets of startup activity outside of Silicon Valley and New York, including Reston, Va., Vancouver, B.C., and Austin, Texas — to name just a few.
5. Local Talent PoolIn the very early stages, you may not be thinking about hiring and expansion, but in order to grow a successful business, you’ll need employees, and strong employees at that. By being close to other startups and established companies, you can tap into talent, and won’t have to pay for relocation costs.
In addition, you can benefit from being nearby a strong academic center, as you’ll have a pool of young graduates to pull from; they’ll be more likely to take a risk on a new startup than those who are further along in their careers.
6. The Legal Perspective: Where to IncorporateBeyond the question of where to physically set up shop, you’ll need to decide where you’d like to establish your business from a legal perspective. In other words, you need to pick the state where you’ll incorporate or form an LLC (limited liability company) for the business.
You often hear of companies incorporating in Delaware, Wyoming or Nevada.That’s because Delaware offers flexible, pro-business statutes, while Wyoming and Nevada offer low filing fees, in addition to no state corporate income, franchise and personal income taxes. But this doesn’t necessarily mean that these three states are right for your situation.
The general rule of thumb is that if your business will have five shareholders or less, you should incorporate in the state where you actually live or have a physical office. That’s because whenever you incorporate in a different state than where you're located, you’re considered operating out of state and will have added fees and paperwork. And the benefits of incorporating in Delaware, Nevada or Wyoming won’t be as strong for a small company to counterbalance the added fees and hassle.
Let’s say you’re physically located in California, but decide to incorporate in Nevada. You’ll still have to pay state taxes to California because you do business there, in addition to forking over extra fees for being out of state (because California will see you as a Nevada company doing business in the state).
But, if you will have more than five shareholders, then it makes sense to speak with a lawyer or tax expert to determine if incorporating in Delaware or another state will be advantageous.
The Bottom LineNo article or top-ranked list can tell you what specific location makes the most sense for your business and personal situation. If you’re thinking of moving across the country to set up shop, it’s wise to take a few trips out there first.
Attend several meetups. Talk to some entrepreneurs and investors who make up the local community there. Weigh all the factors carefully and decide what’s most important to you.