You might call Ryan Merket crazy for quitting Facebook — one of the most coveted employers in the world — to try to start his own company from scratch.
But at a time when savvy young entrepreneurs are founding small niche startups all over San Francisco with little more than a laptop and a few thousand dollars, he’d almost be crazy not to.
“The costs have gone down so much that anyone with $5,000 can start a business, which is pretty incredible,” Merket says. “The barriers have really dropped dramatically. The market is coming back; there is a huge resurgence.”
Unlike the dot-com boom of the late 1990s, when Silicon Valley venture capital groups poured millions of dollars into startups, this one is benefiting from the low cost of entry. Open source software is now readily available. Facebook, Twitter and other networking sites offer an immediate testing ground. And the web is no longer simply about selling merchandise — it’s about apps, games and engaging in other ways that offer money-making possibilities. All of this means that niche startups are being launched with a fraction of the money and workforce required a decade ago. All that’s needed now is a person (or two) with the right idea and the right execution.
Merket left Palo Alto-based Facebook in January to found AppBistro, a service that helps businesses optimize their Facebook profiles. Merket’s business plan was impressive enough to earn the backing of I/O Ventures, the new startup incubator located inside the Summit café at 780 Valencia Street.
They invested $25,000 and provided Merket with guidance and connections while he built AppBistro from I/O’s second-floor loft space overlooking the cafe. Five months later, the company launched. “It was just me and my co-founder, cranking it out with I/O in a small room,” he says. “It was a pretty awesome experience.”
Roughly 500 tech companies currently call San Francisco home, according to the San Francisco Office of Economic and Workforce Development, which began tracking these statistics last year. Just as in the dot-com boom of the late 1990s, the majority of the established San Francisco tech companies are concentrated in the SOMA neighborhood, a balance that is unlikely to change significantly.
But the Mission District has siphoned off a healthy share from Silicon Valley and SOMA over the years. And now, with the need for infrastructure and office space a far less limiting factor, these new streamlined companies are free to live and work almost anywhere they want.
Couple this freedom with the fact that the Mission has become ground zero for the hip, moneyed 20-somethings who dominate high-tech, and it’s no surprise that the neighborhood is drawing a significant share of the new modern startup — small, mobile and cheap.
“As a general trend I see there being more and more startups in the future being started all over the world,” says Paul Bragiel, a partner at I/O Ventures and three-time tech CEO. “However, I still believe the biggest ones will come out of the Bay Area, and that more and more will come from San Francisco — with the Mission playing a big role in this.”
Lean and Mean
It’s no secret that technology has evolved at a near-frantic pace. The way we digest online content has hopped from the home desktop to the laptop to the iPhone in just a handful of years. Simultaneously, software has arrived at the point that a few code-savvy engineers can build, publish and manage a website or develop smart phone applications with little more than a laptop.
“We see teams usually in the two-to-three-person range,” Bragiel says. “Entrepreneurs tend to be more educated nowadays, with a lot of resources, blogs and open source out there. It takes a lot less money to get a product launched and to see what kind of traction it gets.”
Bragiel explains that the small startup craze is bringing in people from all sides of the industry. “We have some people from the local area that quit larger companies to start their own startups, we have small startups from universities around the country, and we even have teams from around the world trying to figure out a way to move to the epicenter of it all.”
So far, I/O has picked only six startups out of a sea of applicants: AppBistro, Anomaly Innovations, Social Vision, Damntheradio, Apprats and Skyara.
“We’re focusing on consumer Internet, gaming and mobile startups,” Bragiel says. “This is based on the type of companies myself and my partners have started.”
Steven Ou, Dennis Liu and Jonathan Wu moved from the East Coast after I/O invited them to add their new startup to the roster. Skyara, which connects people who want to try new experiences — like skydiving, yoga and photography — launched in November.
“A lot of very talented and creative people that otherwise would’ve been working their way up the corporate ladder leave to try and build the next big thing,” Wu says. “The cost to start a company like Skyara is such a low barrier to entry now; you basically just need to have the motivation and be willing to take a risk.”
“You see much more innovation coming from smaller companies today than in the past,” Wu says. “I think a big part of this has been the shift from hardware to software. And of course with software and web platforms, you don’t need these large R&D budgets to build amazing products.”
The other major advantage founders have today is the mammoth network of information sharing that exists online. Almost every complex technology problem has a solution on some forum; almost any question will be answered with a dozen opinions.
“Even if you are not an expert in programming or you’re not exactly sure how to start a company, there are plenty of resources available where you can ask questions and learn from people’s past experiences,” Wu says. “In the dot-com era, most people were learning as they were going and making mistakes and failing.”
Also unlike the first dot-com boom, investors now want to see “a clear path to revenue,” says Sid Gidwani, a programmer and partner of eight-month-old Happy Patrons, a website providing social networking management for small businesses. “In the dot-com boom days, all you needed was an idea and you would get funded. Nowadays you need to either show revenue or traction before you will be funded.”
The Mission: Mixing Business with Pleasure
For many founders, particularly first-timers, networking and community are vital. A major reason I/O Ventures worked out a joint office space with the Summit café was to provide a casual work environment for the Mission startup community.
“Sometimes when you are doing a startup it gets lonely — long hours, intense focus,” Bragiel says. “It’s nice to talk with people going through the same thing as you. Plus you can learn a lot from each other and save each other time.”
When Jonathan Wu and his two cofounders were building Skyara, the problem-solving and idea-generating that came from talking with other startups proved a major asset.
“We come into the Summit about once or twice a week to catch up with the other teams and have a chance to bounce ideas off of the other startups and mentors here,” Wu says. “Building a new company from scratch is tough, so it’s nice to have people who can relate.”
For Alex Polvi, CEO of startup CloudKick, Inc., the Mission was an easy choice when he decided to move up from Silicon Valley. When his company was founded last year, it was based in San Jose because their incubator investor, Y Combinator, encouraged them to do so. “But once we got more traction, we moved to San Francisco,” he says.
With office space in The Farm, a multi-use complex on Cesar Chavez Street, Polvi says the Mission holds strong appeal for employees, for both work and personal reasons. “It’s really handy; there are lot of places to grab a bite to eat or get a coffee. And if you bring in people from out of town, it’s a good place to entertain.”
Polvi says that favorable rental rates at The Farm made the transition all the easier. “In the Mission in particular, it was a lot cheaper than in other parts of San Francisco.”
Bragiel has noticed that the appeal of the Mission, as well as avoiding a commute to Silicon Valley, has helped sell the neighborhood to potential startups.
“In the first boom most startups were in the Valley. The center of gravity has shifted north to the city. Plus, a lot of the most talented engineers and designers happen to live in the Mission, since it’s a fun part of town and super livable and affordable.”
Gidwani, of Happy Patrons, says the neighborhood features of the Mission are a major improvement over Silicon Valley. “I worked in Mountain View. It’s a concrete jungle. You can’t really walk around and work out your problems,” he says. “Here, if you have a small team, you can walk out, have dinner, work over dinner, go home at midnight. The Mission has a lot of this; you can work from cafés and go have a drink with your coworkers.”
Gidwani, who lives in the Mission, does much of his work at home or from cafés in the neighborhood. He conferences with his team (the cofounder lives in San Diego) over Skype, and typically travels only to meet with investors. “Generally, I wake up at 9 a.m., go get a coffee somewhere and work there for the rest of day. A few days I just work from home. I might grab a taco or something from an Asian restaurant. Living in the Mission gives me the ability to do that.”