Investors tell 36/86 that Silicon Valley is not place to be

While country music fans began overtaking the city Tuesday, entrepreneurs and investors gathered at Marathon Music Works with a different focus: building companies.

The message that resonated from several investors on stage was that while Silicon Valley is the hotbed for startups, there are clear benefits to creating a company in other cities –- as long as there are software engineers nearby.

"Anywhere outside of the West Coast, businesses can be built and capital can be successfully deployed," said Robert Hatta, investor with Drive Capital in Columbus, Ohio.

Hatta, along with several other business leaders from around the U.S., spoke to a crowd of about 700 people at 36|86. The conference was organized by Launch Tennessee to connect startup founders with investors and other entrepreneurs.

Investment capital is in high demand among Southeast entrepreneurs. As funding is known for being far more accessible on the West Coast, geography is a concern for both regional startup founders and investors funding those companies.

Drive Capital's companies have been able to find strong talent across the U.S., Hatta said. With real estate costs and an "absolute bloodbath" for talent in Silicon Valley, he prefers to invest elsewhere.

"The biggest misconceptions about building companies outside of Silicon Valley are around talent," Hatta said. "We've been able to build great teams around our companies and build engineering teams with high-quality software developers, enterprise sales people, on up the stack. The last place on the planet I would want to build a team today geographically would be Silicon Valley."

In past decades, it made sense for companies to locate in places with data-storing infrastructure -- in Seattle and in Silicon Valley, he said. With data services available online, the need to be in those areas has declined.

"Now that you can rent that with a credit card on Amazon, you can build your business wherever you want and build a business of scale wherever you want," Hatta said.

While senior level management is more easily found on the coasts, more people are willing to move to smaller cities in pursuit of lower costs of living, said David Hall of Revolution Ventures in Washington, D.C.

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Trevor Kienzle, investor with Correlation Ventures in San Diego and Palo Alto, Calif., said that while his $166 million firm has invested in Nashville, Virginia and Georgia companies, there are benefits that come with being in Silicon Valley.

"We have repeat entrepreneurs that have had wins before," he said. "What we are increasingly seeing is people are using the runway generated from their last win to be able to seed and start companies in a very capital-efficient manner."

Investor Paul Santinelli of North Bridge Venture Partners in Palo Alto estimated that the average cost of engineers with three or more years of experience is $190,000, an expense that drops significantly in other cities. He advised startups in the Southeast to find investors who are willing to travel or invest in companies outside their region, but most importantly to be near talent pools. In Nashville and other Southeast cities with universities and colleges, the tech talent can be found.

"You need to have a real good technology center of excellence," Santinelli said. "That's what it takes to build tech companies."

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.