(Photo by Julie Zeglen)
In December 2011, I faced a major career decision.
RJMetrics, the 10-person startup I cofounded with Jake Stein, had caught the attention of investors from New York and San Francisco. Bringing them on would mean a major inflection point for the company, but there was one question they asked again and again: Do we really want to do this in Philly?
We answered with an emphatic yes. Philly, we argued, had the right mix of affordability, talent, community and access to capital. We even made our case publicly in a blog post called “Why Our Startup is Doubling Down on Philadelphia.” They bought our pitch, invested in the company, and the rest is history.
Rereading that post nearly eight years later, our reasoning rings truer than ever. Philly’s talent pool has widened, the tech community is larger and more supportive than ever, and Philly remains far more affordable than other tech hubs.
So when Buck Ryan and I went out to raise money for our new startup Crossbeam, it was surprising to hear that same refrain: Do we really want to do this in Philly? This time, I decided to answer the question from a different angle. Rather than dish out another round of platitudes about community, talent and low costs of living, I decided to bring some data to the table.
A little research — coupled with real-world data points from my experiences with RJMetrics and Stitch, which spun out of the former — gave me all the inputs I needed to put some hard numbers behind my case. I set out to calculate the actual economic benefit of starting a company here in Philly, and the results were truly eye-opening.
My analysis was based on a simple premise: Raising money in a market that provides rich valuations and then spending where costs are lower can yield a kind of “VC arbitrage.” Looking back on the early-stage books for my past companies, a rough breakdown of expenses looked like this:
- 50 percent on engineer salaries
- 25 percent on sales and general administrative costs
- 10 percent on rent
- 15 percent on cost of goods sold and other expenses like software licenses.
So we tracked down average salary data for engineering, sales and G&A roles in Philly — plus about a hundred other U.S. cities. We also researched the cost of coworking desks, software and other common expenses.
The weighted average of these cost ratios laid out a pretty compelling case. Crossbeam’s recent $3.35 million fundraising yielded us the equivalent of $4.5 million of purchasing power in Philadelphia. That’s an additional $1.1 million of relative firepower for zero incremental dilution.
As a final step, we put together a website that can help you do the same math for your company. No matter where you’re raising money or starting your business, you can visit VCArbitrage.com and measure the purchasing power you’ll gain by raising money in one city and spending it in another.
If you take something away from this analysis, it shouldn’t be that “Philly is all you need” — quite the contrary, it shows that Philly shines brightest as part of a bigger picture. For some founders, it just happens to be at the center. We all have our own math to run — I hope this helps you do yours.-30-
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