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San Francisco Poses Unique Challenges for Regulated-Industry Startups

San Francisco has been seen for years as the startup capital of the world. Silicon Valley, anyone?

Although the city is well known for its booming hardware and consumer-product industries—seven of the top 10 most-visited websites are headquartered there—the Bay area also caters to startups hailing from a myriad of industries. Hundreds of health, energy, education, and smart cities startups call the area home.

And if there’s one thing professionals from these diverse fields all agree on, it’s that the Bay Area is a great place for the undercurrent of startups striving to tackle grand challenges. After all, in San Francisco, the “undercurrent” is hundreds of companies strong.

Duncan Logan, CEO of San Francisco-based accelerator RocketSpace, says San Francisco uniquely provides all the essential components for a great startup ecosystem. The key to this success is a young, talented workforce that is prepared to take a risk on a startup rather than settle with a safe, secure job in addition to the city’s entrepreneurial mindset.

“Probably (the most important factor) is the willingness of the community to help companies get off the ground,” he said. “The introduction network is extensive and vibrant, whether introducing people to sources of capital—another key component—potential hires and potential clients.”

As a result, the statistics are staggering: The Bay area netted about 42 percent of the U.S’s venture capital dollars in the first three quarters of 2013, according to PriceWaterhouse Cooper and the National Venture Capital Association in an article published in the San Francisco Business Times. Moreover, Statista reported that 236 organizations received angel funding, 292 earned venture capital and 64 exited the startup phase between August 2012 and 2013.

But that capital landscape makes the city competitive, too—so much so that competition within the startup market is also driving expansion to other cities. In other words, the good ideas still get funded. The catch: In San Francisco, the good ideas are great.

That’s why startups in regulated industries historically have struggled to compete for capital in San Francisco: only the fiercest survive.

Arun Ravi of Challenge Cup competitor Mevoked noted that consumer-product achievements can make it more difficult for startups in regulated industries to truly thrive. Moreover, the expansive entrepreneurial community can work against startups, making capital hard to come by

“It can be competitive, friendly, understanding—and also very frustrating,” Ravi said. “The successes in other industries, like consumer, have pushed some investors to reduce their health care investing.”

Yet, last week’s Challenge Cup proved that the undercurrent of startups tackling big, socioeconomic challenges is stronger than ever. With 22 competitors and a sold-out audience, the participants did not disappoint.

The theme that emerged over the course of the evening was an emphasis on consumer-facing business models—unsurprising for San Francisco, perhaps, but a somewhat unusual departure from the trends spotted at the 15 other regional events.

A prime example: Smart cities category winner HandUp, which offers a direct donation system for homeless people and others in need in a given neighborhood. With HandUp, users can donate to a specific person via their web profile or SMS, learn his or her story and needs and hear updates on the person’s progress.

Also in the smart cities category, Neighborland pitched its web-based platform to empower organizations to collaborate with residents on local issues. The startup provides organizations with a set of real-world design tools to engage residents in public spaces and at events.

So in spite of the obstacles that come from being in a highly competitive environment and for startups in regulated industries, the city remains one of the best places for startups to grow. The sheer culture, density, capital and connections lead entrepreneurs to consider gambling on San Francisco—no matter what industry they’re in

“We love the entrepreneurial culture (in San Francisco) and the ability to meet people who are also doing what they can to change the world,” said Corey Katouli, cofounder of Challenge Cup participant Demonstranda, a platform for student and educators to talk math and science online. “The access to ideas, talented individuals and capital for a tech venture are second-to-none here in San Francisco.”

Want to meet the top startups from San Francisco? The Challenge Festival is just 2 weeks away! Be here in D.C. when the global startup community convenes for a weeklong conference to discuss the grand challenges in regulated industries. Register for a Challenge Festival badge and get your ticket to D.C. tech’s biggest week of 2014. RSVP here.

Teresa Tobat is a freelance writer and editor based in Washington, D.C. View her website here

Erika Norton and Melissa Steffan also contributed to this article.

Teresa K. Traverse

Teresa K. Traverse is a writer, editor and traveler. Check out her work at