How Silicon Valley's 'rich ecology' works
- 27 August 2010
- From the section Business
Silicon Valley is an elusive place. You won't find it on maps, there are hardly any guide books and there are certainly no signs.
But out of the Valley have come ideas and inventions that have changed our world. The region has spawned an endless list of successful companies like Intel, Facebook and Apple, creating vast wealth and thousands of jobs in the process.
In a rather laidback Californian way, the place crackles with enterprise.
If there's one address that defines the things that happen in Silicon Valley, it's 165 University Avenue, a low-rise office building in the town of Palo Alto that has been rented - and outgrown - by tech giants like Google, PayPal and Logitech.
It's called University Avenue because the street leads up to Stanford University, the institution which provides much of the brain power for the Valley and which is key to understanding how the place ticks.
"Putting this university here in the middle of nowhere was itself an enormous entrepreneurial act by a gentleman, Leland Stanford, who made his money in railroads and was himself an entrepreneur," says Paul Saffo, a Stanford graduate, now a professor at the university and a respected Silicon Valley watcher.
"So in many ways, there was a brilliant culture of entrepreneurship that goes all the way back to the gold rush."
The close physical proximity of talent and capital in the towns around the university is key to the Valley's success, says Saffo.
"You've got to be face to face. Here people bump into each other in the market, they see each other at restaurants, they grab a quick coffee at Starbucks or somewhere. That's how deals happen."
Venture capitalists with billions to invest cluster along Sand Hill Road a mile or two away from the university, keen for a piece of the action.
"It's an ecology," says Saffo.
"You have venture capitalists who are willing to put up the risk capital and come up with the risk model. In addition you need bankers who understand and are comfortable doing business with start-ups and will give receivables financing to companies that barely exist, lawyers who know how to get things done right and accountants.
"So it's a very rich ecology, and without any one of the pieces you'd have serious trouble."
The wealth created by the coming together of these elements is enormous.
Dr Morton Grossman is an inventor and investor who has lived in the area and watched the development of its high tech industries for over 50 years. He has a neat way of summing up the Silicon Valley phenomenon for visitors to the area.
"I tell them to get into their rental car at San Francisco and drive 70 kilometres south to the southern border of San Jose."
"If you take a strip one kilometre wide on either side of that road that they just drove, the companies in that strip have a capital valuation of over $500bn."
"And all of that value, which feeds real children and has real jobs, was created in 40 years by a few people, mostly under 35 years-old."
Ups and downs
Like most places Silicon Valley experiences good times and bad. In these recessionary times, things are not so good.
"At the moment the joke is: 'What's the new status symbol in Silicon Valley?'" says Paul Saffo.
"Answer: A job."
Times are tough but the veteran forecaster expects the Valley to emerge with renewed vigour - though his prediction is tinged with caution.
"Silicon Valley is a place that has long been in danger of drowning in the waste products of its own success.
"I remember having breakfast with a gentleman who'd just stepped down as CEO of a major company here. He said, 'it's over. There are too many people. They're stuck on the freeway. Houses cost too much. Space is too expensive. It just isn't going to continue.' Well that was [in] 1984."
"We've always been on the edge of failure. This is a place that has the ragged edge of success and I think that's part of what keeps us fleeing into the future. But nobody here takes it for granted that it's going to continue."
Silicon Valley isn't magic, of course, though it often feels like it when you consider the torrent of ideas and inventions that have poured out of this place over the past 50 years.
But now India and China are on the rise as rivals to the Valley. It's going to need a lot more of the luck of 165 University Avenue.