Unbundling Silicon Valley
In 1956, William Shockley opened Shockley Semiconductor Laboratory to innovate on the then-current transistors.
Shockley was a great talent magnet but a crappy manager so a core group of Shockley employees (the famous the traitorous eight) left to start Fairchild Semiconductors and from that, start 65 other companies.
That was the beginning of Silicon Valley, a 35-kilometer stretch of land that produces as much economic output as entire industrialized nations.
Now Silicon Valley is the uncontested modern mecca for technology, innovation and progress. It's the place to start, scale or join fast-growing tech companies and it's been for decades.
But people are leaving.
They've been doing it for a few years, but COVID has added fuel to the fire. Rents are down up to 9% and one-way U-Haul rental tracks are through the roof.
There are a few reasons why this is happening.
The Valley has hit diseconomies of scale a long time ago, increasing the barrier to entry. And the acceleration of remote work is providing a valid alternative. Valley salaries but Utah prices.
The rise of other technology hubs decentralizing power. 2019 was a record year for Europe and Latin America which means there's more capital and talent than ever.
And finally, America is imploding and becoming more in-ward looking than ever.
[America] now appears so fundamentally damaged that it cannot serve as a useful example for anyone else—and that’s a problem. We've all been taught for decades, especially in Europe, that we should look to the US for inspiration and direction. But now our future prosperity depends on finding a new direction. Will we find it by looking to the East? By looking at one another across our European borders? By looking back at what we achieved in the past? – Nicolas Colin
But those forces by themselves aren't enough. Forces need to gravitate somewhere else. This led me to ask what human, structural or policy changes enable us to "replace" Silicon Valley?
Countless cities around the world have tried and failed to recreate the economic dynamism of Bay Area because there isn't a single point-by-point equivalent.
Instead, there are many. Silicon Valley is a bundle that we can unbundle.
Understanding Silicon Valley
Talent moves to Silicon Valley to start, scale or join fast-growing technology companies. That's a lot to unbundle but we can group the "utility" of the valley in 6 broad groups.
- Proximity to customers. Startups' first clients are often other startups, and the sheer density of companies in the Valley is more than enough. But the key is that the Valley has more hyper-growth companies than anywhere else. And this companies have Enterprise-level contracts but early-stage startup sales cycles. The perfect combo.
- Raising capital. Silicon Valley is, by far, the place with the most capital invested every year. The United States raised $130 billion in capital in 2019, of which 40% were in Silicon Valley. That's more than the entire European ecosystem (with a very respectable €34 billion.)
- Talent flows. Silicon Valley is the place to be for recruiting high-caliber talent or finding a job at a high-growth startup.
- Community and access to like-minded people.
- Serendipity. From Sam Altman:
"Silicon Valley works because there is such a high density of people working on start-ups and they are inclined to help each other. Other tech hubs have this as well but this is a case of Metcalfe’s law – the utility of a network is proportional to the square of the number of nodes on the network. Silicon Valley has far more nodes in the network than anywhere else."
- A culture that values big risks and rewards complex problems. Even ridiculous bets. The perfect example is the reaction to the a16z $10 million investment into Clubhouse. The West Coast (read: VC Twitter) gasped in admiration while the New York Times mocked Marc Andreesen's essay.
Every single one of those reasons can be unbundled. Even serendipity. When you combine the possibilities of replicating the parts of Silicon Valley that you need with high-cost of living, America going inwards, remote work and diseconomies of scale, then you have a decentralizing cocktail.
Let's take a look.
Disclaimers: This is heavily geared towards Europe, particularly the capital stack. Some startups are missing. Others fit into multiple categories.
Opportunities (for Europe and the World)
While the chart above is far from comprehensive given Silicon Valley’s relevance, I see opportunities emerging across 4 broad themes.
Highly-curated online communities. Part of the allure of the Valley is the density of smart, like-minded people. We've been doing Slack communities for a few years now, but there's room for a niche networks that enable education, investment, support, and serendipity.
At the same time, there's room to build the software that empowers these communities and enables the interactions to happen.
Alternative funding options. Two things are important right now: democratizing access to capital at the early stage, and alternative funding options at the later stage.
- Heartcore Fellowship
- Entrepreneur First
- Fundraise from Home
- Debut Sessions
- Scout programs from Atomico, Backed.vc and Blossom.
- Reputation management like Landscape Ventures
Talent and recruitment marketplaces. These companies, as they exist, sit on a billion-dollar inefficiency that shouldn't exist. Instead, they should sit on top of communities, gaming platforms or remote work.
The Sales stack. With teams unable to signal positional scarcity (for now at least), and customers being everywhere, we need better tools to power our sales cycle.