By Anil Gupta & Haiyan Wang
Despite the East Coast roots of technology entrepreneurship and venture capital, by the 1990s Silicon Valley had gained a major advantage over the Cambridge-Boston area.
Cultural factors and government policies played a role. What else accounts for Silicon Valley’s ascendancy?
First, digital transformation has engulfed almost all industries, supported by the same underlying technologies: sensors, search, social media and artificial intelligence. Silicon Valley dominates these technologies.
In contrast, New England has increasingly become a hub for ventures in biotechnology and medical devices. That’s why, given a choice, a growing number of tech entrepreneurs prefer to launch their ventures in or migrate to Silicon Valley. The area has also become the go-to place for the digital labs of “traditional” companies, such as General Electric and Wal-Mart.
Physical proximity to technology creators, cutting-edge engineering talent and even competitors makes a difference. Geographic distance can become a major impediment when you’re trying to tap into people’s half-formed ideas about the technologies and products they’re developing. You need to be plugged into local informal networks. Doing so requires being there. The result has been a growing agglomeration effect in Silicon Valley.
Second, as LinkedIn Cofounder Reid Hoffman has argued, Silicon Valley developed an edge in the art and science of scaling up. Once Silicon Valley surged ahead of New England in creating and growing new ventures, it found itself with a pool of experienced entrepreneurs and senior executives who were ready to start, join, invest in or, otherwise, help other new ventures.
Witness the career trajectories of the founding team at PayPal, which included Hoffman, Elon Musk, Peter Thiel and other now-notable serial entrepreneurs. Their success encouraged other start-ups to relocate to the area. The most famous of these is probably Facebook, which Mark Zuckerberg launched in his Harvard dormitory. Lured by Silicon Valley’s ability to help the company scale up, he and his team moved to the Bay Area.
Third, as the market for private capital has matured, new ventures can now raise large sums of money without the necessity of a public listing. For example, Uber, with a market valuation exceeding $60 billion, is still a privately held company. On average, tech ventures in Silicon Valley scale up faster, thereby attracting much larger sums of expansion funding.
Anil Gupta is the Michael Dingman chair in Strategy, Globalization and Entrepreneurship at the University of Maryland’s Smith School of Business. Haiyan Wang is the managing partner of the China India Institute.