Monday, May 23, 2011
THE ROAD TO SILICON VALLEY
Last week, I was over in California as a guest speaker at the British American Business Council (BABC) event in San Francisco.
It was an impressive event focusing on innovation and I was fortunate enough to share the platform with luminaries such as Mike Moritz of Sequoia Capital, one of Wales’ most successful business exports; Peter Moore, President of gaming company EA Sports (and a former teacher at Ysgol Dinas Bran, Llangollen!); and Penarth-born Lieutenant General Sir Robert Fry.
Of course, there is nowhere better than Northern California to hold a symposium on innovation, given that the World’s greatest concentration of high technology companies is to be found in an area down the road from San Francisco that has now become famous as Silicon Valley.
The term Silicon Valley comes from the fact that, back in the 1950s and 1960s, there was a cluster of companies involved in the semiconductor industry within the region although the real success of Silicon Valley has emerged in the last 25 years with the rapid development of companies such as Apple, E-Bay and Google, businesses that have revolutionised the way we live and work.
In fact, even Facebook, whilst originating at Harvard University, only achieved its dazzling success only after relocating to California.
During the conference, Cardiff-born venture capitalist Mike Moritz was asked what was the defining factor in the success of Silicon Valley. He responded by saying that it was education, and investment into research and development into world-class institutions such as Stanford University that had really made the difference.
It was also argued that high quality research alone was not sufficient to enable the development of innovation in vast quantities. Indeed, it was suggested in a later session that the one of the real catalysts in ensuring the future development of Silicon Valley was the creation of the Stanford Industrial Park in the 1950s on land owned by Stanford University. This enabled a centre of high technology industry to be created close to a proactive university.
More relevantly, future tenants were limited to those high technology companies that might be beneficial to the university. Given this, many will be wondering why Wales has yet to establish a science park near to any of its two main research universities?
The other key factor is the finance that was available across the region. Whilst venture capital in the USA originated in the North East of the country around Boston and New York, it found its feet in the West coast of America, where opportunities were quickly emerging from world-class engineering departments and companies such as Hewlett Packard with a strong commercial track record.
Indeed, during the 1980s, the number of venture capital firms increased from just a few dozen firms to over 650 firms by the end of the decade, with over $31 million of funds available.
Whilst the bursting of the dot-com bubble at the beginning of the Century had the biggest impact amongst Silicon Valley companies and investors, it didn’t take long for the funding opportunities to re-emerge with the growth of new internet opportunities such as social networking through companies such as Facebook, Twitter and YouTube, all of which did not exist prior to 2005.
Many would say that, despite the emergence of the new economies of China and India, Silicon Valley has undergone a renaissance in recent years as a result of this new sector. In fact, in the first quarter of 2011, 65 per cent of all venture capital deals within the USA were undertaken in California and new fast growing companies are emerging all the time. For example, Zynga, the social network game developer responsible for Facebook-based games such as Farmville, was recently valued at $10 billion despite only starting in July 2007.
For policymakers, the key question is whether you can recreate Silicon Valley elsewhere i.e could we create a “Cwm Silicon” here in Wales?
The answer is probably no, at least given the short-term election cycles that most politicians in Wales adhere to when developing economic policy. Of course, Israel is held up as one location that, through a unique set of circumstances, to replicate the success of the Valley in a short time but that is the exception rather than the rule.
However, that is not to say that new clusters cannot be developed given the right combination of talent, opportunity and timing. Indeed, Gordon Moore, one of the founders of computer giant Intel, argued a decade ago that whilst Silicon Valley is very hard to clone, there are important elements for success that can be developed elsewhere. These include the existence of a technology-anchored tenant in the area with many exploitable niches; lots of well-trained engineers; entrepreneurs with no fear of failure; available capital to back ventures; and accommodating government policies.
Certainly, one could argue that in Wales, such factors have yet to be put into place for even a mini-Silicon valley to be developed but a quick and detailed review of whether we can develop such factors quickly in Wales could be an early win for the new Business Minister.
On the other hand, perhaps the best way to start is by trying to learn directly from the last sixty years of success enjoyed by Silicon Valley and at the very least, Welsh businesses should be looking to create greater links with one of the real high technology hotspots of the World.
If we can’t exactly replicate its success of the most innovative region in the World, we should at least try to connect directly with the innovation ecosystem in Northern California i.e. rather than bringing Silicon Valley to Wales, we take our best companies out to Silicon Valley to look for new opportunities and, more importantly, venture capital funding.
Can Wales do that? Watch this space!