Lessons for startup ecosystems from the history of Silicon Valley

I just read Nicolas Colin’s Brief History of the World (of Venture Capital). It’s a great romp through the history of entrepreneurial ventures and how they were financed – starting with loan deals brokered in coffee shops and ending with the PC boom which established venture capital as an asset class in 1970s and 1980s. The bit I liked the most described the role of Stanford in getting Silicon Valley going in the late 1950s. Provost Frederick Terman (who I hadn’t heard of before) went after large military research budgets as part of his mission to make Stanford a leading university in the sciences, and created a four pillar system that kicked off entrepreneurialism in the Bay Area:

  1. reach out to military prospective customers to better understand their needs, then offer to craft them a prototype in Stanford’s research laboratories—this generated substantial revenue for the university and strengthened its trusted relationship with key military figures;
  2. if the prototype satisfies the customer, encourage one of your students to found a company and manufacture the product at a larger scale—this inspired an entrepreneurial spirit among the students and contributed to stimulating their hard work in the university’s laboratories;
  3. make sure a member of the Stanford faculty (if not Terman himself) becomes a board member or consults with that newly founded company—this contributed to training Stanford scholars in business and turned them into better teachers and researchers;
  4. provide office space in the Stanford Technology Park, which was made possible by the fact that the university was the primary land owner in Palo Alto—this ensured that the upstart company stayed close and helped the nascent entrepreneurial ecosystem reach a higher density.

We can generalise this into a blueprint for ecosystems generally:

  1. Find a vertical market where there is a comparative advantage – Silicon Valley started with military technology, in London fintech and ecommerce are good candidates. We focus on ecommerce and marketplaces.
  2. Inspire entrepreneurialism – highlight the positive effects of startups and make ‘founder’ a popular career choice. The UK government’s support has been important for our startup ecosystem.
  3. Promote learning and knowledge sharing – startup ecosystems only work if old-timers pay it forward by sharing content, speaking at events and taking meetings with newer entrants.
  4. Encourage entrepreneurial density – business becomes more efficient and 2 and 3 above work best when startups congregate in the same place. Silicon Valley started in the small district of Palo Alto and the emergence of Tech City here in East London has been similarly important.

This is a ‘do the right things and the money will follow’ plan, which is a bit simplistic, but better that way round then pushing to much money out before the ecosystem is ready.

  • Makes sense … just wish we had some low cost space for start-ups to congregate around, with that sort of learning base/campus in London. You might find “California” by Kevin Starr interesting in terms of the history/background to commerce there in the State … lots of names I had not heard of even with being in the Valley from the 80s.

  • Paul Walsh

    Spot on.

    5. Encourage those who are successful to help turn the soil by re-investing back into that same ecosystem. Money becomes smarter. Ecosystem becomes more fruitful. Loop.

  • This also validates Mariana Mazzucato’s views in The Entrepreneurial State – the VC industry in the US has been heavily supported by the government. The UK government has promoted the startup ecosystem but I don’t know how much it has paid individual startups for their services/products. InnovateUK does some great work but just lacks the firepower of DARPA.

  • Rmicals

    The most important point relevant to the UK has been missed i.e. London needs a better quality of VC and VC’s with a bigger appetite for risk. The difference between talking to VC’s in the valley and here is quite prominent. This is not just about capital but time spent thinking about the future, connecting dots and understanding business models. Otherwise, the entrepreneurial talent is great, diverse and innovative. Also, what the government is doing is excellent.

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  • Big money was also being spent by the US Navy in California after the war. Looking a bit wider than London I have wonder if we could turn the whole NHS debate on its head and ask how this huge amount of spending could be a catalyst for change rather than just a cost centre?

    You might also find this interesting http://www.sunstonecommunication.com/blog/is-there-a-right-or-wrong-way-to-build-a-startup-ecosystem

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