Apr 1

Luck, the Government and how Silicon Valley became Silicon Valley

Category: Uncategorized

A while back a posting from the Singapore Business Times entitled “Start-ups risk ‘going astray’ in two scenarios” came into my Facebook stream. I commented with the following:

Governments are rarely good at leading investment in these spaces. If you look at the story behind Silicon Valley, it’s pure luck. A bunch of brilliant people got stranded in the south bay and then went on to build lots of iconic companies from a single very profitable company. These people also paid it forward to the next round of start ups that they felt would be successful.

The reply that I got suggested that Silicon Valley wasn’t luck and it wasn’t lead by government. The reply implored me to review the Wikipedia page stating it was very good. So I did just that and here is that analysis in addition to some insight from a report on How Silicon Valley became Silicon Valley.

My first observation is that someone from Stanford has been busy on the Wikipedia page. The first untitled section is Stanford has made Silicon Valley which doesn’t seem fair given that it was just as late to the game as many other. It doesn’t take long to get to the US Government’s input with the social roots section. This highlights how the US Government generously funding silicon based IC development via the Defence Department. The pervasive narrative of Stanford leadership being essential is repeated here however when you look at the reference you see that Stanford took Shockley in as a professor and the “Fairchild 8” went off and started the company that was so influential. The page continues noting US Government support with military technology reinforcing a strong theme of government support of technology development. Sputnik founds the creation of NASA and Fairchild Semiconductor were the only source of transistors in the world.

Stanford Industrial Park features a mention however you don’t get far until you end up seeing that it’s the military spending the cash here again. HP is the only (barely) surviving name in the list to have actually been born here. HP is interesting because it also has military work in it’s history as well as still using tube based technology. The other companies that joined the industrial park are previously existing companies with military support (Lockheed and General Electric). What’s also overlooked here is the government and the GI Bill which is suggested at in the first sentence (“returning students [with scholarships paid for by the government under the GI Bill]”). All in all, the Stanford Industrial Park is a side effect of heavy government investment.

Wikipedia continues onto the birth of Silicon Valley or what put the “silicon” into Silicon Valley. You have Shockley moving from the East coast moving out to the West coast and bringing with him a bunch of folk who after his start up fail then go to form Fairchild Semiconductor. The government also plays a part here again in purchasing from Fairchild. These folk then go on to form small companies you’ve never heard of like Intel and AMD or to form VC funds. This is the luck part I’m referring to because Shockley could have landed just about anywhere else – perhaps even on the East Coast where most of the development was – and the government still would have come to the resultant Fairchild to invest in the technology because it was something nobody else had during the middle of the Cold War and Space Race. The question becomes that had he remained on the East Coast would those 8 employees have just joined the many companies over there who were in the same industry (e.g. go to Bell Labs that Shockley himself had left).

As we enter the 1970’s, the Homebrew Computer Club also provides an interesting insight into a culture that believed in making computers more accessible to everyone. This is the same club that Steve Jobs and Steve Wozniak attended that influenced the future of Apple in addition to many other notable parts of computing history. Now we see the fan out of Fairchild, our lucky start up, with Kleiner Perkins founded by two alumni of Fairchild. Kleiner Perkins goes on to fund a number of small companies like AOL, Amazon, Citrix, Compaq, EA, Genentech, Google, Intuit, Juniper, Lotus, LSI Logic, Macromedia, Netscape, Sun Microsystems, Symantec, Verisign and Zynga. Sequia Capital was another VC firm started by Fairchild alumni and funded other small companies like Apple, Atari, Cisco, EA, Google, Instagram, LinkedIn, NVIDIA, Oracle, PayPal, WhatsApp, Yahoo! and YouTube.

An important part of the Fairchild story is the mentorship of small companies like Apple by folks such as Noyce (Intel founder) mentoring Steve Jobs. Jobs then mentored Zuckerber. You see the VC aspect in Andreessen who co-founded Netscape and now runs his own VC fund which has invested in other companies such as Twitter. Another place to look is PayPal which brings in Peter Thiel, Reid Hoffman and Elon Musk who went on to found other start ups: Peter Thiel went on to found Palantir and was an early Facebook investor, Reid Hoffman founded LinkedIn and most spectacular of all is Elon Musk who is currently figuring out how to go to Mars with SpaceX and is shaking up the car industry via Tesla Motors.

Once we move beyond the hardware, we start to look at the software. Here again the US government with NASA and the US Air Force which then lead onto the development of Xerox PARC which then leads to the implementation of ground breaking technologies like the GUI that Apple build and ethernet networking technology that is pervasive today. Here is where Stanford can start taking more credit with the work of Doug Engelbart whose work you’ll immediately recognise from his “Mother of All Demos” in 1968. If you have some time I suggest that you check out the video of the demo which is impressive when you consider that it’s running live in 1968.

Wikipedia’s History section ends with the bubble which is rather an interesting place for the page to end on because in the last half a decade there has been a steady resurgence. In my view the bubble brought in liquidity of talent which has recurred today. This part of the world has slowly built up a density in the sort of folk who are drawn to computing and they continue to create new companies to solve problems with technology. This is perhaps what keeps Silicon Valley on top: the sheer density of talent and experience.

I find it hard how people can both dismiss the influence of the US government on the area and dismiss the luck factor. The US government funded the initial level of technology in the area and Shockley brought into the area the folk who created Fairchild Semiconductor. Then what happened with Fairchild set the stage for the private investment culture that has enabled Silicon Valley to become what it is today and had a hand in the creation of thousands of companies. Without those two it’s quite possible this would have just remained yet another agricultural valley like elsewhere in California.

What the US Government brought to the table is the spirit of open ended investment, notably in research. Fairchild then brings this spirit into the private sector with the VC funds. It’s a culture of altruism and mentorship in addition to investment. That underlying culture is what keeps the Valley strong and keeps it growing. However with each bubble the snakeoil salespeople creep up and unfortunately it’s those same people who are in the business of grantepreneurship. Silicon Valley has had long enough to grow it’s solid foundations (over 70 years) which helps it survive but the rest of the world hasn’t taken that long.

You really can’t take the short cut to build that culture.

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