The New Order of Silicon Valley: Forget the Silicon Part

I moved to the San Francisco Bay Area over twenty years ago. Back then I could think of no other place to be; it was the kitchen of the internet. Obviously in hindsight it was a good call. I was fortunate to live through several waves of crazy growth: first, internet infrastructure and basic applications that needed to exist. Then social networks, and finally mobile computing.

Right now we are not in the middle of an innovation wave as meaningful as those, at least not in the areas that I know about. Sure, machine learning is advancing every day. Hardware keeps getting better. Autonomous vehicles will happen eventually. However, from the point of view of an investor or entrepreneur these are not the insane land grabs that we experienced in past decades.

Here are the trends I see in Silicon Valley today:

  • The “Silicon” part of the name no longer applies. Hardware is not made here anymore. The bulk of it is not even designed here. If you are interested in hardware innovation, you want to be in Asia. That is where the kitchen is, you cannot really design consumer-grade devices if you are not immersed in the manufacturing ecosystem.
  • VCs do not invest in hardware. These days they generally do not invest in technology per se, even. The typical company VCs adore these days is a service provider. They take some aspect of daily life (education, transportation, health, food). They use commodity hardware, and reuse as much software as they can. The role of most developers at these companies is to glue cloud services together. A startup that is building a scalable service should not be inventing new technology unless there is no other option.

So here is an obvious corollary. Like I just mentioned, if you have an idea for an interesting gadget you will move to a place like Shenzhen or Hong Kong or Taipei. You will build a prototype, prove your concept, work with a manufacturer to iterate your design until it’s mature enough to mass-produce. Either you will bootstrap the business or you will partner with someone local to fund it, because VCs won’t give you the time of the day. Now, let’s say hardware is not your cup of tea and you want to build services. Why be in Silicon Valley at all?

The number one advantage of Silicon Valley is access to money. We have an ecosystem of investors that does not exist anywhere else yet. So of course you want to be here to pitch your idea. Once you have VCs on board, what advantage is there to be here in terms of building a service oriented business?

There are many services for which California is a good starting point (e.g. marijuana delivery). However, labor in California is particularly expensive. In terms of hiring software developers, it’s the most expensive location I know of; you’re competing for the best and brightest with the infinite pockets of Facebook, Google, and friends. If I were building a service company today, I would:

  1. pitch my idea to Silicon Valley VCs.
  2. build an execution team wherever convenient (could be Asia, Europe, India, anywhere in the US, who knows).
  3. if applicable, establish a Bay Area presence for market development or sales.

I hope that I get to ride another crazy technology wave here in the Bay Area, but I am betting that the next one will take shape very far from here. This is why these days I am investing significant time into learning Mandarin and attending foreign startup pitches.

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