The Startup Ecosystem

A favorite topic of VCs -- particularly VCs in Bay Area -- is what makes Silicon Valley so conducive to creating great startups. From my point of view, the things that makes any area conducive to business creation (the Bay Area or Boston or Austin or wherever) are an entrepreneurial culture and a supportive ecosystem of institutions and professionals. While it is certainly possible to create great businesses without those things, it is far more challenging. Places like the Bay Area tend to have a disproportionate number of individuals who are willing to bet on risky ventures. And they have a disproportionate number of lawyers, bankers, investors, accountants who have an expertise in business creation. In combination, all these things are self reenforcing and create an even stronger startup culture, which in turn creates a stronger drive towards business creation, which in turn fuels an economy of startup-focused service providers, which in turn lubricates the funding process, which in turn promotes startup growth, which in turn creates an even stronger startup culture, and so on.

I was thinking about this very question over the weekend while on a "business trip" (aka boondoggle) in the Wine Country sponsored by Silicon Valley Bank. SVB is unquestionably a part of the startup ecosystem in the Bay Area. They work closely with a half dozen companies in which I have invested and with dozens of companies in our portfolio. They appreciate the nature of venture backed startups and provide banking support -- including debt financing, for example -- in a way that acknowledges the nature of startup finances. SVB aren't the only bank in the Bay Area that happily accommodate startups and the unique nature of their profile (namely, their volatility and cash consumption needs) but SVB have made it their mission to court startups and help them find their way through the funding and growth life cycles typical of any successful startup (with all its ups and downs). That support is just one small piece of the ecosystem that I believe distinguishes startup favorable towns from startup hostile locales.

As part of the trip I was on this weekend, Silicon Valley Bank hosted a dinner at Silver Oak Cellars. Silver Oak is one of SVB's winery clients and as a result they opened up their cellars to a group of SVB's friends in the Venture business. We were given a tour of the Silver Oak facilities by their Vice President of Marketing who stressed the importance of relationships throughout the tour. Building on that theme, Harry Kellogg (SVB's Vice Chairman and President of SVB Capital) toasted to a partnership between his bank and the Venture community -- he said something to the effect of "we provide startups with the debt they need, you provide them with the equity they need, and Silver Oak provides them with the wine they need." While, at $60 and up a bottle, I'm not sure how many startups are taking solace in Silver Oak, I do think that the partnership between Silicon Valley Bank and the Venture community has been a good one. It makes up one small corner of the startup ecosystem that continues to make the Bay Area a fantastic place in which to build new businesses.

Comments

[Danny Nerezov]

What a wonderful place to explore the catalysts of occupational entrepreneurship!

And what a wonderful observation on the self reinforcing nature of entrepreneurial hotspots!

But what's next? How do you get a little Silicon Valley going in places like Latvia or Puerto Rico?

Whilst initiatives are under way (and thank heavens!), the question remains of what's more efficient: government sponsored industrial parks, micro credit programs, entrepreneurship in high schools or tax concessions for foreign venture capitalists (inter alia)?

It might sound idealistic, but in my opinion, a strong fundamental factor in the start-up ecosystem is an underlying humanitarian culture.

I think entrepreneurship would eventuate faster in developing countries if there was a genuine care amongst the stakeholders as to the problems of other people- in their local communities or otherwise.

Other areas of concern are perceptions towards entrepreneurship. For example, in US, entrepreneurship is an acceptable occupation; it's respected, nurtured and understood. In places like Australia- the situation is very different.

For all the lip service paid to "supporting innovation" and being "the clever country", in my personal experience, people just don't "get it" when the dreaded e word appears on your business card or CV..worse, people feel intimidated.

..as much as it disappoints me...I doubt many countries will ever enjoy the Californian experience.

..and I so hope I am wrong...but just by comparing the sheer volume of information on the subject...America is light years ahead of anybody simply in fundumental research into the subject matter. And again, it didn't happen by chance..a lot of very brave people wanted it to happen and I think there is a lot to be said about that.

[Jason M. Lemkin]

I would agree with David's post 100% and add people as the #1 reason put a start-up together in SV. Combine the right pool of candidates with the ecosystem described, and you can scale in a way impossible in other parts of the country and the world. The ability to scale so rapidly IMO is what makes Silicon Valley so special.

An interesting flip side though is that if you can't leverage the value of SV for your company, being in the Bay Area becomes a large negative. My last start-up was in the nanotech/power space and most of the technical talent had to be recruited from outside the Bay Area to the Bay Area. This proves essentially impossible for anyone with a family due to housing prices. Stock options are nice but it's hard to give up your 4,000 sq ft colonial in upstate New York to live in a 1 bdrm apartment in Campbell on the hopes of the value of those "pre-IPO" options . . . no problem though if you don't have to recruit meaningfully outside of the Bay Area.

[Whippet]

Silicon Valley is a big place for TECHNOLOGY startups because it has a high concentration of engineers, researchers, experienced tech executives and tech VCs.

It's funny, but most startups in the US aren't Valley VC-backed pump-and-dumps. They are people statring businesses in thousands of niches, with their own capital. The Valley has an insitutionalized system of financing and promoting "startups" (if companies that raise millions before Day One can be called startups), but it should be confused with the real world that 99% of America's entrepreneurs live in.

And too, with the maturing of the PC industry, the Valley will eventually be the New Detroit--meaning: today's Detroit.

[john]

The place like america and other are become high in technology becouse the whole cream of scientists engineers and other's from whole world become american resident.

John