Aaron Shapiro.

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What it Takes to Make a Silicon Valley

Originally Published in Notes on Digital, September 13, 2010

“Requisite networks and culture of entrepreneurship, risk-taking and openness.” That’s what Vivek Wadhwa explains Russia needs to develop its own Silicon Valley in his recent Tech Crunch post. He says the country needs to teach entrepreneurship and let innovators know that it’s ok to fail on the way to success.

But Wadhwa’s requisites aren’t relevant just to Russia—a context that for most domestic tech executives isn’t applicable to their everyday. Many of his points are valuable for any city, state or country hoping to create the perfect storm of qualities that made Silicon Valley into what it is today.

I’ve done startups in New York and Atlanta, and I’ve interacted with more than my share of companies in Silicon Valley. From what I’ve seen, the three most important qualities of a startup-friendly city or state are a stellar university, at least one key incubator organization, and funding on both a small and larger scale. These tangibles, relevant to any locale, are key to form the networks and culture pointed out by Wadhwa.

The importance of a university churning out highly entrepreneurial, innovative and tech savvy graduates is obvious. Talent is number one. The foundation of almost every tech business is an ambitious developer or engineer with big and realistic idea. Often they have a valuable design sensibility, a real sensitivity to usability issues and an expertise in technical capabilities, all of which comprise the brain behind the big bucks. When my cousin was at Stanford University, he took a class where the goal was to start and launch a new Internet product in 10 weeks. Out of that class came the famous, New York Times-threatening iDevice app called the Pulse News Reader.

But a big idea isn’t all it takes. The developer needs to find the tools to turn it into the product or service of a profitable company. This means writing a business plan complete with financial projections; securing the copyrights and trademarks for intellectual property; getting the patents for new technology; setting up operation as a limited liability corporation, sole proprietorship, partnership or corporation; drafting non-disclosure agreements and employee contracts; and ultimately getting loans for everything from staffing costs to marketing. For these tasks lawyers, experienced business executives and venture capitalists are needed.

The link between the dorm-room techie and the capable business executives are incubators. Often these organizations help support young, promising entrepreneurs by linking them with financiers, lawyers and PR firms. In Atlanta, a lot of tech startups come out of the Georgia Institute of Technology’s incubator program, the Advanced Technology Development Center. Since 1980, ATDC has graduated more than 120 companies, and in total, they’ve attracted more than a billion dollars in outside financing. Silicon Valley is fueled by graduates of Stanford University and University of California, Berkeley as well as numerous incubators. One prominent incubator is Y Combinator, a group that does small-scale seed funding for startups, particularly web-based applications.

The most important player in the incubator, outside of the engineer, is the financier. Engineers need seed money, angel investors and venture capitalists willing to take risks to get the new endeavors off the ground.

This has been a traditional weakness in New York, where I currently hang my hat. Even though it’s the center of the U.S. financial world and has top-quality educational institutions, it has a relatively small venture capitalist community. Ten years ago, I started my e-mail marketing software company Silverpop Systems in New York. But I had to move it to Atlanta because that’s where the funding was available.

Bloomberg has started to create these startup necessities for NYC. At the end of May, at a TechCrunch Disrupt event in SoHo, the mayor announced the creation of a public and privately funded $22 million NYC Entrepreneurial Fund. There he gave the first $300,000 to a mobile application provider. Then a few weeks later he showed up at the Wired Business Conference to announce the launch of a local MIT Media Lab-like organization associated with The Polytechnic Institute of New York University and Columbia University. “The lab will help media companies license new technologies developed at the participating schools and contract out new academic research for use in projects, said Kurt Becker, associate provost for research and technology initiatives at NYU-Poly,” reported The Wall Street Journal. These efforts will create community around ambitious, tech-oriented entrepreneurs and will provide the opportunity to bring their big ideas to fruition.

Like anything else, though, the equation is simple but the reality is not. One of New York City’s biggest assets, Wall Street, could threaten Bloomberg’s efforts. Wall Street is wooing tech talent, too—and not for entrepreneurial endeavors. They need developers to design tools that track stock market fluctuations, predict lucrative buys and tell them when to sell. And the Wall Street firms are paying big bucks for the talent—big bucks that the talent would have to save up, leave and risk if they wanted to launch a startup. That risk might just be too much to ask.