62 Business The Economist March 19th 2022
Thesiliconstate of mind
S
ilicon valleyfeels like a college reunion these days. As co
vid19 restrictions are lifted across America, techbros (and the
occasional techgal) who have not met in person in ages are high
fiving each other all over the place. Firms from Alphabet to Zynga
are urging workers back to the office. Venture capitalists are flock
ing back from second homes by Lake Tahoe or ranches in Wyo
ming. Foreigners, who during the pandemic became a rarer sight
in San Francisco than unicorns, can again be spotted south of Mar
ket Street, a popular pasture for startups valued at $1bn or more.
The people look the same. Yet the place feels different. Your
guest columnist, who is heading to Berlin after spending a total of
12 years, including all of the pandemic, in San Francisco over the
past three decades, suspects that many returnees will feel like
strangers in a strange land. Not because everyone seems suddenly
obsessed with the decentralised “web3” (which they are) or be
cause the valley has peaked (which it hasn’t). Silicon Valley has
changed, and not just as a result of the pandemic.
When this standin Schumpeter moved there in the mid1990s,
even some top venture capitalists drove lumbering clunkers. Now
a zippy Tesla is de rigueur (with a Ferrari often sitting in the ga
rage). Similarly, the hub’s business metabolism, which few places
could match to begin with, has sped up. In the pandemic jobhop
ping became even more rampant and rapid. Many firms offer six
figure cash bonuses and pay rises of 25% to retain talent. Promis
ing startups can raise money in days rather than weeks. Last year
more than 17,000 venturecapital (vc) deals were cut in America,
40% more than in 2020, according to PitchBook, a data provider.
All that money pouring into a limited number of deals helped
raise latestage startups’ median valuation to $115m in 2021, nearly
double the level in 2020. Outside investors, including hedge funds
such as Tiger Global and Coatue Management that used to invest
mainly in public markets, have piled in. These newcomers bring a
new philosophy, in which a firm’s performance and its fit in the
overall portfolio trump conventional vc considerations such as
knowing the founder or understanding the industry.
Valuations may already have suffered as a result of rising inter
est rates. But the cash will not disappear. Nontraditional inves
tors, from privateequity firms to family offices, keep coming. Andmoney isn’t the only accelerant. Tech itself has chivvied things
along, too. Zoom makes it easier for people to interview for a new
job and for entrepreneurs to pitch to potential investors. In the
words of Mike Volpi of Index Ventures, a vcfirm, “This has created
a much more efficient market.”
It has also created a much more global one. In the late 1990s Sil
icon Valley’s startup uniform of washedout tshirt, shorts and
hairy legs was (thankfully) confined to the Bay Area. Today’s less
offputting Silicon Valley look—untucked shirt, khaki trousers,
white trainers—is the fashion choice of founders everywhere. Less
sartorially, whereas as a few years ago a base in the valley was still
a must for ambitious entrepreneurs, engineers and investors, now
they no longer have to be physically present to get access to capi
tal, talent and knowhow. Established tech firms, too, are expand
ing their geographical footprint. Many are building offices in such
places as Austin and New York. A few, including Hewlett Packard
Enterprise and Oracle, have relocated their headquarters to Texas.
The Brookings Institution, a thinktank, recently estimated that
31% of tech jobs are now offered in “superstar metro areas” such as
Silicon Valley, down from 36% before the pandemic.
vcs, for their part, have learned they do not need to drive to a
startup or smell the founder to make a lucrative deal. Sequoia, a vc
stalwart, no longer requires live inperson pitches from entrepre
neurs and is perfectly happy with prerecorded video presenta
tions. More of Sequoia’s fellow vcs on Sand Hill Road, the historic
centre of vcdom in Palo Alto, are eyeing Europe. Venture invest
ments across the Atlantic have shot up from less than $40bn in
2019 to more than $93bn last year—pulling nearly equal with Sili
con Valley, according to cbInsights, another data provider. Se
quoia—king of the Sand Hill, having wrested the crown from
Kleiner Perkins, the dotcomera lord—recently opened offices in
London. Other vc firms are planning European outposts. Plenty al
ready have Asian ones.
The Bay Area has lost its “geographical monopoly” in tech,
sums up Phil Libin, a serial entrepreneur who runs mmhmm, a
videoconferencing firm (whose investors include Sequoia). Mr
Libin himself now lives in Bentonville, Arkansas, better known as
the home of Walmart than as a tech hub.
Some of this dispersion may slow or even reverse. As covid19
fades into endemicity, even Zoomhardened venture capitalists
would rather interrogate a startup founder over a bottle of a Napa
cabernet than over a video call. They may also become more dis
cerning about where to put their capital now that it is becoming
costlier. This could favour nearby startups on which it is easier to
keep an eye.The valley reforged
Will all this make Silicon Valley more parochial, and less relevant?
Don’t bet on it. It is true that the next trilliondollar company may
not come from Silicon Valley, the place, as most of the current crop
have done. But the odds are that it will emerge from Silicon Valley,
the mindset. Its highoctane venture capitalism and, increasingly,
its capitalists and capital have infused technology scenes from
Stockholm to Shanghai and São Paulo. That may be bad news for
landlords in San Francisco, secondrate entrepreneurs in Moun
tain View and other rentseekers who took advantage of the Bay
Area’s initial geographical monopoly. For everyone else, be it tech
workers southofMarket who can at last afford a flat nearby or in
novators in Mumbaiable to tap Silicon Valley money and exper
tise, it is a boon.nSchumpeter
Has Silicon Valley lost its monopoly over global tech?