The Origins of Silicon Valley

The Origins of Silicon Valley

John Murray, Research Director

In recent decades, many technology industry observers and policymakers have marveled at Silicon Valley’s success in persistently attracting visionary entrepreneurs and ambitious investors from across the country and around the globe. But, despite sometimes appearing to be a recent phenomenon, the Valley’s ecosystem has evolved from a rich history of the pioneering spirit that dates back to the California Gold Rush.

Universities in the San Francisco Bay Area have long been influential magnets for ambitious students and smart academics worldwide, in particular Stanford University, whose founder, Leland Stanford, was himself initially attracted to the lucrative mercantile business possibilities offered by the Gold Rush in the mid-nineteenth century. Stanford used his wealth to establish the institution’s initial endowment, directing that the university be “dedicated to the sciences and the good of humanity,” and ensured that a significant proportion of the early faculty recruits were specialists in engineering and other technical fields.

The university, although initially beset with financial difficulties, had become well-established by the 1930s, when two engineering students named Bill Hewlett and David Packard decided to form an electronic instrumentation company in nearby Palo Alto. It was an entrepreneurial decision that is often thought of as the ‘birth of Silicon Valley.’

The Valley’s ecosystem of innovation and investment is richly described in The Intelligent Investor — Silicon Valley: Practical wisdom for investors and entrepreneurs, a new book just published by Fifth Era Media. Edited by early-stage technology investors Alison Davis and Matthew Le Merle, the book presents extensive insights from fifty hands-on angel investors and entrepreneurs, written in their own words. In this respect, it differs from most other books on venture capital (VC), which typically reflect the views of a professional journalist, academic, or perhaps the experience of a single investor.

The genesis of today’s investment community can be traced to William Henry Draper, a financier from New York, who moved to California about a century after Leland Stanford, and formed the first VC firm on the west coast. As his grandson Tim writes in the book, up to that time, the tech industry was primarily “engineers selling interesting equipment to other engineers,” with few outsiders willing to invest money into these ventures. The elder Draper recognized an opportunity to bring innovators and entrepreneurs together, and to assemble the angel funding needed to help the nascent companies flourish. Other service providers followed and now, throughout the Valley, people are thinking constantly about how they can make products or services better and more delightful.

Another common observation is the extent to which successful entrepreneurs are keen to fund promising new startups and carefully mentor the founders. Artificial intelligence researcher Earl Sacerdoti notes that the lead angel investor in his first venture, a machine vision company, was the CEO of a successful semiconductor design firm. That sharing and recycling of experience has enabled Silicon Valley to develop a very effective support network for technology startups. Ambitious visionaries can kickstart a business with limited capital and staff, and fill in the gaps in their own skills and expertise with free-lance specialists who are willing to work for little or no cash, in exchange for equity. This constant cycling of technical and business specialists through the startup population both accelerates the refinement of good ideas and spreads them rapidly around the Valley.

The importance of rapid iteration as a model of innovation is a recurring theme in the book. Claudia Fan Munce, another contributor, points out that allowing failures to happen quickly enables what you’ve learned to be quickly injected into the evolution of the next generation of products and services. She writes, “Silicon Valley attracts people that are willing to fail in order to succeed, and those who fail are rewarded with respect and very often multiple more chances to succeed. To be amongst the intellectually curious and driven people is exciting…it’s a community connected by its inspirations and everyone has great hopes of making an impact.” And also of building wealth in the process.

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Bibliography:

Davis, Alison, and Matthew C Le Merle. The Intelligent Investor: Silicon Valley. Fifth Era Media, 2020.