13 Jan 2009

What’s Wrong With Silicon Valley?

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Business Week’s Steve Hamm says the problem is greedy investors’ short term thinking and aversion to risk, and those stingy VCs should start funding “bold new directions” while waiting for Uncle Obama to open up the federal tap.

Hamm’s article lit the fuse of Michael S. Malone at Live from Silicon Valley.

Since Steve Hamm and Business Week aren’t willing to give you anything but their own big government/big business solutions to the perceived crisis, let me give you the real story – and real solutions – from somebody who has been on the ground here in Silicon Valley for 45 years:

Yes, Silicon Valley – and by extension, the U.S. high technology industry, is in something of a crisis right now. Part of it is the fact that, as the largest manufacturing sector in the US economy, electronics is not immune to the larger financial crisis currently impacting the world.

But there a lot of other problems as well. For one thing, the venture capital industry is in real trouble – not because of a lack of courage, but because government interference – most notably, Sarbanes-Oxley – has proven almost fatal to the new company creation process. With almost no potential for a big pay-out on the back end (because companies don’t ‘go public’ any more), VC’s are having to be much tighter on the front end. That’s good business, not gutlessness.

As for the entrepreneurs themselves, to charge them with a lack of courage or character is truly insulting. Instead of hob-nobbing with senior executives, Steve should have called me. I would have taken him to the little Peet’s Coffee shop in nearby Cupertino where I get my lattes twice per day. There, I would have shown him that on any given day you can see at least two entrepreneurial teams – a half-dozen guys huddled over a single laptop editing spreadsheets – almost always different, and all dreaming of starting the Next Big Company. There are hundreds of these start-up teams all over the Valley right now – indeed, I think there is more entrepreneurial fervor going on right now than just about any other time in Valley history.

Are these folks thinking small? Are they short on courage? No, what they are is pragmatic. That’s the essence of being an entrepreneur. They know what the business landscape is out there, and they are adjusting their plans to succeed in that new reality.

No, the problem is not that entrepreneurs and investors in Silicon Valley and the rest of high tech aren’t thinking big, it’s that they aren’t being allowed to. If Business Week would just take off its ideological blinders, it would realize that if Washington really wanted to help a sick Silicon Valley, it would get out of the way, and strip away all of those worthless regulations that are inhibiting the imagination and the creativity of this town.

One Feedback on "What’s Wrong With Silicon Valley?"

Scott D

As someone who works in venture capital, I can confirm that Sarbanes-Oxley is a huge albatross. It inhibits companies from becoming public and imposes huge costs on those who do. Not a big deal to large incumbents, but a huge deal to emerging growth companies. VCs need the occasional home-run IPO to justify the investments. They are no longer seeing that possibility. It’s almost as if Congress set out with an objective of retarding new company formations and driving entrepreneurs overseas. There probably aren’t a dozen people in Congress who have ever started or run a business. It shows.


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