The old joke was that your start-up needed to be no more than one tank of gas away from Sand Hill Road in Silicon Valley. Now VCs have to set up shop in Israel, India and other far away places that will do serious damage to their carbon footprint.

This is a significant change. Innovation is going global. Like everything else online, the power is going to the edge. What is fascinating is how this is creating clusters of innovation around specific competencies. This is free trade economics 101. It is just happening so fast.

Take India as an example. You cannot just look at Bangalore. That was the original center, but now you have Gurgaon (near Delhi, more call center/BPO related, GE led the way), Hyderabad (more Bio/Pharma focus), Mumbai (aka Bombay, entertainment i.e. Bollywood) and Chennai (aka Madras, typesetting/publishing focus). In the UK there is a pocket of innovation in Warwickshire around automotive engineering, where most Formula One engines are built, that leads to wild innovation such as the Eco Speedster. Think Israel for security, Korea for Wireless, Taiwan for high tech manufacturing design, New Zealand for the best writing on Web 2.0 :-)

The Innovation Graph

In homage to Facebook and their “invention” of the ‚Äúsocial graph‚Ä?, I am calling this the “innovation graph”. If you drew the network relationships it would show hubs such as universities (Stamford, MIT) and within them specific professors, VCs, angels, founders, advisers and other influencers. When the magic of innovation kicks in it all looks obvious in hindsight, but it is very often accidental, chaotic and destructive. It was the implosion of DEC and Wang that fueled the Boston/Route 128 entrepreneurial explosion. It was GE looking for better infrastructure that made Gurgaon arise from the dust in the last few years to become almost a new city. When the soil is right, all it takes is one seed.

On the other hand, when even one piece is missing, a long heralded entrepreneurial flowering just seems to wilt. Take Albany, the State Capital of New York, which has tried branding itself as Tech Valley (Hudson Valley, geddit?). There is some interesting nanotech and clean tech work going, plenty of good colleges such as RPI, some success stories; but it still looks like one of those “almost but not quite” stories. It is not quite clear what is missing.

Local Still Matters

Albany matters to me as I am based in the scenic Hudson Valley in a town called Rhinebeck, which is about half way between New York City and Albany and a few hours drive from Boston. Rhinebeck’s economy is either local or tied to NYC and there is very little economic pull from the north from Albany. However, even in an area that looks like a cross between farming and tourism (”quaint” in other words), we recently had a significant entrepreneurial success when Pump Audio was bought by Getty Images for $42m. The founder is a friend and we shared space in a renovated Chocolate Factory for a while. Steve’s business grew out of a passion for music. For some strange reason, a large number of the people I meet socially in the area are “audio heads”, sound engineers, musicians doing any old day job to keep doing what they love. So Steve was able to tap in to a great and motivated talent network. With the success of Pump Audio, more audio heads may come to the area and more entrepreneurs will feel emboldened.

This highly local example may resonate with what is happening in your area. Maybe you think local does not matter. I think it does. Local explains the success of Silicon Valley. Face to face is still way, way better than any online tool.

Silicon Valley is Evolving Too

How is Silicon Valley, the original innovation hub, evolving in this new world? It is still the uber-hub and likely to remain so as it draws in the other hubs in three main ways:

  • As sub-contractors or offshore R&D centers. India for software and China for hardware are often subcontractors to firms in the Valley.
  • Entrepreneurs who move to the Valley to get the connections. Most of the famous Valley success stories were born elsewhere.
  • Companies who start in another country with a subsidiary in the US and “flip” to become a US company with an R&D center in the original home country. Israeli companies often follow this route.

What do you think - is innovation 'going global'? Maybe you have an example of clusters of innovation around specific competencies in your area?