We all know by now that “Silicon Valley” has become more or less synonymous with “innovation.” The United States now has more than 100 unicorns (startups that reach $1 billion valuations), and while research from Stanford suggests some of these companies might not be all they seem — with an average valuation of 48 percent above true value — these numbers point to the impressive growth and support in the United States’ startup scene.
However, Silicon Valley has, for all its successes, been accused of insularity: There’s the idea that startups rise not on their own merit, but rather on investments that follow investments. In other words, one venture capitalist backs a company, then his or her friend backs the next round, and so on. This notion of a “VC inner circle” may not be totally founded, but it does bring to the foreground an interesting question: how inclusive are our startup communities, and how can VCs ensure they’re not driving valuations too high, leaving a mess of valuable but overvalued companies in their wake?
The United States has started to crack down on foreign investments in California, which could direct investors elsewhere. This is good news for both investors and startups, and we see disruptive ideas come from Austin, Texas; Waterloo, Ontario; and beyond. Increasingly, funding is directed at areas outside of Silicon Valley, supporting other burgeoning areas of the country and continent where equally deserving entrepreneurs are getting their companies off the ground. Even if Blackberry is a shadow of its former figure, the talent it attracted north of the border continues to pay dividends within the Canadian ecosystem.
This shift might be slow, but at the end of the day, it benefits both Silicon Valley and other innovation hubs. As VCs stop driving public interest solely to Silicon Valley startups, companies both in the Valley and around the globe will increasingly grow on the merit of their ideas and the market demand for their products.
What We Stand to Lose With Insular Thinking
Draining our other tech hubs
There’s a troubling trend that the concentration of tech companies has created: brain drain in the rest of America’s (and Canada’s) ecosystems. While landing a role at a Silicon Valley company may be the holy grail for many programmers and developers, this spells trouble for other large tech sectors, like New York, Boston, and Austin, that may struggle to find the same talent.
Here in Canada, we’ve long struggled with highly educated and talented individuals taking jobs down south rather than sticking around to build their careers — and companies — on home turf. WIND Mobile founder Anthony Lacavera sees this trend at work in Canada’s eagerness to welcome American tech giants, a move he considers to be shortsighted: “The star performers that should be rising to the top in our country — the best Canadians marketers, developers, engineers — are going to end up getting pulled by a logical career path to the U.S.”
When Finance Minister Bill Morneau claimed Canada doesn’t have a competitiveness problem, influential economist David Rosenberg responded, “The data are the data.” Only now — with the turbulence brought about by the Trump administration — are the tides starting to turn. And more and more entrepreneurs and investors are finding is that a Bay Area ZIP code is not actually a prerequisite for success.
Backing companies with ‘tunnel vision’
Regions will naturally have varying degrees of success, but for one area to take the lead in a given sector, it needs to be capable of thinking beyond its geographical boundaries. When Juicero raised $120 million for its Wi-Fi-powered juicer, everyone outside the tech hive mind was baffled. The product was deemed cool by California’s elite, but even that group couldn’t keep the company going; Juicero closed shop in September.
Detroit is still the car center of America because automakers don’t just produce cars for people driving in Michigan. Wall Street and London remain the financial centers of the Western world because they don’t focus solely on the economies of their host regions. Even Canada, backed by unique venture capital markets, has become a hub for mining, cannabis, and blockchain. Silicon Valley can be the tech center of the world if it wants, but it needs to focus on developments that have meaning beyond the Golden State’s borders to avoid more disasters like Juicero.
So how do we achieve productive change in the short term? For the good of investors, startups, and everyone in between, investors must consider the merits of opportunities in other regions to reintroduce the kind of competition that will keep all parties accountable.
What We Stand to Gain From More Than One Valley
Reactive, nondiversified investing isn’t a cardinal sin. However, it isn’t often a successful investment strategy, either.
For one thing, the problems that entrepreneurs are working to solve outside of central hubs may have a larger addressable market. By supporting tech initiatives in far-flung locations, investors have the opportunity to reap the benefits of diverse perspectives and myriad approaches to complex issues. Spreading the wealth also relieves the pressures associated with major tech hubs, including rising housing prices and population squeeze.
And then, there’s collaboration: Think of the drugs that are developed cross-nationally or agricultural solutions that are applicable in multiple situations. Technology has paved the way for broader collaboration internally, meaning companies can lean on everything from videoconference calling to robotic surgery from remote locations to get the job done. Innovation is no longer limited by geography. These advancements — and more — present a compelling argument for a wider investment strategy.
Silicon Valley may have paved the path, but there’s no reason why other cities can’t iterate and produce successful tech centers of their own. To make smarter profits, investors who have previously focused on Silicon Valley must consider opportunities more critically — even if that sends them outside of their area code. They need to start prioritizing the best companies and talent over Silicon connections.
Cities, conversely, are presented with the opportunity to prioritize home-grown entrepreneurs over existing hub creep: While Toronto bids for Amazon’s second headquarters, business leaders are advocating the city not overlook the valuable startup talent already on its doorstep. If investors make their pools of capital flexible and transparent, like public financial markets, more people would trust the industry, which would lead to stronger growth for everyone in California and far beyond.