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The Valley: from Afar
For many overseas, Silicon Valley has lost little of its cachet.
January 30, 2006 Print Issue
The world, as Thomas L. Friedman contends, may well be flat, but peaks and
valleys remain. Even viewed from China and India, the twin steamrollers Mr.
Friedman sees leveling the landscape of the new economy, Silicon Valley
still occupies lofty heights.
In centers of technology around the world, whether established or emergent,
³Silicon Valley² is a metonym for an entire ecosystem of technology and
finance, with its own infrastructure of support services and social
networksslued together by a culture that lionizes risk-takers, rewards
out-of-the-box innovators, and forgives failure.
Despite its obvious success, the model has not been successfully replicated
anywhere: not in Beijing, not in Bangalore, not in Stockholm or Tel Avivand
not for lack of trying.
To be sure, innovation, talent, and capital have spread globally. A tangible
link to the Valleywhether through technology, capital, or physical
presenceis no longer the sine qua non for a high-tech firm, if it ever was.
None of India¹s three software outsourcing giants, Infosys, TCS, and Wipro,
had roots in the Valley: no venture backing from Sand Hill Road, no Stanford
spin-off technologies.
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But for technology entrepreneurs the world over, the words of Mirabilis
chairman and founding investor Yossi Vardi probably still ring true.
³Silicon Valley was the Mecca, it is still the Mecca, and it will be the
Mecca,² says the Tel Aviv-based Mr. Vardi, whose company created the popular
chat client ICQ, acquired by AOL in 1998 for a reported $400 million.
Making the Move
If the Valley is Mecca, then German-born Stefan Roever, 40, is one pilgrim
who has made the Holy City home. Only months after the company he
co-founded, Stuttgart-based Brokat Technologies, went belly-up in 2001, he
was at it again with a new company, Navio Systems, based in Cupertino.
Brokat made software for Internet and mobile phone financial transactions.
Mr. Roever¹s new company makes digital rights management software for
Internet commerce.
Mr. Roever was named one of the World Economic Forum¹s 2006 Technology
Pioneers. ³I had seen the environment in Silicon Valley and I was pretty
sure that if I was going to start over I would want to do it here,² he says.
³The entire environment is conducive to entrepreneurship and innovation.²
In Germany, ³profit is a dirty word,² according to Mr. Roever, and startups
are stymied by an overgrown regulatory environment, bureaucracy, and onerous
taxes. ³Very few people in Germany have ever built or been part of a team
that created a global technology software enterprise,² he says. ³If a new
global business like a Yahoo or a Google is going to be built, chances are
still pretty good that it is going to be built [in Silicon Valley].²
But Valley culture has been transplanted to parts of Old Europe, such as
England, and it is showing clear signs of taking root in other dynamic
economies. Emulation of the Valley formula is deliberate and deferential,
helped along by hundreds of European, Indian, and Chinese returnees,
sometime dwellers of the Valley¹s Santa Clara County who headed home to
start up tech businesses. But no one in China or India needs to be reminded
of the Valley¹s importance. ³There will never be another Silicon Valley,²
says Sridhar Mitta, the managing director of e4e, an Indo-U.S. software
outsourcing company.
Valley fever burns particularly hot in China. High-tech zones in major
Chinese cities vie to be recognized as ³the Silicon Valley of China.² In
northwestern Beijing¹s Haidian districta leading contender for that title,
with its concentration of top universities, technology parks, and new
economy companiesone upscale housing development even calls itself Guigu,
Chinese for Silicon Valley.
The ³Old Gold Mountain²
Equally, Chinese high-tech entrepreneurs continue to seek funding from
Valley venture capital. And with 20-plus VC-backed companies from China
listed on the Nasdaqincluding the splashiest IPO of 2005, Baidu.com, which
went public in Augustwho can blame them? What they give up in equity is
more than made up for by the legitimacy they believe funding by a big-name
Valley VC confers.
³It used to be Let¹s go to the Old Gold Mountain¹ [a Chinese term for San
Francisco still in use today] and now it¹s become let¹s list on Nasdaq,¹²
says Robert Lee, CEO of Dublin, California-based software and IT outsourcing
company Achievo, and chairman of the Asia America MultiTechnology
Association (AAMA), a Silicon Valley-based industry association.
For Chinese entrepreneurs, the road to Wall Street runs straight through the
Valley, and exuberance about the China market on the part of Valley VCs has
helped them on their way. But understanding of U.S. capital markets remains
poor, says Mr. Lee. ³Basically, none of the rules and regulations is
understood. How you exit, what lock-ups really mean, how people value your
companynone of this is understood,² he adds. ³I live and breathe this
problem every day, because I go around buying [Chinese] companies and I talk
to a lot of these people.²
Amy Shuen, a professor at the University of California, Berkeley¹s Haas
Business School who recently returned from a stint teaching courses in
venture capital at the China Europe International Business, known as CEIBS,
in Shanghai, agrees. ³The venture capital and financial community in China
has not come out of the high-tech sector, or had operating experience in
high-tech sectors. As with the Singapore and Taiwan venture capital market,
it comes out of banking,² she says. The tech savvy, operating experience,
and financial know-how that combine in a good VC or entrepreneur is ³still
relatively scarce in China,² she adds.
In Search of Angels
To echo Mr. Lee¹s words, this has limited the ability of Chinese investors
to understand how overseas markets value a company.
But Valley types have started to move into the breach. According to Ms.
Shuen, the lack of seasoned, operationally experienced investors who might
act as mentors and angels has left a vacuum that is being filled by Chinese
returnees and Silicon Valley investors ³looking at China as a place where
technologies are at a commercially viable stage for exponential growth with
an unusually low amount of capital expenditure.²
India¹s ties to the Valley have only strengthened since the country emerged
as a global tech player, and for precisely the same reasons. In addition,
the Valley supplies a critical component missing in India¹s nascent tech
ecosystemangels.
Kanwal Rekhi, a founding member of The Indus Entrepreneurs, a networking
organization for the South Asian tech business community, says that while
conditions are nearly ripe for an innovation boom, ³the difference is that
in the Valley in the ¹90s, there were angel investors to support small
startups in the very early stages of their life.² Angel investing is rare.
³When that happens in India, it will be like living in the Valley again.²
It¹s going to take people like S. Parthasarathy, founder of Bangalore-based
software services company Aztec Software. Now living in Santa Clara, he
helps fund and mentor Indian startupsand he has a thing about staying
linked to the Valley. When Mr. Parthasarathy started Aztec a decade ago, he
urged staff to make sv.com their browser homepage. ³I wanted them to feel
like they were part of the Valley,² he says. And if anything, instilling
that feeling is more important now than it was then. ³The links between
Silicon Valley and India are stronger than ever,² he says.
While he acknowledges that the Valley remains a great place to start a
business, Israeli serial entrepreneur Nimrod Goor, who started two companies
in California, says that in Israel, which is now an emerging leader in
security, wireless, and nanotechnology, finding management talent and
capital has become easier. The country, he says, has built up its own
Valley-like ecosystem of VCs, attorneys, accountants, marketing mavens, and
experienced sales people. ³We are entering into a new era where there will
be more than one center of dominance.²
24/7 Country
One center may still be in Europe. Anne Glover, the co-founder and chief
executive of Cambridge, England-based Amadeus Capital Partners, would argue
that Europe would certainly be one such centerand has advantages over
Silicon Valley, at least as far as mobile technology goes. ³We have in this
ecosystem all the thought leaders on how this industry is going to evolve,²
she says, noting that the leading mobile microprocessor (ARM), handset
vendor (Nokia), infrastructure provider (Ericsson), Bluetooth chip provider
(Cambridge Silicon Radio), and global operator (Vodafone) are all European
companies.
Agreed, but no single European city has grown an innovation ecosystem to
match the Valley¹s. For all the advances in telecommunications, distance is
still not dead, and the advantages that sheer proximity confers on the
Valley continue to give it a leg up. Norwegian entrepreneur Jorn Lysseggen,
who started three tech companies in Europe, relocated two new
companiesbiometrics firm GenKey and business-to-business search engine
MagnetaNewsto the Bay Area last October. ³Living in Palo Alto I can jump in
my car and the kind of people I can have access to within one hour¹s drive
is just enormous,² he says. ³If I compare that to the time it takes in the
Nordic countries, where I have to jump in a plane just to do one or two
meetings, there is a totally different efficiency.²
Besides, the Valley is 24/7 country, something Stefan Roever, the German
expat, appreciates. ³Living in the Valley means being able to meet people
who are pushing the envelope where the industry and the markets are
goingand being able to meet them at a Little League game at your kid¹s
school.²
You never know where you¹ll hit your next home run.
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