Can there ever be another tech region like Silicon Valley? The media over the past three years has spewed stories describing the strategies and hopes for cities and regions vying to become as successful as the fabled Valley. Most of the stories slice and dice aspects of Silicon Valley’s culture as though duplicating those aspects is a recipe for success. So far, the Valley remains unique. To understand why, I talked with five Silicon Valley pioneers about the early days when the culture first began to take shape and asked their opinions on whether there could ever be another Silicon Valley.
Surprisingly, their stories of Silicon Valley’s early days involve National Geographic, Paris and even the movie “The Graduate.” And, of course, Stanford and Berkeley.
Pioneers’ first impressions
Bill Draper went to California in 1959 to join his father’s firm (Draper, Gaither and Anderson), the first venture capital firm west of New York and Boston. His father was undersecretary of the U.S. Army and was appointed by President Truman to run the Marshal Plan in Paris. Fred Anderson was Draper’s Paris deputy. Gaither was the first president of the Ford Foundation, chairman of the board of Rand and managed a San Francisco law firm (Cooley, Crowley and Gaither). Together they decided in Paris to organize an investment firm. Dean Terman, dean of engineering at Stanford, encouraged them to sign a 99-year lease on the Stanford campus. Bill Draper was one of five young men who joined the firm.
“At that time the terms ‘Silicon Valley’ and ‘venture capital’ weren’t even known,” Draper recalls. Palo Alto was a small town in those days and San Francisco was a hub for commercial bankers.
The Valley culture was much more laid back then, according to Draper. “It was a small community with multiple orchards and a huge Stanford campus. I often drove around the area looking for the few warehouses that were not storing fruit but had some sign or indication that told me an electronics startup was being created inside.”
Sandy Kurtzig (currently the founder, chairman and CEO of Kenandy) grew up in southern California from age 11, went to UCLA and on to Stanford for grad school in engineering. She founded ASK Computer Systems in 1972 and was the first woman to take a technology company public after she grew ASK into one of the 10 largest software companies in the world at that time.
While attending Stanford, she wasn’t aware of a different culture developing in the region; she first learned of it when reading an article in National Geographic. “They used to publish articles about different areas — exotic places like Africa — and included photographs of the different kinds of animals and people in those places,” Kurtzig recalls. “They did an article about Silicon Valley. I think that was the first time that Silicon Valley got on the map, and it was sort of as an oddity.”
Umang Gupta wrote the first business plan for Oracle. He came to America in 1971 to earn his MBA at Kent State and then worked as an IBM salesman in Cleveland and later in California. He first heard the term “Silicon Valley” in 1976 when he read an article in Business Week about the microprocessor newly developed in the Valley. His reaction to the article was “I’ve got to be there.” So he quit IBM because it was a mainframe company and “not a Valley company. Valley companies were revolutionary upstarts.”
At that time Oracle was one of the young upstarts and barely had $1 million in revenues. He joined Oracle in 1981 as employee #17. Silicon Valley then occupied the city of Santa Clara; it didn’t extend further than Menlo Park where Oracle was located.
Umang says he didn’t go to Silicon Valley to make a lot of money and, at that time, didn’t think of himself as an entrepreneur or a businessman. “I came because I loved technology all my life. I was fascinated and motivated by the notion of doing new things. I still feel blessed to practice my art in Silicon Valley and get paid for it.” He planned to go back to India but instead stayed in the Valley because he saw people “could do some amazing things in little companies there.”
M.R. Rangaswami, who joined Oracle in 1988 and whose desk was right outside Larry Ellison’s office, became an early angel investor in tech startups and also founded Sand Hill Group (which publishes SandHill.com).
He moved to the Valley in 1982 when a manufacturing consultant in Houston told him about a place called Silicon Valley. At that time he had a manufacturing job in Houston working on used computers and wanted a “dynamic job in a thriving industry.” It was a “Graduate”-like moment for him — but instead of plastics as in the movie, it was software.
The Internet didn’t yet exist, so he went to a library to research companies in the Valley and sent letters as a job seeker. “I wasn’t a techie, but I was a computer user. A small startup took a risk and hired me. Risk symbolizes Silicon Valley. And it was an adventure for me,” says Rangaswami.
Malcolm Kushner arrived in the Valley in the early 1980s and worked as a consultant at ASK for eight years, writing marketing brochures, speeches, newsletters and congressional testimony. The Valley in those days was dotted with a lot of software startups, and only a handful was better known than others. Kushner recalls that an employee in ASK’s training department told him her broker advised her to buy stock in Microsoft and Kushner had never heard of the company before.
The 1940-1965 story of the region first being a hub of electronics companies (e.g., Hewlett-Packard, Raytheon) that were part of the defense industry, the emergence of the semiconductor and then the growth of microprocessors is well documented. Semiconductors led to the Silicon Valley term, but its unique culture was shaped by Stanford University, not the electronics companies.
“Silicon Valley really should be called Stanford Valley,” says Draper. Stanford’s Dean Terman brought academia and the first venture capital firm together and also introduced Hewlett to Packard and brought them onto the campus. “Fred Terman set the culture. He encouraged academia to spend time with the business community. Together they established a culture of risk-taking and of sharing.”
Kurtzig adds that the culture started developing around Intel and Hewlett-Packard but also around the small startups. “The startups were built here because of Stanford,” she recalls. “The economy was not very good for a while. People couldn’t get jobs, so they created startups.”
Rangaswami says many Stanford and Berkeley graduates started companies and played a key role in fostering the industry and culture. Professors worked with students on commercializing their ideas.
“I don’t think people who were living in the area thought about it much other than the fact they could hire good people out of Stanford and Berkeley,” says Kurtzig. “But people on the outside saw it differently. The phenomenon of so many companies starting up in the region because of the Stanford and Berkeley influence caused a lot of media attention.”
Even so, Silicon Valley then was tiny and the area still had a lot of orange groves. Most of the companies were small and people didn’t leave large companies to join small companies.
Rangaswami remembers that in 1982 there were no formal sharing mechanisms such as networks or meetups among Valley startups. But entrepreneurs got together in bars or at lunch. “Sharing was very small and informal but had a lot of promise. And there were visionaries.” The culture was friendly and not competitive in those days.
One of those visionaries was Larry Ellison. Gupta met him in 1981, and they both hit it off, perhaps because of their common mainframe backgrounds. Ellison was bootstrapping his company (then called Relational Software Inc.) and asked Gupta to write a business plan for it. The company’s product was a relational database called Oracle, which was built around the recently invented Structured Query Language (SQL). Oracle at that time only ran on DEC minicomputers, but the company had already started a project to rewrite it in the C programming language so they could port Oracle to multiple computers in hopes of unseating IBM’s market share in mainframe databases.
“Larry is a sheer genius in marketing as well as a great technologist and entrepreneur,” says Gupta. “He is both pragmatic and visionary. He has an ability for deep understanding of technology and combines that with an instinctive view of how the competitive landscape might evolve. But he also adjusts his vision over time based on market trends and customer feedback.”
With a hankering to start his own company, in 1984 Gupta left Relational Software (by then renamed as Oracle) with Bruce Scott, who was employee #4, to bootstrap their own company, Gupta Technologies. They took the company public in 1993. The company built the world’s first SQL client-server system for PC networks.
Just seven years after Gupta wrote Oracle’s business plan, Rangaswami left a failed startup and joined his former boss to work at Oracle in 1988. At that time, it was a fast-growing, small company with 1,500 employees. “The early big stories were Microsoft and Oracle, and they were hiring like crazy,” says Rangaswami. “Ellison wanted guys who were application experts. We were working 24/7 and too busy to assess what was going on elsewhere in the region.”
What was going on was that Silicon Valley’s business had switched from hardware to software. When Gupta wrote the business plan for Oracle in 1981, software had to be given away free and there was no SIC code for the software industry. But in 1988 people were talking about a standalone software industry.
As the software industry evolved through the 1990s the Valley’s culture lost a lot of its friendliness. “The software business became ultra-competitive,” explains Kushner. As an example, while he worked at the highly successful software firm, ASK, he remembers an Oracle slogan at a trade show touted: “We kick ASK.”
When venture capital entered the Valley
Draper remembers that most investing in the Valley in the early years was “special investing.” For instance, Arthur Rock made a famous investment in Intel early on. But when Draper, Gaither and Anderson settled in Silicon Valley in 1959, there wasn’t a venture capital industry and few people had experience in investing, especially as risk-takers. In fact, he went “knocking on doors in Santa Clara and explained what we did.” The firm existed for five years and made some money, but the business was premature for the software world.
Bill Draper left the firm in 1962 and started another investment firm, which became the forerunner of Sutter Hill Ventures. Draper says one of their investments of less than $10 million turned into $1 billion in eight years. Sutter Hill profited on at least half of its investments and returns were in excess of 25 percent growth per year for many of the 20 years during which he ran the company.
There were only a few venture capital firms in those days, and Draper says they usually shared deals. Mayfield as well as Kleiner Perkins frequently shared investments with Sutter Hill. “It was very friendly then,” says Draper. “We venture capitalists wanted to spread our risk among several firms by sharing deals. VCs didn’t compete. Although it was less flashy than today, there was a lot of innovation going on, and we wanted to diversify.”
In those days VCs didn’t specialize in verticals or in certain technologies. Draper explains they were agnostic as to whom to back as long as the entrepreneur was committed to succeed. “Many of the startups had no business plan and some hadn’t yet thought about who would run their company. Still, we had a lot of success and very little angst.”
The environment changed when the startups became competitive and venture capital firms started looking for hot deals.
Another change occurred when Goldman Sachs’ CEO visited. “He had heard that investment returns were really good in Silicon Valley,” says Draper. “He brought cash from Wall Street. Then there was too much money in the Valley.”
In 1996 Rangaswami wanted to get off the corporate ladder and work for himself. He became an angel investor (although the term “angel” wasn’t yet used) and focused on helping entrepreneurs create new markets and disruptive companies. A year later The Wall Street Journal interviewed him and published a front-page article explaining what angel investors do.
He then founded Sand Hill Group because there was no formal system to help entrepreneurs start companies and no formal source for mentoring or networking or help in getting funding. SandHill.com became a resource for those activities and sharing trends and best practices among those in the software community.
Now 18 years later Rangaswami has invested in 40 companies and meets around 100 entrepreneurs a year and reviews their business plans.
Will there be another Silicon Valley?
“Every state in the United States and every country in the world wants to emulate the success of Silicon Valley,” Rangaswami states. “But they have to be unique to their own environment. The culture and financial aspects of Silicon Valley are unique to the Valley and you can’t put those unique aspects into a different culture.” At the most, he believes other places can be only niche areas in the software industry.
Kushner agrees. “Other tech centers are sprouting all over but can’t replace Silicon Valley because it uniquely has Stanford and Berkeley and a lot of money. There can be a lot of little Silicon Valleys — just like a lot of places make cars, but there’s only one Detroit.”
Gupta adds that “When anybody has tried to build Silicon Valley elsewhere, it has not even come close.” He believes there won’t be another mega tech center like Silicon Valley in the United States and doesn’t even believe it’s necessary. As with the media in New York and LA, and automotive in Detroit, industries can form pockets of excellence in certain areas.
Draper sums it up with “Silicon Valley will always be the mother church. Although there will be other Silicon Valleys, they will have less impact because it’s already been done and the first of anything has the most impact.” And part of Silicon Valley’s uniqueness that no one else can create is that, when it began, entrepreneurship was totally new.
Where will a smaller Silicon Valley take hold? Draper says it will be wherever there is a strong technical university and encouragement of entrepreneurship around that. Austin is a likely spot and is known for more risk-taking than New York and Boston. He suggests someone could even transfer Silicon Valley’s DNA to Russia, Sao Paulo, China or Turkey — but only if that someone is “somebody like Stanford’s Dean Terman who ‘gets it.’”