Crypto Valley Meets Silicon Valley
We set out on a week-long endeavor to meet with leading blockchain and crypto companies from San Francisco and Silicon Valley. What we found was how different these two regions are, spiritually, despite their apparent similarities. The following account is a review of the most intriguing impressions.
— by Marc Baumann
Staggering Numbers
Notorious for its unique ecosystem of capital, expertise, and daring entrepreneurs, San Francisco and the Silicon Valley form the epicenter of global technology innovation and serve as a breeding ground for new ventures and unicorns.
- In 2018, 63% of all VC deals were closed in the Americas, compared to 27% in Europe and 10% in Asia. Counting invested US dollars, this number rises to 69%.
- In 2018, total VC funding in the US amounted to record-breaking $130bn, more than five times as much as still in 2010 and more than 100 times more than in Switzerland, which amounted to CHF 1.24bn in 2018 .
- The US hosts 96 unicorns, Europe 12, Switzerland 3.
- Out of the top ten NASDAQ-companies according to market capitalization, at least eight originate in the Silicon Valley. Five of them, Microsoft, Apple, Amazon, Alphabet, and Facebook, belong to the six most highly valued companies in the world.
Without doubt, the statistics are staggering and leave no doubt that Silicon Valley has been and still is a place where dreams materialize.
The Next Big Thing
Despite the rising inequality in the US, in the bay area the American dream is still ever-present. Many of its billion-dollar-behemoths started in a garage or on a campus of local universities, such as Stanford University, which produces the most founders of all US universities. Yet, where former Olympic athletes, art students or college drop-outs come together, you certainly don’t need a college degree to start your own venture and become the next billionaire. Illustrious founders such as Steve Jobs, Bill Gates, Sergey Brin, Larry Page, the “PayPal Gang” with Elon Musk and Peter Thiel, and many others are inspirational examples of ambitious young entrepreneurs from all walks of life who made it, spectacularly, big time.
Correspondingly high are the ambitions of the younger generation. On our first evening, we were invited by a dear friend from the Silicon Valley Blockchain Society (SVBS) to The Bride Forum, one of the high-profile events in San Francisco’s tech scene. Upon arrival, the dinner party was already fully under way and people were mingling eagerly. In the midst of the crowd, a guy with long curly hair, a straw-colored cowboy hat, Hawaii-shirt and raddled jeans shorts was painting blissfully on a large canvas on one side of the hall. He was finishing the collective painting to which many contributed during the day, depicting a vividly colored wonderland.
However, the lively setting did not leave too much room to let loose. The ambiance of the two bars on each side of the brightly lit hall was modest, the music subdued. Instead, the focus was on what seemed most important: to connect, exchange, and identify the next opportunity. Compared to events in Switzerland, people generally seemed to be more deliberate and systematic in their approach to connect with new people. However, as easy as you’d slip into a conversation, as fast you’d move on to the next one as well.
The event abruptly ended as scheduled at 10pm. The lights turned even brighter, the music stopped once and for all. Luckily, an unofficial after-party took place in a private villa that arguably belongs to San Francisco’s most exclusive private residences. After a short Uber-drive, we found ourselves in a luxuriously designed, spacious four-story mansion. A chimney fire, oil paintings along the walls and pottery sculptures plunged the crowd into a flamboyant and intimate atmosphere. Outside the half open front of sliding windows a wide balcony revealed a multi-leveled garden landscape that disappeared into the mild spring night. In the distance above the dimly, moonshine-lit roofs of the northern district of the city, the illuminated Golden Gate Bridge prominently graced the horizon. It was one night before full moon. While the mingling continued fervently, filling the space with chatter and laughter, I walked on the balcony and paused for a moment. It was a fascinating, eye-opening scene.
It felt like a clash of two worlds with two mindsets. On one side a diverse community of entrepreneurs, “the crazy ones”, “the misfits”, “the rebels”, as Steve Jobs would probably have put it, driven by an idealistic desire to do good and change the world. “Here’s a community that wants to build something other people can draw value from”, a local friend tells me. “It’s an addiction around here,” he adds. On the other side, this community found itself in a pretentious mansion, symbolizing material success of a highly capitalistic society. As an outsider, it’s hard to assess whether Silicon Valley is a place of equal opportunities. What was evident, however, is that it’s not a question of either or: Once you make it, you make it big.
It comes as no surprise that many are trying to emulate the successes of their forerunners. The race is real and people project an astonishingly high determination to succeed around here. This urge is much stronger than we are used to in Switzerland, where big financial corporates and multinationals offer reputable exit options or are even the first choice for many young professionals.
In this race many will fail, but that’s part of the game — and the local spirit. Fail for failure’s sake. Try again. Fail again. Fail better. “VCs are looking for founders that failed before. It teaches you invaluable lessons”, one of the VCs tells me. This mindset, coupled with a prolific melting pot of heritage, talent, know-how, easy access to capital and wild dreams, the next big thing seems to be just around the corner — the silver lining always at the horizon. So, what are you waiting for?
It’s About Growth, not Profit, Stupid!
“This is a place of dreamers, much more so than in Europe.” This statement overheard at a lush dinner in a private establishment in the middle of San Francisco downtown encapsulates the spirit that prevails here. Dream big or go home. Thus, many of the local crypto companies have grand visions for the future. Ripple, for example, printed a large lettering on their office walls to “enable the world to move money like information moves today”. Forecast Foundation, which stands behind Augur, strives to “decentralize finance” while having a strong conviction to remain decentralized and agnostic itself.
Such visions can only be pursued with aggressive growth. But growth and idealistic determination are not necessarily forerunners of profit. So, how can they be turned into a sustainable business model? In Silicon Valley, such questions seem secondary. Many of the crypto companies are still primarily funded by their own cash reserves that they accumulated during the crypto boom in 2017.
Repeatedly we found that growth and scalability are the most important drivers of valuations, everything else comes after. “Profit is less important. We care about change — we think big,” a VC conveyed. Much different in Switzerland: Without a viable business model and positive cash flow, a business is nearly worthless. Consequently, valuations are much more modest.
Unsurprisingly, a large part of the valuations of Silicon Valley start-ups depend on future projections of cash flows. Hence, the faster you grow, the rosier these projections become, and vice-versa. “If you don’t grow quickly enough, you will never return profits,” a local venture capitalist told me.
Eventually, this raises a rather philosophical question about the relation between grand visions, growth and profit — and what to put first. Looking at companies such as Uber, which has raised $24.2bn from investors with a net income of -$1.8bn in 2018 without ever returning a profit, the answer probably lies somewhere in-between.
Where is Crypto?
Compared to Switzerland, crypto in Silicon Valley is but one of many hot technologies and it certainly doesn’t enjoy as high a priority within the local community and from the government as is the case in Switzerland.
Nevertheless, the space is progressing swiftly. The top 50 VC firms globally have backed blockchain innovations with around $1.2bn so far. Thirty-five of these are from the US, among them Pantera Capital, Blockchain Capital, Andreessen Horowitz, and many more.[1] This has helped many of the crypto companies in the valley to operate at much larger scales than what we’re used to. Companies employing several hundred people in multiple offices around the world are no exception, looking at the likes of Ripple, Kraken or Coinbase, for example. As a result, the bay area created a crypto-ecosystem that works on scale without being dependent on foreign partners or investors.
Thus, the times when Crypto Valley was spearheading crypto innovations exclusively are gone. All the more impressive was how well-recognized Crypto Valley is on the other side of the pond. The Ethereum Foundation, which was mentioned frequently, substantially contributed to that. Europe, particularly Switzerland, is regarded as an attractive market for international expansions due to favorable regulations and a large pool of potential clients.
Back in Zug, Switzerland
Returning home, it’s worthwhile to reflect about take-aways for us in the Crypto Valley. Many things we encountered clearly show the differences, such as Silicon Valley’s localized ecosystem, which is unparalleled in any other place in the world. Looking beyond this, it’s probably the bay area’s buoyant, daring spirit that makes it such a fruitful place to be. Hence, if there is one thing we should equip our Crypto Valley ecosystem with, it would possibly be the ability to think bigger and bolder, to have grander visions. What does this mean?
Grand visions shouldn’t necessarily drive valuations as they inevitably do in Silicon Valley, but will create a starting point for more collaborative and inclusive progress in the crypto space. By roadmapping our businesses beyond the two-year horizon, cooperation and collaboration will become much more important. Further, grander visions will allow us to see beyond the small universe of the Crypto Valley and to recognize that our sphere of action and our need to collaborate has become global. And as grand visions often overlap, the list of global stakeholders grows. We aren’t yet self-sustaining — thus, reaching out to the crypto community around the world is imperative. Only then, we won’t be left behind. The potential for the space is enormous, and so are its stakes. Or as Martin Luther King Jr. would put it: “We may have all come on different ships, but we’re in the same boat now.”
Thanks for reading!
Bitcoin Suisse AG
Founded in 2013, Bitcoin Suisse AG is Switzerland’s oldest, regulated, professional provider for crypto-financial services. Bitcoin Suisse AG played a crucial role in some of the most successful and influential projects in the crypto space, such as Ethereum, and the development of the Crypto Valley and the overall Swiss blockchain eco-system.
Niklas Nikolajsen
Founder, Chairman & Co-CEO
Marc Baumann
Head Marketing & Communication
Visit us on: www.bitcoinsuisse.ch
Crypto Tourists — Sightseeing and movie stunts!
Besides the visits to many partners, clients, and blockchain/crypto companies in the bay area, we also had time for some sightseeing and Niklas even had a cameo in a Hollywood movie.
The San Francisco and Los Angeles areas have a wealth of iconic landmarks, museums, high end restaurants, and pleasure resorts. Among other things we visited the Golden Gate Bridge, Alcatraz Federal prison, Pier 39, Hollywood (inside- as well as outside;)), the Battleship Iowa, and Malibu Beach outside Los Angeles.
Everywhere we went we were greeted with the true American ease, exquisite food and overall just great experiences. So, the bay area is not only a unique place for business — but equally so for a culturally exciting endeavor.
Below the most memorable shots from our journey.
[1] VC firms ranked according to overall activity, capital outlay, blockchain investment experience, and recent activity. More on the methodology on: https://cryptofundresearch.com/top-50-venture-capital-firms-investing-blockchain-companies/
The views and opinions expressed in this article are those of Marc Baumann and do not necessarily reflect the views of Bitcoin Suisse.
Images copyright by Marc Baumann.
Many thanks to Richard Wynn for proof-reading.
