Often people don’t get it. Country leaders, venture capitalists, and founders outside the Valley don’t understand why those 70 square miles are so special for startups. They try over and over to “copy” or “recreate” San Francisco ecosystem in their own country, observing the visible outcomes of that place. They think they can get Silicon Valley, fostering venture capital funds, accelerators, mentors, angel investors, and startups. Very few of them, though, have ever studied how everything began in NoCal and what was the sparkle that ignited a radical transformation in a place where people used to harvest fruits and vegetables. Orange trees were replaced by high-tech companies, giving birth — in 60 years! — to what is now the most dynamic place to create high-tech companies in the world.
That could happen not because tons of capital were invested in single place or because a bunch of nerds decided to “accelerate” their business growth, but because promising high-tech companies were located in that area.
At LombardStreet.io, we grasped Silicon Valley’s uniqueness in 2007 when some of us began traveling back and forth between the US and Italy. Recently I read an article that summarizes What’s special about Silicon Valley. I liked it so much that I decided to write this one to offer my point of view on a long-standing chicken-egg problem: startups vs. ecosystems.
Startups Vs. Ecosystems: Which Comes First?
Going over the history of Silicon Valley, the answer is pretty straightforward, and curiously here is where people get a lot confused. Citing what Alex wrote in his article:
Great startups don’t emerge to support ecosystems — ecosystems emerge to support great startups.
No investor can fund the great startup that doesn’t exist.
That’s it. So, it doesn’t matter how much effort you put in stimulating national innovation ecosystem growth; first of all, you need to be focused on foster the creation of scalable high-tech companies. You need to induce a cultural change to motivate people to risk their future and pursue innovative ideas instead of looking for a nine-to-five job. When we talk about innovation, every sector is a good one, but in startup land, innovate through software is for me the way to go. You can do cleantech, medical devices, rocket space shuttles, and, generally speaking, hardware stuff, but if you live in Europe, you’d better start with software. For a newcomer, it has some significant advantages over other areas: no upfront costs, the cheapest distribution model ever, and, more importantly, everybody can learn to code with a laptop, some books, and an Internet connection.
Let’s Start With Learn Coding
We talk about this all the time: country leaders should include computer programming classes since elementary school — it’s as essential as math, literature, and science. Without knowing how to create a software application, you cannot even imagine how to invent something by yourself in your bedroom. With a country full of young people who know how to create apps, web app, Linux modules, and TCP/IP packet sniffers, then high-tech startups will follow quickly.
The Newcomer Loneliness
The first companies created by this new breed of talented engineers could feel a bit lonely in a country where very few people can barely understand and appreciate what they accomplished. That is why they need to move to Silicon Valley and meet many other people who share the same passion, to be spurred, and follow our passion. Then, when it’s time to create a legal entity to protect your investment and IP, we can simply go to Stripe Atlas and incorporate your company in Delaware with just $500 — and more importantly, get a Silicon Valley Bank account. And yes, you can be the CEO of your US company even if you don’t live/work there. Then get a good immigration lawyer and file a working visa petition as soon as you can and relocate to the Bay Area. Your team, your software engineers, can stay in their home country — places where living is definitively cheaper. And by the way, note that I said “ software engineers” because in this phase you only need these kinds of guys.
And What About Your Country Local Ecosystem?
Be patient, and your country will follow once some great startups will be created. If your job is to run the nation and you try to “foster” the local ecosystem creation with capital and regulation in this stage, you simply create the illusion that things are moving forward, but they are not, sorry. And your ROI will be almost nothing. Typical signals of auto celebration are you claiming that it’s working because you got (ghost) exits — aka local startups have been sold for $10M after 5–7 years. That’s called acqhire, meaning that the team — software engineers — got acquired, and the standard price is $1M per engineer. Investors get nothing, and it’s not an exit. But it’s a start that will give those engineers the strength to look at the future positively and maybe someday they will make it again.
The best way for country leaders to foster this innovation process is to help those people who want to move to San Francisco and make it easy for them to keep their team in their own country. Other ways to shorten the path for governors would be paying for engineer’s college tuition, in case they deserve to graduate in the Bay Area. Helping them to feel their country is supporting their dream would be a real quantum leap towards the acceleration of the innovation process of the country.
A good chance already on the table for Italian students is the Full Bright Best program. Take a look. It’s a fantastic opportunity.
Why We Might Want to Help Top Engineers to Leave the Country
When I talk to people in my country — Italy — I often get asked this question. In 2017 I co-founded LombardStreet.io, a venture capital firm that is focused on finding high-tech software startups around the world — Italy first — and helping founders to move their company to Silicon Valley providing them capital, skills, and connections. We think this a win-win situation both for founders — who can approach a dynamic and capital intensive market — and us — because we take a small piece of their company very early and support their future success. Our dream is to make great investments and, possibly, to help Italian engineers to work for great tech companies. Working remotely from Italy is one of the main competitive advantages that our founders have over startups entirely based in San Francisco. They can get easier access to talented engineers in the early stages of their business and invest in people’s growth without being worried about losing them a few months later — that’s what generally happens pretty often in the Valley.
We are sure that engineers who will cross the chasm to relocate in the Bay Area won’t forget their country helped them to pursue their dreams and succeed. Sooner or later, they’ll be ready to give back and help others to create scalable high-tech companies in their own country.
Changes Don’t Happen Overnight
A country that understands and embraces this innovation strategy will probably get a well-developed startup ecosystem in less than 15 years. The timeframe is wide enough, so you get the chance to finalize a few exits from startups operating on this dual model. That would make everyone — including remote workers — wealthy enough to start the process all over again.
Not All Startups Are Created Equal: A Final Thought
If you dream of moving your startup HQ to San Francisco, please be very careful about what kind of business you aim to create. What I mean is that not every business is a good one for that area: you need to do your homework, and you better make them good.
For example, even if Silicon Valley invests in a lot of different sectors, nowadays, we observe a real scarcity of infrastructural software. So if I can give a little bit of advice, stop thinking about e-commerce and food delivery. Start thinking about machine learning, blockchain applications, databases, developer tools, Linux container solutions, scalability, performance monitoring, and many other things that engineers should love and understand well. We just attended YC Demo Days (batch W19), and only one or two percent of the two hundred startups on stage is working on simplifying infrastructural problems. There’s a big opportunity here, and just a few founders around the world are working on it.
Think about it!
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