Originally published by Mark Kvamme on November 28th, 2014
I grew up in what is now known as the Silicon Valley. In the 1960’s and early 1970’s the area was not known for Silicon, but for the vast array of agricultural products produced by local orchards and farms. Cherry, apricot and strawberry stands lined the streets of Silicon Valley long before Intel, Apple, eBay, Google and LinkedIn. Apple Computer was actually built on the Mariani apricot orchard and processing plant. I remember riding past the land that now houses Apple’s headquarters as a child, vast fields of apricot crates drying in the California sun.
It was not until the 1980’s that the term Silicon Valley — and its reputation for being the technological and innovation hub of the world — became synonymous with the area. What sets Silicon Valley apart from many other areas is that it has been able to sustain its lead through technological innovations, starting with integrated circuits (Fairchild, Intel) and progressing to personal computers (Apple Computer); computer workstations (Sun Microsystems, Silicon Graphics); computer networking (Cisco, 3Com); computer software (Oracle); Internet 1.0 (Yahoo, Google, eBay) and Internet 2.0 (Facebook, LinkedIn, AirBnB); to the constantly connected mobile consumer, or Internet 3.0 (Uber, WhatsApp).
Each of these shifts in innovation stood on the shoulders of the one that came before. Robert Noyce invented the integrated circuit in Palo Alto, California, marking the “big bang” for Silicon Valley. The next evolution required easy access to integrated circuit engineers (National Semiconductor) and microprocessor engineers (Intel) in order to create the personal computer (Apple Computer). One needed access to personal computer (Apple) and computer workstation (Sun) engineers in order to network them together. Engineers with an understanding of computer networking protocols (Cisco), computer servers (Sun) and database technologies (Oracle) were necessary to create the first massively-scalable internet web companies (Yahoo, Google, eBay). In addition to talent, there was a need for easy and value added capital. While technologists were building the companies of tomorrow, visionaries like Don Valentine (Sequoia Capital) and Eugene Kleiner (Kleiner Perkins) were developing a venture capital industry to invest in them. Between a pool of vast talent and the available capital to grow their businesses, the storyline of Silicon Valley became clear. If you wanted to create a world-class technology company, you had to do it in Silicon Valley. Just ask Larry Ellison, Marc Andreessen and Larry Page, all of whom relocated to the Silicon Valley to build Oracle, Netscape, and Google.
While the story of Silicon Valley rang true for the 20th century, we believe the next wave of technological innovation will happen outside of Silicon Valley. It will replace the belief that one can only build world-class technology companies in Northern California. Silicon Valley has created the three core technologies that will open up their innovation engine to the world: cloud computing, open source software and mobile computing.
The invention of cloud computing allows any engineer with an internet connection to establish a massively scalable, extremely capital-efficient server for their application. In the past, you needed to find a data center and network provider, then hire engineers to set up your server infrastructure, as well as a system administrator to manage it. Historically, the best and the brightest in this field were located in Silicon Valley and Seattle. Cloud computing allows a software engineer to rent all this capability as a service from anywhere in the world, making it possible for new software applications to become massively scalable without the need for specialized talent, located largely on the West Coast.
The 1990’s saw significant corporate adoption of the open source software movement. When companies like Google, Facebook, LinkedIn and IBM began contributing valuable intellectual property to the open source movement, it became evident that companies could be built on open source software like Linux, MySQL, Apache, Cassandra and MongoDB. Cloud computing with open source software allows application software engineers around the world to build rapidly developed applications where server/network functionality is rented as a service in the cloud, and the software architectural layers can be open sourced. This allows the engineer to focus on their specific application. One can go from an idea for an application to getting it up, running and scalable within a matter of days.
Mobile computing is the last piece in the technology puzzle. Initially, when applications were bought through an IT department or from a computer software store, there was a great deal of friction resulting from multiple computing platforms, operating systems and networking protocols. The buying process required savvy sales professionals paired with sophisticated system engineers to implement applications on corporate networks or personal computers. Today, more than one billion people own smartphones that are constantly connected to cloud-based services. An application can be created quickly and distributed through “one click” app stores or simple web applications.
We believe that these technology shifts eliminate the need to be near specialized engineering talent and company resources built in the Silicon Valley. Instead, it’s more important to be next to your end customer, whether it is a Fortune 500 corporation or individual consumer. Several other VCs have seen this writing on the wall, and have realized that 90% of the future technology market capitalization will be created outside of Silicon Valley. While other VCs have gone to China, India, Israel, and Brazil, we decided to go to where 150 of the Fortune 500 are located. Where twenty five percent of all U.S. computer science engineers graduate. Where the GDP of our focus area would rank it 5th in the world. Where sixty percent of the US population and manufacturing base is within a one-day car drive — the Midwest.
There are many myths about building technology companies in the Midwest: it is the rust belt, there is no innovation, you can’t find the engineering talent, you can’t find the capital, you can’t scale, there is no tech ecosystem, the rivers are on fire — all false. Over the next several weeks and months, we will be debunking these myths and highlighting the amazing entrepreneurs, technologies and companies we are honored to meet and work with in the Midwest.
Silicon Valley will always be a major center of innovation, but the advancements in technology it has pioneered have allowed the Midwest to emerge as a significant player in building the rapidly-growing technology companies of tomorrow. The next Larry Ellison can stay in Chicago to build Oracle, the next Larry Page can stay in Ann Arbor to build Google, and the next Marc Andreessen can stay in Urbana to fund world-class technology companies.