A Brief History of Silicon Valley
From Franciscans to Facebook.
This is a talk that I gave on August 15th at Santa Clara University, for the accelerator program at the Miller Center for Social Entrepreneurship.
I grew up in Silicon Valley. I’ve spent my whole professional career in Silicon Valley. But when I grew up here it was a sleepy agricultural place called Santa Clara Valley. A nice place to grow up, really. Lots of fruit orchards to play in and explore, great weather, a nice lifestyle. In high school we got summer jobs picking apricots. Life was good.
So the question is, how did this sleepy agricultural Santa Clara Valley become the Silicon Valley of today?
Chapter 1: A Missionary
The story begins way back, 250 years ago, with a Missionary. Father Junipero Serra was a Spanish Priest from the Franciscan Order, and he was sent by the church in Spain to what was then called “New Spain’ — territory that included present-day Mexico and much of the Western US.
What is today California was then largely unexplored land. No cities, no roads, no buildings; nothing but huge landscapes and indigenous people. Junipero Serra set off to walk up into this unexplored territory — present-day California — and build a series of Missions, each one consisting of a church and a few support buildings. He worked his way up, building first Mission San Diego, San Juan Capistrano, Carmel, and San Francisco.
Each one of these Missions became what today we might call an “entrepreneurial ecosystem”, as vendors, and horse traders, and bakers, and farmers developed their businesses around each mission. The missions became the centers of commerce in early California.
After building seven of these Missions, Junipero Serra decided to build the eighth one in a beautiful valley located right here. It was one of the most beautiful, fertile valleys he had ever seen. The valley was so beautiful that he broke with the tradition of naming the missions after male saints and for the very first time, he named this one after a female: Mission Santa Clara. The area around Mission Santa Clara grew to be known as Santa Clara Valley, famous for its beauty and its agricultural abundance.
Now, pay attention, because a bunch of things happened in a hurry, starting in 1847, when California became part of the US, and then became a state the year after that, and then the following year came the California Gold Rush, bringing thousands of new immigrants, and the next year Mission Santa Clara changed hands from the Franciscans to the Jesuits, and then the Jesuits used the land to create California’s first institution of higher learning, Santa Clara College (where you are sitting right now).
Chapter 2: An Entrepreneur.
It won’t surprise you too much that the next big moment in the development of Silicon Valley was the arrival of an entrepreneur. A great entrepreneur. Arguably the most successful entrepreneur of the 19th Century — a guy named Leland Stanford. Like most entrepreneurs he had some successes and some failures, and he tried a variety of different ventures. But eventually he made a lot of money as a railroad entrepreneur.
Specifically, he helped build the railroad that connected the United States, east to west. He drove the golden spike that connected trains from the East Coast to trains from the West Coast, creating a United States that was, for the first time, connected by transportation from one coast to the other.
Leland Stanford and his wife Jane built themselves a big mansion in San Francisco, and they lived a great life as the wealthiest and most successful entrepreneurs of the day. But the only problem with San Francisco, as you know if you’ve been to San Francisco, is that the weather is terrible!
So Jane and Leland Stanford started looking at property to the south, in Santa Clara Valley, where the weather is beautiful. They bought 8,000 acres in Santa Clara Valley and now they really had a good life — they were wealthy and famous entrepreneurs, plus they finally had sunny weather!
Until one day tragedy stuck, and their only child died at the age of 15. In their grief, Leland and Jane Stanford decided to launch a new venture in their son’s memory. An innovative venture. A disruptive venture. They would turn the land they owned here in Santa Clara Valley into a new university. One that would admit both men and women.
Pretty much everything in this story for the next 100 years revolved around these two world-class universities, established in one valley.
Chapter 3: The first internet.
So that brings us to the internet. The first internet, of course was the telegraph. It was miraculous technology, able to send messages over long distance, via a simple wire. It was the most revolutionary technology of the 19th century, connecting towns and cities across the country.
The leading telegraph company of the day — the Federal Telegraph Company — opened a research facility on Emerson Street in Palo Alto, where they set about developing the next generation of the telegraph. One of their scientists was working on an audacious idea — an innovation that would allow a human voice to be transmitted over long distance wires. He developed the vacuum tube amplifier, capable of amplifying a signal such that it could be transmitted over long distance. And it changed everything.
At the 1915 World’s Fair in San Francisco, Lee DeForest’s vacuum tube amplifier was demonstrated by making the very first intercontinental phone call. For the first time in history, the sound of a human voice in San Francisco could be heard in New York. It was a big deal, and Lee Deforest’s vacuum tube amplifier was about to change everything.
If, during your visit to Silicon Valley, you go to the Santana Row shopping center, you can still see the Lee DeForest building, still standing.
Chapter 4: The Tube.
Lee Deforest’s ground-breaking invention controlled the flow of electrons, and so the field of study became known as “electron-ics”. And soon the two universities, Stanford and Santa Clara, created new courses of study and research in this new field of electronics, within their schools of engineering.
The professors within those two programs — most famously Frederick Terman at Stanford — started doing some really unusual things. Instead of encouraging his students to go into academia or go to work for large companies on the East Coast, he encouraged them to stay here and found companies and create jobs — Terman even invested in some of them.
Many of his students ended up founding companies here, most famously, of course, Bill Hewlett and Dave Packard, students of Terman’s who founded HP in a garage at 367 Addison Avenue, just a mile from campus. That garage is still there.
Now HP was a brand-new company with one product and no customers. And so, in what would become a “very Silicon Valley thing”, they named their product the HP200A, hoping that it made it seem like they were an established company with an entire line of products. Their very first customer was Disney, who bought seven of them for use in the making of the movie Fantasia.
For the next half-century, vacuum tubes drove the development of radio, television, radar, sound recording, home entertainment, and so much more. But things were about to change again…
Chapter 5: The transistor.
One day a Palo Alto guy named William Shockley won the Nobel prize in physics for developing the transistor. Transistors did everything that vacuum tubes did, but they were smaller, lighter, cheaper, faster, and consumed lower energy. A new revolution began.
William Shockley founded a company to make his new invention, Shockley Semiconductor, at 391 San Antonio Road in Mountain View. He hired some of the brightest scientists in the world, recruiting them from far away to come to work in his new Santa Clara Valley company.
But as it turned out that — in what would become a “very Silicon Valley thing” — William Shockley was, by all accounts, a brilliant technologist and a terrible manager. So eight of the top guys got fed up with Shockley’s bad management style and they decided to quit Shockley Semiconductor and create their own startup. They quit their jobs and the next day met in the bar at the Clift Hotel to talk about the new company they were going to create together. They had no partnership agreement, no nothing, so they decided they’d sign a dollar bill together, to symbolize the commitment they were making.
Shockley, of course, said “I’m gonna sue your ass — you all signed non-compete agreements”. But it turns out that California, unique in the US, has a law on the books that says non-compete agreements are unenforceable. That fact ends up being a key factor in the development of Silicon Valley.
“Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”.
— A unique provision in California law.
So these eight guys created a startup to compete with their former employer, and Fairchild Semiconductor was born at 844 Charleston Road in Palo Alto. A moment that would eventually spawn more than 50 companies eventually spun out of the one.
Soon Robert Noyce at Fairchild started working on a new innovation — a way to put many microscopic transistors on a single semiconductor chip, creating a complete integrated circuit.
And two of the Fairchild founders, Gordon Moore and Robert Noyce, left to found a little company named Intel, a company that led the way putting a higher and higher density of transistors on single chips.
These chips created a whole new revolution in electronics.
And, as you probably know, the key manufacturing ingredient to making these things is…wait for it…Silicon. And soon there were companies all over Santa Clara Valley manufacturing these things. So many, that in at 1971 column in Electronics Magazine, it was called “Silicon Valley”. And a new nickname was born.
Chapter 6: The Money. No history of Silicon Valley would be complete without a discussion of the money. Well, Eugene Kleiner eventually left Fairchild Semiconductor and formed a venture capital firm named Kleiner Perkins. At the time a brand-new highway was being proposed, Interstate 280, connecting San Francisco and San Jose, right alongside Santa Clara Valley. Eugene Kleiner thought “well, I’ll put my new venture capital firm at this exit right here, halfway between SJ and SF”.
And so a random highway exit, Sand Hill Road, was born as a venture capital nexus. Kleiner Perkins has gone on to fund Amazon, Google, Skype, Spotify, SnapChat, Electronic Arts, and more than 800 other companies. Today Sand Hill Road has the highest density of venture capital firms in the whole world.
Chapter 7: The Personal Computer.
One day in the 1970’s, a high school kid named Steve Jobs got ahold of Bill Hewlett’s home phone number and called him up, asking for spare parts for a frequency counter he was building. Bill Hewlett liked this kid, admired his initiative, and not only gave the parts he wanted, he also gave him a job at HP that summer, working on the assembly line.
A few summers later this Steve and another guy named Steve launched their first product. I didn’t buy their first product, but the following summer I bought their second one. It was the coolest thing I’d ever owned.
Just four years later, Apple had one of the largest IPO’s ever, creating more instant millionaires — about 300 employees — than any company in history.
Now, computer screens at the time could just display glowing green characters on a black background, with a keyboard for typing commands. But, in a now legendary Silicon Valley moment, Steve Jobs one day visited the Palo Alto Research Center, run by Xerox, where they were working on a new computer. One that had a screen that could actually display drawings, and bizarrely it had this little thing on the side which you could roll around with your hand, pointing and clicking at things on the screen. Steve stole all those ideas, and in 1984 launched the first Macintosh.
Suddenly Silicon Valley was filled with new companies making personal computers. Lots of personal computers, from Apple to Silicon Graphics to Sun Microsystems to so many more.
Chapter 7: The second internet.
You probably know this story: During the Cold War, the department of defense was worried that because the telephone system in the US was so centralized that one nuclear attack in one city could take down the country’s entire communications structure. So the Advanced Research Projects Agency — ARPA — developed Arpanet, a decentralized system where one node could be wiped out and the system would still work. The very first message on Arpanet was from UCLA to SRI in Menlo Park, and soon additional nodes were added at other research centers. But Arpanet could only talk to computers on the same network which spoke the same language. There was no way for one standalone network to talk to another. One day two scientists at SRI in Menlo Park were working on this problem. It was a difficult problem to solve so — doing what great engineers do – they drove to a dive bar up the street in Portola Valley, Rossotti’s Alpine Inn, ordered few beers, worked on the problem some more, and finally developed an inter-net protocol, a way for computers to communicate between networks. This “inter-net protocol” got shortened to just “The internet”. It would eventually change the world.
The internet was just a text-based system for geeks, until one day a guy the research center at CERN in Switzerland developed a way to put a clickable graphics interface on the internet, and the “world wide web” was born.
Jim Clark, Stanford engineering professor who founded Silicon Graphics, heard about a college kid named Marc Andreessen who had developed a browser for viewing the WWW. So Jim convinced him found a new company, Netscape, to sell web browsers. At their 1995 IPO they had a market capitalization of almost $3 billion. The internet gold rush was on.
And then of course, two grad students, Larry and Sergey, developed a way to search documents on the internal network at Stanford and they ran their search tool at google.stanford.edu. It was so popular they spun it out into a separate company called Google. And it’s done OK since then.
No Silicon Valley history would be complete without talking about PayPal. They started as a company making security software for handheld devices, then they pivoted to electronic payments, and two years later sold the company for $1.5 billion. The PayPal founders — now often referred to as the PayPal Mafia–went on to fund or found several other ground-breaking companies such as YouTube, Yelp, Yammer, Facebook, LinkedIn, SpaceX, Tesla, and many more.
PayPal’s first office was at 165 University Ave, and as soon as they moved in a new tenant moved in — Google. A few years later, just a half-block away, Facebook leased their first office under the name “The Face Book”. Now, of course, Facebook is one of the largest companies in the area, and their purchase of Instagram and Whatsapp makes them the undisputed champion of the current era of Silicon Valley. But nothing lasts forever, especially in this Valley.
Chapter 8: Today.
And that brings us to today, and this iPhone in my pocket. This hand-held device has 6.8 billion of William Shockley’s transistors in it, on 14 of Robert Noyce’s semiconductor chips. It uses principles developed by Lee Deforest to amplify and transmit the sound of a human voice. It connects via the Internet Protocol developed over a pitcher of beer at the dive bar on Alpine Road. It runs a web browser, based on the one developed by Marc Andreessen. It runs a variety of apps funded by Eugene Kleiner’s venture capital firm. It can make payments, using encryption principles developed by PayPal. This device, via Google, is connected to all the information in the world.
And we’re sitting here today, on the campus of Santa Clara University, just a hundred meters from where Father Junipero Serra built the first building, in a big beautiful fertile valley, in 1777.
I’m often asked “How did Silicon Valley happen — what were the factors in creating an economy like this?” I think there are a number of reasons, and entire books have been written on this topic, but for me it distill down to this:
A culture of reinvestment. Reinvestment of economic capital, and reinvestment of intellectual capital.
It began when the Jesuits decided to take the land they owned around Mission Santa Clara and use it to establish this university.
It continued when Professors Sullivan and Turman encouraged his students to start companies and create jobs, and even invested in some of them.
It continued when Bill Hewlett took a phone call from a high school kid named Steve Jobs and gave him spare parts to use in developing his new invention.
It continued when Eugene Kleiner took the money he made as a founder of Fairchild Semiconductor and used it to create the venture capital industry on Sand Hill Road — an entire industry dedicated to re-investing capital in new entrepreneurs.
The nine founders of PayPal could have taken the $1.5B they got from the sale of the company and retired to islands in the Caribbean. Instead they used that money to fund and/or found Facebook, Tesla, YouTube, Yelp, Yammer, LinkedIn, SpaceX, and more.
You are here today because of this culture of reinvestment. The program you are in was born when one day the President of this University, Father Paul Locatelli, said to the Dean of the business school, Jim Koch, “OK, we’ve built a highly-ranked business school. Now, what can we do to help world’s poor”?
Jim co-founded this program as his answer to Father Locatelli’s question. A program that takes the unique intellectual capital this university has built over the past 160 years, and re-invests it in social entrepreneurs around the world who are working to end global poverty and protect the planet. We’ve had over 1,000 entrepreneurs go through this program, raising hundreds of millions of dollars in capital and impacting the lives of 400 million people around the world.
Welcome to Silicon Valley. Enjoy this special place as you spend your next few days immersed on this campus, at the Miller Center for Social Entrepreneurship.