Is Silicon Valley Killing Entrepreneurship?

Dennis Cuneo Silicon Valley

Due to its image as a “cradle for innovation”, Silicon Valley has attracted countless entrepreneurs around the world. But is this harming the entrepreneurial spirit of the rest of the country?

In the first season of the HBO show “Silicon Valley”, the titular valley is hailed as the “cradle of innovation” by fictional tech billionaire Peter Gregory.  And in many ways, this eccentric character was right.  However, I recently came across an article about how Silicon Valley could also be sucking the entrepreneurial life out of the rest of the country.  Over the past few years, this one region of northern California has seen an explosion in tech, where people around the world of all ages and from all sorts of backgrounds flock with their new idea for an app that could make them millions.  At the same time, statistics from across the country have revealed an overall decline in entrepreneurship in other parts of the US.

Nobody has yet to prove a direct link between these two trends, and it’s totally possible that there’s no correlation.  Nonetheless, the case against Silicon Valley is compelling.  Thanks to such trends as cloud computing and social media, the article argues, our society is increasingly winner-take-all.  So when it comes to entrepreneurship, Silicon Valley is the clear winner.  New York has earned some recognition as the number 2, but even as other cities have worked tirelessly to attract tech entrepreneurs with such incentives as tax breaks and cheap rent, it’s continued to be an uphill battle.  There seems to be a massive startup gap between Silicon Valley and the rest of the country.  For example, venture capital firms in 2014 pumped more than $32 billion into startups based in the stretch from San Francisco to San Jose, the very heart of the valley.  That’s twice as much as all of the venture capital put into companies in all the rest of the US.  New York and Boston both had around $4 billion each, but after that the drop-off proved extremely steep.

According to data from the Census Bureau, American entrepreneurs have been starting about 25 percent fewer companies in the 2010s than the 2000s.  A 2014 report from the Brookings Institution said that this decline in entrepreneurship points to a US economy that has become steadily “less dynamic over time”.  Recently, the leaders of the Greater Kansas City Chamber of Commerce convened to discuss the bizarre paradox of why entrepreneurship seems to be on such a decline while starting a company is easier than ever before.  Four years ago, they had launched a program at becoming America’s “most entrepreneurial city”.  This unfortunately proved to be a goal much too ambitious for them to actually accomplish, as it was so difficult for entrepreneurs to get capital.  It’s possible that since there’s only so much capital to go around, and so much of it is going to northern California, that less of it is available to go elsewhere.  But even in Silicon Valley, the number of companies being started is down from the record levels of the dot-com boom years of the late 1990s.

It seems that the money that at one time would have been spread among lots of younger companies across the country is now being transferred to just a handful of companies in one strip of land.  This could explain a lot of the outlandish valuations in the news, with Silicon Valley companies frequently being valued in the high billions.  The blame, the article argues, goes to the tech universe that’s been in development in the past 30 years.  More of life and business is becoming digital, as digital newcomers have disrupted companies that never thought they were digital.  Once a business is digital and in the cloud, then it’s possible for one company to take over the entire sector, since it instantly becomes available to the world, and has the potential to freeze out any competitor if it can take hold and get sufficient funding to secure its position.  Because of this, venture capitalists don’t want to invest in any sort of “me-too” startups that have little chance of making a big impact on the industry, leaving many entrepreneurs little chance to even get started.

Many people have noticed this trend in the industry, and have been fighting to combat it.  Steve Case, the founder of AOL, has been travelling the country by bus and holding startup contests in cities such as Atlanta and Richmond.  In the process, he’s found great entrepreneurs with great ideas who haven’t been getting capital.  While such projects have made some progress, the future of American entrepreneurship remains unclear.