What the New North Can Learn From Silicon Valley

Since returning to my Northeast Wisconsin roots fifteen years back, after a career in high tech entrepreneurship and venture capital in Silicon Valley and North Carolina, I’ve spent much of my professional time trying to foster the emergence of a self-sustaining, high-impact entrepreneurship and investing community here in the New North. Northeast Wisconsin’s entrepreneurial roots run deep, all the way back to the forest-products pioneers of a hundred years ago and more, upon whose legacy we largely owe our continuing (for now) prosperity. It’s past time for a new generation of Wisconsin entrepreneurs to lay a new foundation for another century of prosperity.

By any objective measure – and the most obvious and helpful, I think, is venture capital investment – I’ve failed. Or we’ve failed, as while there are not a lot of us working on the project, there are several dozen to several hundred of us, depending on how you count. There was virtually no venture capital investment in the New North fifteen years ago. Since then, while the needle might have twitched a time or two, it has not made any sort of material, sustained move. Worse, while we’ve been treading water (can you do that in a puddle?) our friends in Madison have been busy establishing a venture-financed entrepreneurial beachhead that at least a few folks in Silicon Valley have taken notice of, if not yet come calling on, in any force.

All of that said, I still believe that the New North has the raw materials to support a regionally important high impact entrepreneurship and investing community. Nothing like Silicon Valley, of course. Maybe not even in Madison’s league – though even with a lot of catching up to do I wouldn’t concede that quite yet. In all events an entrepreneurial innovation community more than sufficient to energize a new generation of innovation and wealth creation that could provide a foundation for continued New North prosperity for decades to come.

So, the obvious question. Why so little progress? Why haven’t all of us smart, well-connected, enthusiastic folks pushing the “we can do that here!” narrative made any real headway?

There are a bunch of reasons. But two, I think, set the table for all of the others. Two assumptions about the challenge that most all of the regional cheerleaders get wrong.

The first deal-killer assumption goes something like this: “That may be the way they do it in Silicon Valley, but that’s not the way we do it here.” Sometimes, this attitude is employed offensively, as, for example, “well, they may work longer hours in Silicon Valley but our employees are more loyal,” which is true enough. Sometimes it is employed defensively, as for example: “We just don’t have the risk capital resources to build companies the way they do on the Left Coast,” which is also true. In both cases, though, the contentions are valid – but they are fundamentally misdirected and misleading.

The argument about longer hours and loyalty is flawed because it is widely accepted among close observers and participants in the Silicon Valley juggernaut that as much as job-hopping may cost employers, those costs are dwarfed by the benefits employers reap from being able to rapidly poach (actually, as often as not just recycle) time-sensitive, mission-critical talent from their regional brethren. Timely access to employees who are willing to live and breath their work – and believe me, the archetypical Silicon Valley programmer deep in the bowels of Facebook works a lot more hours than her counterpart deep in the bowels of, say, Kimberly-Clark – is way more valuable to high impact emerging companies than having employees that bleed the corporate colors. Most Silicon Valley startups, after all, flameout (or cash out) in less than ten years in any event.

People with the “that’s not the way we do it here” mentality should understand why they do it their way in Silicon Valley before they say our way is better, or even good enough. So while there are surely established “Big-Tech” icons in Silicon Valley – just as there are big companies in the New North – that would like to see employees stick around longer than they generally do, the emerging, venture-backed companies – the kind of companies we need more of here – absolutely depend on their ability to quickly attract job-hoppers looking for their next, next big thing gig. Employee churn is a feature of Silicon Valley’s high impact entrepreneurship and investing culture, not a glitch.

As for the argument that the New North just doesn’t have the venture/risk capital resources to do high impact entrepreneurship, well … so what? Go back several decades, to when Silicon Valley was becoming Silicon Valley, not being Silicon Valley, and Silicon Valley didn’t have the venture capital resources to do what Silicon Valley does so much of today. We should stop looking at today’s Silicon Valley headlines – the billion dollar (and even hundred billion dollar) venture funds doing $100 million investments in proven management teams – and start looking at the “origin” times of Silicon Valley when $50 million was a huge fund; $3 million a big round; and management teams were typically bereft of entrepreneurs who had “been there, done that” before. Consider that the first round of Genentech was $250k and was based on a business plan (and scientific team) assembled by a junior venture capitalist.

The Silicon Valley model that matters to the New North is emphatically NOT the one that is in all the headlines today. It is rather the Silicon Valley of the 1970s and 1980s. A time when job-hopping was as important to the ethos as it is today, but also a time when experienced capital and talent was a lot scarcer than it is today. If we want our little corner of paradise to find a meaningful place in the orbital plane of Silicon Valley, we should start (finally) by studying, and learning from, what makes Silicon Valley tick. And, even more to the point, what got it ticking in the first place. Have some humility, people. We must develop a really solid understanding of how Silicon Valley got to the top of the innovation mountain before we start our own climb up from the valley floor.

Post Script:  If you want to learn a lot about what made and makes Silicon Valley tick, a good place to start is “Regional Advantage” by Anna Lee Saxenian. This classic and highly respected study of the Silicon Valley ethos is even more compelling for folks in places like the New North in that it casts the Silicon Valley ethos as a contrast to Boston’s more traditional business ecosystem – New England being a region that despite having a clear first mover advantage over Silicon Valley was, in less than twenty years, a distant second and fading player in the high impact innovation and investing world.

 

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Back to the Future in Silicon Valley

Silicon Valley came by its name honestly enough: way back in the 60s, 70s and 80s, it was the place where venture capitalists and entrepreneurs turned silicon into computer chips in high volumes and at low prices that astonished the world. I have a chart on my office wall that shows how hundreds of silicon-based chip companies emerged in the Valley in that period, the vast majority of which could be traced to Shockley Semiconductor Laboratory (founded 1956), and Fairchild not long thereafter – the later spawned so many later chip companies that it fairly earned the moniker “Fairchild University.”

The Big Kahuna of the silicon companies in Silicon Valley was and is, of course, Intel.  The company’s x86 chip architecture, launched in 1978, powered the PC revolution and remains to this day by far the dominant architecture in personal computers, laptops, workstations, and even the cloud computing business. It’s even a big player in the supercomputer segment. Name a big chip company and chances are good a big part of its business is x86-based chips. Much the same as the IBM System/360 architecture has dominated the mainframe business since the 1960s. Yes, there is still a market, albeit not so big as it used to be, for mainframes.

The x86 architecture has been so dominant for so long that for maybe the last two decades or so, the venture capital business – a business that owes its current form largely to its role financing all those chip companies way back when – has pretty much stopped funding chip startups. Until recently, that is.

I was doing a bit of research on the current AI revolution (there have been others: folks of a certain age will remember the “expert systems” AI hype in the late 80s) when I found something pretty interesting – well, to me, at least. Over the last couple of years, VCs have invested hundreds of millions of dollars in more than 20 new chip companies. All of which seem to have one thing in common: they are developing chips optimized for AI applications. Chips with non-x86 architectures.

I said I found this interesting. That’s because it suggests to me that while lots of folks are talking about how various tech-enabled and tech-driven revolutions are on the cusp of changing the world for people who use technology, and how to frame that as an investment opportunity, far fewer folks are talking about how those revolutions might change the world for today’s biggest producers of technology, and how to frame that as an investment opportunity. So, for example, while there are plenty of people talking about how AI might disrupt the smartphone business and the personal transportation space, not so many are talking about how AI might disrupt the businesses that provide the components that power those businesses. Who, that is, will be the next “Intel Inside.”

I’m betting it won’t be Intel – for the same reason IBM didn’t follow its System/360 mainframe architecture with something like an x86 architecture of its own. When you are king of a big mountain, and Intel’s is still sitting at the top of a pretty big one, you tend to think more about defense than offense. Protecting your realm, not cannibalizing it. Just ask Kodak – the folks who invented digital photography.

So here is an investment hypothesis: Assuming (and this is a big assumption) that today’s AI revolution will be even nearly as big as the hype suggests, I’ll bet when the dust settles there is a new sheriff in the silicon part of Silicon Valley. Though if you look at where those chip-hungry VC investors have been spending their money, it just might be an out-of-towner.

Stanford Offer is a Good Thing

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Stanford Offer is a Good Thing” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“So the good folks at Stanford University’s business school want to lend a hand to the ‘underserved’ folks in flyover country.

Good for them — and us.

Even way back when I was in school — we are talking late 70s to mid 80s — the attraction of Stanford was, at least in part, that it was ‘there.’ And I was ‘here.’ A ticket to Stanford was generally thought of as a one-way ticket: ‘Go west, young man,’ Horace Greeley advised; and don’t come back, he implied.

As it turns out, I did not go to Stanford, and instead got my MBA and JD closer to home, in Chicago. But my first post-education stop was in Silicon Valley, and it was a great move that I never regretted.

Employee Turnover: A Cloud with a Silver Lining

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, the newest blog addition to the Milwaukee Journal Sentinel covering start-ups and other Wisconsin technology news.

Paul’s most recent contributed piece “Employee Turnover:  A Cloud with a Silver Lining” can be found under their Business Tab in the Business Blog section. Click here to view his latest blog.

Here is a short excerpt: “In a recent Washington Post commentary, DC-area entrepreneurJoel Holland cites four reasons he believes account for the recent emergence of the nation’s capital as a modest but real center of startup-driven innovation and venture investing. One reason he cites is a business and social culture that – in sharp contrast with Silicon Valley, he notes – supports more stable employment relationships. Holland posits that lower employee churn is something that gives DC-area innovators a competitive advantage over their Silicon Valley counterparts.

I beg to differ.”

Click here to read more of Paul Jones’ OnRamp Labs blog post located under the Business tab of the Milwaukee Journal Sentinel’s website, www.jsonline.com.

(Don’t) Go West, Young Entrepreneur

By: Paul A. Jones

After launching my career in and around the high impact entrepreneurship space and venture capital in Silicon Valley in 1985, I moved on to North Carolina in 1990.  After an .. exhilarating? … run as a venture capital investor (fund class of 1999 which, if you know the history of the business, is more than enough said) I proved to myself, at least, that sometimes you can just go home.  In my case, home was Neenah, Wisconsin.

My career is still all about high impact entrepreneurship and investing: my experiences over the last 10 years demonstrate that high impact entrepreneurship is doable in Wisconsin.  More than that, it has, I think, a bright future.  But … and this is where I tend to get into trouble … let’s not kid ourselves.  Wisconsin’s high impact entrepreneurs, circa 2014 and for some indeterminate time to come, as a rule (there are exceptions, but mostly of a kind that prove the rule) face more and more daunting challenges than their peers in Silicon Valley.  Or even New York or Austin, for that matter; but let’s be straight about it.  Silicon Valley is the gold standard for high impact entrepreneur environments.

EntrepEventJune2014#1This week, at the 2014 Wisconsin Entrepreneurs’ Conference, I was on a panel talking about common mistakes entrepreneurs make.  And I said something, publicly, that I have said privately before.  To wit that if a high impact entrepreneur’s only objective is to raise the most venture capital, as fast as possible, at the highest price, that entrepreneur should move to Silicon Valley.

Being that the setting was, as mentioned, the Wisconsin Entrepreneurs’ Conference (and kudos to the Wisconsin Technology Council for another great event), my declaration was not particularly embraced by the crowd.  But it is what it is.  Silicon Valley is to the high risk entrepreneurship and investing world what Rome was to the Roman Empire.  It is where pretty much all of the significant roads lead.  It is where about one half of all the venture capital in the country is invested (that would be two orders of magnitude more venture capital than has historically been invested in Wisconsin).  The Silicon Valley entrepreneur/venture capital eco-system is by far the  broadest and deepest in the world.  That is not a boast, that is just a fact.

But if Silicon Valley is the center of the technology-driven entrepreneurship and investing universe it is no more the only place in that universe than Rome was the only place that mattered in the days of the Empire.  Entrepreneurs can and do build great companies in places like Wisconsin.  They do it because raising the most money at the best price as fast as possible is not their only objective.  They do it because while it might be easier to build a startup bigger, better and faster in Silicon Valley, they want to do it somewhere else – like Wisconsin.  And, frankly, I applaud them for it.  Selfishly, if there were not entrepreneurs and risk capital investors who wanted to do their thing in Wisconsin even if it might be harder to do here than there, well, I would not have anything, career-wise, to do here.  And I like it here, too.

So if you are one of “us,” that is one of those folks in the high impact entrepreneurship and investing space that calls Wisconsin home, three cheers.  But do it with your eyes open.  You can get financed in Wisconsin.  You can build winning high growth/risk teams in Wisconsin.  You can find savvy startup lawyers, accountants, advisers, mentors and partners in Wisconsin.  But it will likely take a little more time WinterTreesand effort than it would in Silicon Valley.  And you will most likely have to compromise a bit more on your financing, growth and exit expectations.  Good for you.  You gotta love our winters.

 

Paul Jones Conversation With Eric Wagner in Forbes

In late 2012, Paul Jones, Co-Chair of Michael Best’s Venture Best team, spoke with Eric Wagner, a serial entrepreneur, regular blog contributor at Forbes.com, and founder of Mightywisemedia. The discussion focused on ideas that high impact entrepreneurs can use to attract venture capital dollars.  Recently, Eric summarized the conversation and Paul’s ideas on his Forbes blog 12 Tips on Raising Venture Capital for Your Startup.