Silicon Valley’s Secret Sauce: It’s Made out of People

September 3, 2012

Silicon Valley People Ecosystem

  1. Stanford University and local high-paying employers attract the best ambitious technical talent, and facilitate immigration through visa programs. The rigorous interview process for these institutions acts as a first-round filter for investors.
  2. Entrepreneurs form startups during their academic studies or use savings/equity from their well-paid jobs.
  3. Initial seed funding is readily available from a large network of angel investors. As we’ll see, these angels are likely to already have a shared connection with the entrepreneur.
  4. Later rounds of funding are enabled by one or more local Venture Capital funds, who are also socially connected.
  5. The startup is acquired by, or grows into a larger corporation.
  6. The entrepreneur vests or otherwise significantly cashes-out of their company, with enough wealth to provide angel investment for smaller startups. As the entrepreneur originally came through the Stanford or Facebook/Google/etc route, they likely already have shared connections with many of the younger entrepreneurs.
  7. The angel becomes a partner at a larger VC fund; now the fund also has a connection to the new startups.
  8. The VC teaches a class or becomes a professor at Stanford, forming closer connections with / earlier access to future entrepreneurs.

I don’t want to imply that this is the only way that people and funds flow in Silicon Valley (SV), nor is it even the most common. But it does demonstrate one of the many people-oriented ecosystems that make the area unique. Other entrepreneur networks include those established by funds or accelerators. For example, I like to play my own version of The Kevin Bacon Game, called The Dave McClure Game, in which I connect any person in the Bay Area to Dave McClure (of 500 startups) within two steps.

I’ve lived in three different countries and travelled around the world, and a recurring theme in the web communities of large cities is a desire to replicate the successes and benefits of the SV tech scene. But these tend to focus on the wrong things, like shared office space or high-speed internet infrastructure. While these are certainly useful elements to have, they’re not the source of SV’s success – in fact, anyone who lives in SV will tell you that the internet infrastructure is surprisingly primitive.

It’s the feedback loop of people that makes SV what it is, from the constant influx of young global talent, through the huge experienced mentoring network, to the established investors and thought leaders. It’s a catch-22 born of previous successes.

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