Is Silicon Valley real?

Scott Alexander argues that Silicon Valley's reputation - that it's decayed into bubbles around nonsense products such as the San Francisco-based Juicero - is undeserved, that there's still plenty of innovation around. But I think what's really going on is that Silicon Valley doesn't exist anymore.

Scott starts by listing six examples of Silicon Valley companies that are making real and valuable things. He doesn't name them all, but as far as I can tell, they are:

  1. Berkeley Lights: Berkeley, near a different famous university in the San Francisco Bay Area than the one in Silicon Valley.
  2. Wave: New York, though the company is international in scope and the people I personally know who work at Wave mostly work remotely, some of them from the Bay.
  3. SolarCity: San Mateo, in Silicon Valley. An Elon Musk venture.
  4. SpaceX: Los Angeles, which is not generally considered part of the San Francisco Bay Area, much less Silicon Valley. Also an Elon Musk venture.
  5. Bigfoot Biomedical: Milpitas, in Silicon Valley
  6. Memphis Meats: San Francisco.

I count:

  • Two in Silicon Valley.
  • One in adjacent San Francisco.
  • One across the bay in Berkeley.
  • Two somewhere entirely different.

(As an aside, Juicero itself is headquartered in San Francisco, not the Valley. As a second aside, a full third of Scott's success stories - SolarCity and SpaceX - are Elon Musk ventures. I think basically everyone is happy to grant that Elon Musk is making real things.)

Scott then goes on to list the companies in Y Combinator's current crop of startups. The companies are mostly doing things that seem like they can't reasonably make money without genuinely adding value by producing something new. Scott then lists the companies funded by a top venture capital firm, which seem similar. Overall, Scott makes a good case that top Bay Area institutions are funding things that make sense.

But, when I or my friends actually talk to top Bay Area venture capitalists, they agree that the lower-tier VCs are largely not doing things that make sense. They just write them off as irrelevant.

I'm also confused about how to interpret things like Instavest (an investment platform that pitches people on participating in speculative bubbles by copying people with good track records). Maybe Y Combinator just doesn't have good controls, but I am confused about how a thing like that could happen by accident. It seems like if they accepted a startup whose plan resembles a scam so strongly, maybe I should doubt that the companies claiming to do something real do what they say they're doing.

Then there's the matter of location. Y Combinator happens to be based in Silicon Valley now - though it was founded in Cambridge, MA - but it's not necessarily nurturing startups indigenous to the Valley. People apply from all over. The best way to think of Y-Combinator is as an innovative international business school specializing in entrepreneurship, that charges an equity slice instead of tuition.

But there used to be a real thing called Silicon Valley. At first, it was a bunch of geeks in garages figuring out how to make cool stuff, collocated with a bunch of companies figuring out how to make physical computer tech, and near a major academic research institution, Stanford University. And, that either does not exist anymore or is no longer relevant to what Bay Area Tech has become. It seems to me as though that sort of thing would never have produced a Juicero or an Instavest. It didn't have to try hard not to produce a Juicero or an Instavest, it just wouldn't have occurred to anyone to do that.

In the next generation, the internet was the new thing, but people had still been brought up in a culture based on business that interfaced with material reality. Now we're going through the third wave - a boom around the idea of the startup (high uncertainty and growth potential), social media, and mobile apps. Venture capitalists seem to be chasing yields, a recipe for a speculative bubble.

That doesn't mean nothing real is happening - obviously something real is happening, unless Tesla and SpaceX are truly incredible hoaxes. But, as far as I can tell, Silicon Valley is gone. Housing prices in South Bay are mostly too high for anyone who's not pulling a high salary as a busy engineer at an established firm like Google or Apple (though I know of exceptions, mostly in group housing), there's not really the time and space for idle garage tinkering by people who haven't already got it made, and there's easy money for the right sort of person who dropped out of the right sort of school, in flattering venture capitalists' current prejudices, so there is comparatively little in the way of market tests or need to produce something real.

In his excellent essay on cities, Paul Graham points out that people pick up subtle but powerful messages around what they should be ambitious about, from their local culture:

New York tells you, above all: you should make more money. There are other messages too, of course. You should be hipper. You should be better looking. But the clearest message is that you should be richer.

What I like about Boston (or rather Cambridge) is that the message there is: you should be smarter. You really should get around to reading all those books you've been meaning to.

When you ask what message a city sends, you sometimes get surprising answers. As much as they respect brains in Silicon Valley, the message the Valley sends is: you should be more powerful.

[...]

One of the exhilarating things about coming back to Cambridge every spring is walking through the streets at dusk, when you can see into the houses. When you walk through Palo Alto in the evening, you see nothing but the blue glow of TVs. In Cambridge you see shelves full of promising-looking books. Palo Alto was probably much like Cambridge in 1960, but you'd never guess now that there was a university nearby. Now it's just one of the richer neighborhoods in Silicon Valley. [2]

A city speaks to you mostly by accident—in things you see through windows, in conversations you overhear. It's not something you have to seek out, but something you can't turn off. One of the occupational hazards of living in Cambridge is overhearing the conversations of people who use interrogative intonation in declarative sentences. But on average I'll take Cambridge conversations over New York or Silicon Valley ones.

A friend who moved to Silicon Valley in the late 90s said the worst thing about living there was the low quality of the eavesdropping. At the time I thought she was being deliberately eccentric. Sure, it can be interesting to eavesdrop on people, but is good quality eavesdropping so important that it would affect where you chose to live? Now I understand what she meant. The conversations you overhear tell you what sort of people you're among.

[...]

[2] There are still a few old professors in Palo Alto, but one by one they die and their houses are transformed by developers into McMansions and sold to VPs of Bus Dev.

Some people of exceptional personal virtue and judgment can focus on the right things anyway, but they don't seem to be benefiting from acculturation the way people did in mid-late 20th Century Silicon Valley.

I recently talked to someone at a startup whose product I'm genuinely excited about and seems like a real innovation, and which had no problem getting funding. I asked about how their team interacted with other people in the San Francisco Bay Area startup world. They told me that their team largely isolates itself.

If this reflects well on them, then it reflects very poorly on what's left of Silicon Valley culture. It's a far cry from things like the Homebrew Computer Club.

7 thoughts on “Is Silicon Valley real?

  1. Pingback: Rational Feed – deluks917

  2. Aceso Under Glass

    Wave is based in Africa but went through YC, so I think it's fair to call it SV. This would be true even if no employees lived in the bay area.

    (Disclosure: I work for Wave).

    Reply
    1. Benquo Post author

      Thanks for pointing that out! I'd thought that Wave was headquartered in New York because it says so on their website. But it makes sense that their operations would be more heavily weighted in Africa.

      I think YC is a distinct institution from SV and worth tracking separately. It used to be based in Cambridge, MA, and I don't think changed radically in its transcontinental move - it gets applicants from all over anyway.

      "The world's standout startup incubator / entrepreneurship school is located in Silicon Valley" seems true, but that is a very different thing from what Silicon Valley used to be - it suggests that Silicon Valley's interesting industry is "prestigious startup incubator and VC", in the way that NYC has finance - not tech, in the way that LA has movies. That's important, and causally related to Silicon Valley's old nature, but very much not the same kind of thing.

      Google's IPO was managed by Goldman Sachs and Morgan Stanley, but we don't say it's a Wall Street firm. Blue Apron was started by a Harvard Business School grad but we don't say it's a Cambridge, MA firm:

      Co-founder Matt Salzburg attended HBS and graduated in 2010, and received a Rock Center Fellowship from the school to work on his business ideas. Blue Apron launched in spring 2012 in New York and has expanded to serve all but a few central U.S. states.

      If companies spend different parts of their growthcycle in different places specializing in different stages of a business, you can make a case that any of those places is a hotbed of innovation and responsible for all this cool stuff. On the other hand, YC startups definitely owe more to YC than is owed in at least the first of those two examples.

      Reply
  3. Jeffrey Brewer

    As the CEO of Bigfoot Biomedical, one of the companies referenced above as making real and valuable things in Silicon Valley, I'd say it's a mixed bag for us in leveraging our location. On the one hand, we benefit from proximity to the talent we need for very important aspects of what we are building: UX, IoT, data science, cyber security, etc. However, of the $35M in investment referenced above, less than $3M came from any firm or individual from Silicon Valley. The capital that bet on our digital health innovation mostly came from New York, Boston and places outside of Silicon Valley. There is still very much an appetite for innovation in Silicon Valley. I live it every day. However, in our space of medical device and digital health, the investors who have an appetite for the risk associated with true innovation are largely coming from somewhere else.

    Reply
    1. Benquo Post author

      Thanks for adding detail! This broadly matches my sense that the Bay Area - and perhaps the Valley in particular - is a natural coordination point for the software and computer programming industry, and since many startups have a lot of need for those inputs, this is going to be an appealing spot to locate companies.

      I'm a bit surprised that most of your investment is coming from elsewhere.

      Reply
  4. Meromorphic Fox

    I think PG's description of city culture soaking in sounds like a poetic story, and initially felt very compelling to me, but the more I think about it, the more I feel doubt, and like it's missing a ring of truth by having the wrong focus. Seems like university culture clearly can leak out into the surrounding city sometimes, but I'm not sure about the occupational climate doing so. I would be surprised if those things make as big of a difference as zoning and geography. I wonder how we can investigate this more?

    Reply
  5. Mesoscale mind

    Web 1.0 (the first boom) was about scamming investors. Web 2.0 has been about scamming clients.

    I wouldn't say that the valley tells you to be more "powerful". I'm not even sure what that means, in context. If I had to pick one thing I'd say it tells you to be more youthful. Which can be inspiring and refreshing in one sense but also sad and hopeless, taken in a more literal sense. Lately the neighborhood has been increasingly animated by a strong obsession, or perhaps infatuation, with youth in the quite literal sense.

    Reply

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