Does Silicon Valley Still Matter?

The region may lose its edge as a tech hub as entrepreneurs focus on short-term gains and VCs increasingly look abroad for innovation

By Sarah Lacy

It's a truism in tech that entrepreneurs who want to build the next Google must come to Silicon Valley. The area's importance as a tech hub was reinforced earlier this month by a Milken Institute report saying that Silicon Valley remains "the largest and most influential high-tech center in the world."

I've gotten a close glimpse of why Silicon Valley matters through my research on some of tech's most successful entrepreneurs, including Evan Williams, co-founder and CEO of Twitter; Mark Zuckerberg of Facebook fame; and Marc Andreessen, co-founder of Netscape, Opsware, and Ning. They and thousands like them could never have gotten their ideas off the ground had it not been for the concentration of ideas, talent, mentoring, and funding they found in Silicon Valley.

Williams moved here from Nebraska in the late 1990s before founding pioneering blog site Blogger, which he later sold to Google (GOOG). As he noted in a blog commemorating his 10th year in the Valley, "Andreessen says if you want to do technology in the U.S., you need to be in the Valley…Marc is completely right. In my case, anyway, Silicon Valley (or thereabouts) was exactly where I needed to be."

What's Wrong with Wisconsin?

But the southern region of California's Bay Area isn't necessarily where others believe they need to be. Wisconsin-based entrepreneur Penelope Trunk argued in her blog that starting a company in the Valley is "stupid," in part because of the expense of living and doing business here and because much of the work needed to start many small businesses, including raising money from angel investors, can be done wherever you are.

Trunk's argument may be harsh considering she hasn't lived in Silicon Valley, but I, too, have found myself questioning the importance of this unique region to the creation of tomorrow's tech titans. I've spent about two weeks of each of the last several months traveling to China, Europe, and Africa and will continue globe-trotting for the next year or so. I'm working on a book about global entrepreneurship, and I'm no longer convinced you really do need to be in Silicon Valley if you're looking to build the Next Big Thing in tech.

Some of the very qualities that make Silicon Valley singular threaten the area's status as the high-tech innovation hub. Because it is so much easier to start a company here, the region has become a magnet for entrepreneurs and investors who play it safe. "There are too many people trying to avoid risk; too many people trying to deploy capital, as opposed to invest in risk and invest in breakthroughs," venture capitalist Vinod Khosla of Khosla Ventures recently told me in an interview for Yahoo's (YHOO) TechTicker.

Spreading the Wealth

He's got a point. Consider two of the area's biggest success stories, Facebook and Twitter. For all the hand-wringing about whether either company will ever make money, neither is all that risky a venture. The same observation could be made about many of the thousands of applications being built for Twitter, Facebook, Apple's (AAPL) iPhone, and other platforms.

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