The San Francisco Bay Area is famous for its long history of leadership in computing, semi- conductors, software, biotechnology, the Internet and other innovation-based industries. But what makes it unique, beyond its talent base and access to capital? What exactly is the often celebrated “West Coast culture of innovation”?
The relationship between the overall environment of the Bay Area and the companies that have been launched and thrive in the region is highly symbiotic. Large numbers of entrepreneurs are attracted to the region for its intellectual and financial resources. Venture capital firms play an important role to support those innovative entrepreneurs. As entrepreneurs start and build their companies, enormous positive network effects from venture capitals come into play, and providing them with a constantly refreshed pool of ideas and talent.
Venture capital is on of the distinctive elements of the Bay Area’s success, and industry that was created in the Bay Area and continues to thrive here. The amount of venture capital money invested from year to year may vary, but the Bay Area captures between 35% and 40% of U.S. venture capital funding investment. At certain times and in particular industries, that percentage can be much higher, especially in technology sector. Venture funding, as well as the funding of very young companies by angel investors, has fueled much of the technology commercialization in the region and many of its most successful companies. As a result, the Bay Area is home to the world’s largest assembly of information technology, biotechnology, Internet, digital entertainment, and cleantech firms.
As for the other organizational culture for venture capitals except innovation, I feel like venture capital is more like an individual sport while startups are a team sport. There is strong connection between venture capital and startups, so it’s impossible to talk about venture capital without startups. As a venture capital, we always have a group of partners who have different focus areas of excellence, each pursues deals in their respective field, each makes investments and sits on boards and each spends their most difficult hours tackling problems at portfolio companies verses solving the challenges at the venture capital itself. In venture capital world, people are highly connected, therefore, maintaining a strong business networking is also an important factor for venture capital. To become a successful venture capital, good networking with the existing entrepreneurs and businessmen always counts. As some businessmen have stayed in the industry for a long period of time, they can tell us which businesses or startups are worth investing on. The knowledge and industry expertise from those connections will help us make good investments that turn profitable.
The interrelated combination of factors that have driven the success of the Bay Area business environment – research, talent, investment, and openness to new ideas – are notoriously hard to replicate. Yet there is much to learn from the strategies, cultures, and practices of the companies located in the Bay Area—both for executives at other firms looking to boost their own innovation efforts and for leaders in other region hoping to jumpstart new paths to economic development and faster growth.
The larger economic lesson to be learned from the success of the Bay Area experience is that the ability to innovate is a competitive advantage not just for tech companies but for the entire business sectors. Just as we have seen in my business sector venture capitals, it stems from a culture that values openness to new ideas, and a networked environment in which ideas and people can flow back and forth, interacting fluidly.