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Views from the Valley
Learning From Silicon Valley Without Becoming It 

(Bethesda, MD -- May 17, 2000)  It was going to be Austin, Texas, then Chicago, then the Research Triangle in North Carolina.  In fact, it seems like almost every city was pitched at one time or another as the next Silicon Valley, with each city's boosters adopting some form of Silicon-based appellation.  Silicon Valley is still the unchallenged Mecca of technology entrepreneurship despite all conscious efforts to displace or copy it.

According to Matthew Haley, former entrepreneur and now Executive at Andersen Consulting, "People tried to emulate the Valley instead of trying to figure out which things that we do in the Valley are right, which ones you can only do in the Valley, and which things we do in the Valley that suck, but that we tolerate."

Haley was part of a panel of bi-coastals at this morning's Morino Institute Coffee & DoughNets meeting which examined the differences and similarities between the Valley's entrepreneurial environment and that in the Greater Washington region.  He was joined by investor Ginger Lew, CEO of The Telecommunications Development Fund; and attorneys Nancy Spangler, Partner in Charge at Piper Marbury Rudnick & Wolfe; and David Sylvester, Partner in Charge at Hale and Dorr.  All of the panelists have spent considerable time immersed in the entrepreneurial communities of both regions.

Silicon Valley maybe be king, but there's no denying that Greater Washington's entrepreneurs are coming on strong.  The region is no longer a high-tech secret, as evidenced by the ever-growing number of new startups and the amount of money flowing into them.  According to PricewaterhouseCoopers' MoneyTree Survey, venture capital flow into the region breaks a new regional record every quarter, with over $842 million coming into the area in Q1 2000 alone.  But if DC's entrepreneurs aren't bucking to become another Silicon Valley, that doesn't mean they won't study their elder siblings.  The purpose of this morning's discussion wasn't to pull out a yardstick and measure one coast against the other.  Instead, according to VP Fran Witzel, it was to see what netpreneurs in Greater Washington can learn from what goes on in Silicon Valley—and to do so while optimizing our own strengths, not least of which is a better balance between work and family life, according to Haley.

"One of the things that is important for us to recognize," said moderator Spangler, "is that for many, many reasons, we are not Silicon Valley—from a geographical standpoint and from a demographic standpoint."

One of the biggest differences between the two regions is their areas of strength.  Where the Valley is focused on "deep" technology, including hardware and semiconductors, the DC region is focused on technology applications, including special strengths in telecommunications, services and biotech.  Another difference is that while the Valley has Stanford University, an R&D object of envy for many regions, DC has perhaps the granddaddy of all R&D sources, the federal government.  That's a strength for the area that all of the panelists agreed has barely been tapped to the degree that the Valley has tapped Stanford.

"Why aren't people here raping NSA for smart people?" asked Haley.  "You have this huge mass of not-very-public people who are brilliant."  In the Valley, he said, "We took people out of Lockheed and changed their mindset."  Haley said that the question entrepreneurs need to ask themselves is, "Where is the skill set I want?  How do I steal it and let the government go train somebody else to be a GS-11?"  Spangler pointed out from a recent series of articles in the Washington Post, the average government worker in the region is getting ready to retire from public service, and many will be looking for new opportunities.

According to Sylvester, the biggest difference between the two regions is that over the years, the Valley has come to embrace risk.  Entrepreneurial failures can be a badge of honor in the Valley, although you don't want too many of them.  Here, on the other hand, the political proximity has a more conservative effect—for example, we're very cognizant of what happens to politicians when they fail, noted Spangler.  DC's culture is definitely changing, but continuing to cultivate risk tolerance among local would-be entrepreneurs, funders and service providers can only help the community.  The thing to remember, said Sylvester, is that the Valley's daredevil outlook wasn't always there.  In the early 80s, he said, "People were debating whether or not this whole concept of new technology was going to work and how long it was going to last.  [In DC] we are really quite far along in our development compared to where the Valley was in their early development.  The Valley has changed.  It's an evolutionary process."

And on that score, according to Lew, recent activity in the stock market, especially the Nasdaq, may be bringing the rest of the world closer to DC's ways than Silicon Valley's.  One thing about the Valley is that finding willing investors is much easier; they give higher valuations and the process is much quicker.  According to Witzel, who cited a note from Joel Brodie, an entrepreneur who has started companies in both regions, on the West Coast an idea on a cocktail napkin can get you a million dollars after just one week of meetings; in regions like DC it can take four months to get even a meeting.  While private investors remain extremely bullish on Internet and start-up investments, Lew expects to see some of the go-go slow down a bit, at least in regards to the amount of due diligence VCs do and the valuations they give to Net-companies.  That will bring them more in line with DC where funders want to get to know a management team before investing.  On the flip side of the equation, Atlantic coast funders are learning to make deals more quickly themselves.

One reason it is easier to get funding in Silicon Valley is that the community is heavily networked and runs like a "well-oiled machine," according to Haley.  Because there are so many "serial entrepreneurs" who have been with multiple start-ups, the focus is on people instead of companies.  There, he said, you don't ask for a recommendation of a law firm, you find out which particular person at a firm might be able to help you based on his or her unique interests, knowledge or experience.

That just may be the bottom-line difference between Silicon Valley and every other entrepreneurial region, including Greater Washington—the Valley is in its sixth generation of technology start-ups, while DC is barely into its second.  Spangler and Sylvester were quick to point out that DC has its share of serial entrepreneurs, which is growing both in numbers and experience.  Haley responded that it's not just the entrepreneurs themselves, but, in Silicon Valley, so many of the line engineers, programmers, lawyers, accountants, marketers and others have been through four, five or six start-ups.  They know each other and have seen many of the pitfalls.  Service providers know the drill and, in Haley's words, "paper follows actions."  That means you don't have to go through snail-mailing forms and contracts to get things done.  "We have to be able to shake hands and trust each other," said Haley.  "Paper it up, but if you can't shake hands and trust very quickly, then it doesn't matter what the paper says."

That may be a hard concept for political Washington to adjust to, but as more successful entrepreneurs spinout from AOL, MCI and, yes, the feds, DC netpreneurs are catching up.  Just as Silicon Valley had to grow into its leadership position, so will DC.  Take, for example, The Fairchild Corporation, considered by most to be the original fount of Valley entrepreneurship.  Said Haley, "If you go back to 1980, Fairchild here in Maryland was bigger than Fairchild was in the Valley."  Things change.  It just takes time and experience.

Copyright 2000, Morino Institute. All rights reserved.


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