Silicon Valley's Identity Crisis

Like a post war Britain that had lost an Empire and that has been searching ever since for a role, Silicon Valley is likewise undergoing a major identity crisis.

In short, its traditional role of providing much needed capital and connections to young companies and generating tremendous returns afterwards is very much in doubt.

Providing Connections? No.

• With the advent of Facebook, LinkedIn, and other social networking software, connections are much freer. Now everyone knows a friend of a friend of someone important, and if you really persist, you will be able to get in touch with that person.
• While it may have been important for a person to physically be present in Silicon Valley in the 80's and 90's, this is much less the case today.
• The epicenter of the global economy has now shifted to Asia. And in Asian cultures where meeting face to face is ever so important, being IN Silicon Valley means that you are NOT IN Delhi or Shanghai ... potentially an even greater disadvantage.

Providing Capital? No.

• For the most part, companies do not need much capital anymore.
• When a laptop costs $350, GBs of memories can be purchased for loose change, database and operating system software are free ... you do not need tens of millions of dollars to succeed. Indeed, as I have written elsewhere, raising so much money can actually make a company less likely to succeed.
• And regardless of the amount of money a company needs, the US and Silicon Valley no longer have a monopoly on venture capital. Indeed, the tremendous wealth creation in Asia over the past 20 years means that Asia now provides capital to the US rather than the other way around.
  

Generating Tremendous Returns? No.

• Like everyone else, Silicon Valley VCs need to sell their inventory for more than they paid. Unfortunately, during the last 2-3 years, Silicon Valley VCs overpaid on very expensive inventory for which there is no more demand.
• It will be a tough several years in the Silicon Valley VC world, and the tremendous returns of the past are likely to become distant memories.

So what does all this mean ... for Startups? For Silicon Valley? For the World?

In my next post, I will explore what this means for startups, and why in the next several decades ... India will take over the role of Silicon Valley, just as the US took over the role of world leader after the British Empire crumbled.