Wednesday, 3 February 2016

How should you tap into Silicon Valley?

The roughly 1,800-square-mile area commonly known as Silicon Valley, southeast of San Francisco Bay, is home to just three million people—slightly less than 1 percent of the US population. Yet the Valley, seat of several world-class universities and numerous cutting-edge enterprises, has become an economic and innovation powerhouse whose importance is hugely disproportionate to its small physical size. If it were a country, it would rank among the world’s 50 largest economies, larger than those of Hungary, Vietnam, and New Zealand, among others. In 2013, Silicon Valley generated over 12 percent of US patent registrations and produced about 11 percent of new US-company IPOs, and the greater Bay Area attracted almost 40 percent of US venture-capital (VC) investment.1 More than a few ideas hatched in the Bay Area have paid off handsomely. Thirty-two of the 50 private start-ups with valuations at or exceeding $1 billion are based there. This is not a new phenomenon, of course. Bay Area enterprises have been creating new markets and disrupting a wide swath of industries for decades.

As companies everywhere strive to stay ahead of the digital revolution, the payoff from engaging with Silicon Valley can be substantial. BMW, which first arrived there almost 20 years ago, linked up with Apple to become the first carmaker to integrate the iPod into its vehicles—an initiative that likely would not have been possible without a physical presence in the area. BMW’s development of its i3 electric vehicle also benefited from collaboration with other Valley companies.

No silver bullet

But for every success, companies launch many haphazard “Valley initiatives” that yield little and end in disappointment. Consider, for example, the Bay Area networking offices beloved of many outsiders. These attempts to get a foot in the door typically involve establishing a small outpost charged with responsibility for networking with VC funds, leading area businesses, and promising Valley start-ups. Many companies find it difficult to make this model work. Even if employees in these offices can identify winning ideas—no sure thing, of course—their potential tends to get watered down or lost as the news is passed back to corporate headquarters and up the chain of command. Often, opportunities are squandered, and frustrated employees at the satellite office leave to join some fast-growing Valley employer.

Companies that set up their own venture-capital funds or corporate investment arms often report disappointing results, too. In the Bay Area, after all, money is generally less important than good connections; well-established entrepreneurs and VCs there tend to stick together and pick winners cooperatively. Even corporate-backed entities flush with money struggle to embed themselves in the local network. Intel Capital—launched by one of the Valley’s original corporate pillars—is a notable exception, but many more fail to make meaningful contributions to their corporate parents or don’t follow a coherent corporate strategy in training their sights on target companies. For many big businesses looking in from the outside, creating a venture fund is a difficult way to channel the Valley’s entrepreneurial spirit and generate fresh ideas.
A practical playbook

In our experience, there are three proven ways to engage with Silicon Valley and tap into its zeitgeist.

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