Author: Darian Ibrahim

5

Silicon Valley and the Economics of Geography

Thanks very much to Dave and the Co-op gang for having me back! Richard Florida has a provocative new piece in The Atlantic on how the economic crisis could reshape the geography of America. For those familiar with Florida’s work on the “creative class,” his predictions come as little surprise: populated, talent-attracting regions like New York, L.A., and Silicon Valley will continue to thrive due to the spillover benefits of talent agglomeration, while cities like Phoenix and Las Vegas that were “developed on development” will take at least a short-term hit, and Midwestern cities still tied to industries of the past – well, it isn’t good. (One interesting nugget: Florida notes that mega-law firm Jones Day no longer considers Cleveland its headquarters, which is now in D.C., but its “founding office.”)

In my new paper Financing the Next Silicon Valley, I borrow a page from Florida and tackle the issue of geography and tech-driven economic growth. Based on anecdotal data, Florida appears to be right: talented entrepreneurs that start in other locales – including those Midwestern cities that would love to keep them – inevitably move to Silicon Valley for agglomeration benefits, including its plethora of venture capitalists. My question in the paper is what “non-tech” regions could do to keep their talent local. One solution is to offer local financing for their start-ups. Flush with cash, entrepreneurs might resist the limelight of Silicon Valley and stay home, providing a boon to struggling local economies.

Is cash enough? Perhaps not. Silicon Valley not only offers financial capital but also a deep labor pool, specialty law firms, and networks of customers and suppliers. But at some point Silicon Valley will get too big, too expensive, its traffic too bad, and talent will look for friendlier venues. Apropos, Florida observes that New York’s loss of investment banking jobs will drive down real estate prices and make the city more attractive to new talent. Until the millionaires leave Silicon Valley, entrepreneurs may be priced into new markets – which offers some hope that new high-tech regions can sprout in places that desperately need them.

5

Financial Times vs. Wall Street Journal

In response to Glom guest blogger Usha Rodrigues’s excellent post slamming Rupert Murdoch’s changes at the Wall Street Journal, I chimed in with a comment on how much better the Financial Times is as a business-oriented newspaper. Editorials appearing in both papers over the last two days confirm my preference.

Yesterday’s WSJ contained what I’ll generously call a waste-of-space op-ed from Gary Wilson, a Yahoo director, on the need to separate the Chairman and CEO functions to avoid undue influence from “Imperial CEOs.” First, this isn’t exactly a new idea. Second, it doesn’t come from the most reputable voice on corporate governance these days considering the Yahoo board’s lackluster performance on the Microsoft offer. Yahoo’s Chairman and CEO functions are separate, as Wilson boasts, yet CEO Jerry Yang is beginning to look a lot like the Imperial CEO Wilson criticizes. Yang stubbornly refuses to sell to Microsoft, and the board (with its separate Chairman) continues to support him.

Today’s FT, by contrast, contains an editorial laying the blame for Yahoo’s problems on Yang’s doorstep and calling for his ouster. The right – and overdue – move, in my opinion, and one that Mr. Wilson and the other “non-dominated” Yahoo directors have been unwilling to make. Hopefully they won’t be long for the job after Carl Icahn’s proxy fight.

0

General Georges Doriot as Teacher

I’m reading Spencer Ante’s interesting new biography of Georges Doriot, who founded the nation’s first venture capital firm, American Research and Development, in Boston in 1946. Doriot immigrated to the U.S. from France in 1921, when he was 21 years old, to attend MIT. On arrival in Cambridge Doriot met the President of Harvard, who convinced him that Harvard Business School was where he belonged, and Doriot promptly enrolled. By age 30, Doriot had become a full professor at HBS. Not bad for a decade’s work.

Doriot loved to teach and was one of HBS’s most popular professors. But he learned there can be too much of a good thing. The HBS Dean at the time (Wallace Donham) recognized Doriot’s talents in the classroom and asked him to take over courses where other professors had proved unpopular. In one passage, Ante writes:

The Dean…told Doroit that there was something amiss with the class on Business Policy, a required second-year, full-year course. Over the past few years, students had complained about several teachers, and had even taken to stamping their feet ‘during lectures they considered boring or irrelevant.’ Like he had done with the class on factory problems, Dean Donham told Doriot to take over the course and recast his Manufacturing lectures as a Business Policy course. Doriot accepted the assignment even though he did not want to teach a required course with an enormous enrollment. His boss was relying on him, and he had to come through.

In a subsequent letter to a friend, Doriot complained of the new arrangement:

I have started teaching. It takes an enormous amount of energy to teach 330 men. Trained teachers having for the past years made a mess of that course, I quite realize that the odds are against me. I shall do my best anyway even if I have to pass out doing it.

Channeling Larry’s post from last week, now that’s a lot of contact hours!

3

The Greening of Venture Capital

It seems that everyone is going green these days, and venture capital is no exception. VCs are directing lots of money to start-ups developing more efficient solar panels, synthetic ethanols, and other clean technologies. Some see this sector as the next Internet. There is huge market potential and a favorable political climate on both sides of the aisle.

There also appears to be widespread agreement that measures aimed at existing energy sources (like carbon cap-and-trade systems) might be useful in the short term, but that innovations in clean tech are our best long-term solution. President Bush repeatedly mentioned the need for clean technologies in a recent speech on climate change, and Al Gore made headlines when he joined the leading venture capital firm of Kleiner Perkins last November. According to the Financial Times, KP just tripled its set aside for future clean tech investments.

Yet for all the VC dollars being funneled to clean tech, there is a healthy dose of skepticism about its market potential. Some think that the real story here is liberal, rich-enough VCs like KP’s John Doerr using their market power to direct investors’ money to serve an environmental cause regardless of whether the investments will turn a profit.

Am I a clean tech believer or skeptic? Answer below the fold…

Read More

3

Euro 2008

Thanks to Dave for the introduction and to everyone at Co-Op for having me. I’m a regular reader, so I’m happy to be able to contribute a few thoughts.

I’ll start with something that has been a nice distraction from writing and conferences over the past month: Euro 2008, which is the world’s second most important soccer tournament (after the World Cup). It was a terrific tournament – the quality of play was outstanding and the matches were close and exciting. While Spain deservedly won yesterday’s final, the real story of the tournament was Turkey. Turkey is not a traditional soccer powerhouse, but in this tournament managed to pull off three amazing come-from-behind victories before eventually losing to Germany in a very close semifinal. I don’t know how many Americans watched the tournament, but on my way back from a conference, at least, I had to convince my fellow patrons at the O’Hare Chili’s that the last five minutes of Croatia-Turkey would make for better TV than some rerun on another channel. (I was vindicated when both teams scored – Turkey in the last seconds before winning on penalty kicks.)

An interest in soccer comes naturally for me given my family. My dad started the men’s soccer team at Clemson University in 1967 and had an amazing career before retiring in 1994. Needless to say there were some big expectations on me growing up. Turns out I was pretty terrible at soccer, but all was forgiven since I did well in school. My brother inherited the soccer genes and went on to play for Clemson after my dad retired.

Even though I couldn’t play, I did go to countless games and enjoy many conversations about the sport. The conventional wisdom is that Americans don’t like soccer because there’s not enough scoring, which makes it boring. I actually think the lack of scoring makes each goal that much more exciting, and that a bigger problem is the opaqueness of the teams’ strategies. In football you establish the run to open up the pass, in basketball you establish the inside game to open up the perimeter, but in soccer, it’s far from clear what the teams are doing. The announcers could help here, but it’s a fine line between initiating new viewers and not irritating seasoned viewers with five-minute discussions of the meaning of “offsides” (a problem with US soccer coverage in the past). Even with a better understanding of the game, I doubt soccer will ever become that popular as a spectator sport here (unless it’s watching your kids play), although more sports fans would surely have their interest piqued by tournaments as good as Euro 2008.