1 Silicon Valley Coller Institute of Venture 2015 Hong Kong Michael Bruck Senior Consultant, SRI International

2 What is Silicon Valley? A Geographic Location? Reclaimed Orchards?An Innovation Ecosystem? A Financial Center? A Culture? A Leading Educational Center? A Military-Industrial Complex?

3 Silicon Valley A complete ecosystem for innovation success3 of the top 10 universities Global industrial clusters Leading VCs Support networks Rapid ideation Diverse population Collaborative environment Positive government policies Entrepreneurial culture Failure is allowed Research + Development + Commercialization Meritocracy = Achievement San Francisco Many of these countries and regions are in awe of Silicon Valley, and the model it has become for INNOVATION What makes silicon valley so powerful is that it has all the components needed for a successful innovation ecosystem (Talk about the ingredients for a successful ecosystem) San Jose

4 8 Pillars of Successful Entrepreneurial EcosystemsSource: Entrepreneurial Ecosystems around the Globe and Company Growth Dynamics World Economic Forum

5 World Economic Forum – Entrepreneurial Ecosystems Around the Globe

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9 “Don’t Build Your Startup Outside of Silicon Valley”“It decreases your odds of success” Source: HBR 10/23/13

10 “Don’t Build Your Startup Outside of Silicon Valley”“It decreases your odds of being bought” Source: HBR 10/23/13

11 Silicon Valley CultureMany aspire to entrepreneurship Children, students Engineers, scientists Managers, executives Success is rewarded Financially Prestige Failure is accepted, not punished Professionally Socially Knowledge and people move rapidly Academia to business, and back Business to business Career change

12 Talent Pool Innovation requires: Inventors EntrepreneursSupport Ecosystem

13 Talent Pool 52.4% of start-ups in Silicon Valley have immigrants as key founders Origins of Tech Company Founders in Silicon Valley Source: Duke & UC Berkeley Study

14 John Hennessy – President, Stanford University"And now everybody in the world comes to Silicon Valley because it is really the hub." What built that hub? "Getting great talent, supporting strong people is why there's been such a strong movement in companies and universities here in the valley," he said. Talent also "is keeping that innovation going. I think the universities now play that fundamental research role that Bell Labs and Xerox Park and IBM research used to play in earlier times." Another big factor is attitude, he added. "There's also an incredible optimism out here. People are willing to take risks. They are willing to think differently about problems. And we have to preserve that feeling. "There's a very different sense of opportunity than you see anywhere else in the world. And we've got to be sure we keep it. There are really two parallel things we have to do. We have to continue to be attractive to the best talent in the United States and ... the world" — not an easy challenge. "And while we're not a perfect meritocracy — we're not, no place is — we're a lot better than other places in the world. There's an opportunity for bright young people with great ideas to rise and bring in important accomplishments. We have to keep that track. ..

15 Fredrick Terman “The Father of Silicon Valley”Stanford Professor of engineering 1926 Dean of Engineering 1946 Provost 1955 Also the Father of Electronic Warfare Ran the Harvard Radio Research Lab during WWII ( ) Set up the Stanford Electronics Research Laboratory (ERL) in 1946 Started the Applied Electronics Laboratory During the Korean War Turned Stanford University into a Full Partner in the Military-Industrial Complex Encouraged his students, William Hewlett and David Packard to start a company

16 Silicon Valley’s 1st Engine of Innovation: Terman and The Cold War

17 “The Other Father of Silicon Valley” William ShockleyDirector of Navy anti-submarine warfare operations group at Columbia ( ) Head of Radar Bombing training for Air Force ( ) Deputy Director and Research Director of the Weapons System Evaluation Group in the Defense Department ( ) Co-inventor of the transistor – Nobel Prize in 1956 Founded Shockley Semiconductor 1955 – First semiconductor company in California Hired Gordon Moore, Bob Noyce and Andy Grove

18 William Shockley “Great Researcher, Awesome Talent Spotter, Horrible Manager”Unintended consequences: – “The traitorous 8” leave Shockley – Found Fairchild Semiconductor • First VC Investment (Venrock) – Noyce, Moore and Grove leave Fairchild to start Intel – 65 other chip companies in the next 20 years Shockley’s Legacy: It’s Silicon Valley

19 Silicon Valley’s 2nd Engine of Innovation: Venture Capital

20 The First West-Coast IPOs The Valley Attracts Financial Attention

21 The Rise of Risk Capital1st Family Office J.H. Witney in 1946 American Research & Development in 1946 Laurance Rockefeller in 1958, then spun off as Venrock in 1969 East Coast Focus, wide variety of industries “The Group” – 1950’s First Bay Area Angels ~10 deals $75K-$300K

22 SBIC Act of 1958 700 SBIC funds by 1965 Corporate Private75% of all VC funding in 1968, 7% in 1988 Corporate Bank of America Firemans Fund/American Express Private 1959 Continental Capital The Group 1962 Pitch Johnson & Bill Draper 1962 Sutter Hill First Startup to receive financing under this scheme was Fairchild Semiconductor in 1959 by Venrock

23 The Limited PartnershipDGA (Draper Gaither & Anderson) 1958 Rock and Davis 1961 Sutter Hill 1964 TA Associates 1968 Mayfield Fund 1969 Patricof & Co Kleiner Perkins 1972 Capital Mgmt Services (Sequoia) 1972

24 1978/1979 - A Watershed Capital gains slashed (1978) – 49.5% to 28%Employee Retirement Income Security Act (1979) – Pension funds can invest Source: NVCA

25 “The first 25 electronics companies required total capital of $300k each and private individuals formed the basis of the early syndicates” “....in 1975, prior to the relaxation of ERISA laws, the entire VC industry raised $10m” Reid Dennis “The Group” First Bay Area Angel

26 Number of Angel Investments GrowsDisruption: Entrepreneur Capital 29% Increase 48% Decrease MoneyTree Annual Report, PricewaterhouseCoopers, 2013; Angel Market Analysis Report, University of New Hampshire Center for Venture Research, 2013

27 Entrepreneur Capital =Angels, Super Angels, Accelerators, University pre-seed, seed, online, Crowd Funding … Companies Funded Amount 16,000+ raising capital $1.1 Billion+ raised 35,000 Projects Funded $485 Million 350 Companies $89 Million Managed 300+ $80 Million Managed

28 The Jobs Act of 2012 Allows non-Accredited investors to participate in Private Offerings SEC’s final ruling on Title III of the Jobs Act clarifies rules for Equity Crowdfunding Effective January 29, 2016 Result is the creation of new types of Investment Platforms such as SeedEquity and FundersClub

29 Summary Terman/Stanford/Government responsible for entrepreneurial culture of Silicon Valley Military primed the pump as a customer for key technologies Venture Capital turned the valley to volume corporate and consumer applications Through all this, government involvement was substantial Initially through directly funding development Later through setting of policies that enabled risk capital to flourish New models emerging, such as Super Angel Networks Accelerators with Affiliated Funds Equity Crowd Funding

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