Home / Hélice / Volume 9 (2020) / Hélice Volume 9 Issue 3

PRESIDENT’S CORNER – Silicon Valley: how do you get here, where did it come from, where is it going?

Silicon Valley is no longer tied to a particular geographical space. It is tied to a series of organizational and institutional innovations, which had a particular location but is no longer tied to a particular location, but it is tied to these innovations.

What are these innovations? Number one: universities that have an orientation to entrepreneurship and innovation. Not just to new discovery, but to spreading those discoveries and not only spreading them through publications but through new organizational formats, in particular firms when there’s an economic result, but also Technology Transfer Organizations, where it’s not necessarily for a profit. But definitely the orientation is to spread and utilize knowledge. This also means that the university is embedded in society, in that it takes in ideas and sends them out, it works on problems and solves them, and then sends them out. It’s a university … that I’ve called in a 1983 article “an entrepreneurial university”.2

Many universities have taken on this label but for most of them it’s still a label. They’re not really entrepreneurial in the sense that we’re talking about, fully. But it’s interesting, and significant, that many and even most universities have the intention, these days, of moving in this direction.

Stanford is an example of an entrepreneurial university, founded in the late nineteenth century as a result of an historical accident, a contingent event involving Italy. Leland Stanford Jr, the fifteen-year-old son of Senator Stanford, a very well-to-do entrepreneur in the Gold Rush and subsequently in the railroad business. His son was interested in classical antiquity and was travelling in Italy in 1884, and in Florence he contracted typhoid disease and died. His parents decided, as a memorial to him, that they would found a university. Today the official name of Stanford is Leland Stanford Jr University. When I was looking around as a high school student for universities to go to, I saw: Leland Stanford Jr University. I thought ‘I don’t want to go to a junior university. I want a full-fledged university.’ So, I went to the University of Chicago; obviously, a full-fledged university. Although it’s still the official name, Stanford no longer uses Jr in public relations literature, but the official seal is Leland Stanford Jr University.

The Source of Stanford’s Entrepreneurial Orientation

Why did it become an entrepreneurial university from the outset? The founder was an industrialist with an orientation towards new technology, and he founded the university on his farm, in the peninsula. It was a farm for raising trotting racing horses, but he also conducted experiments to improve the horses training. One of the experiments, that he hired a photographer to do, was to study the movement of horses, by taking photographs of them as they ran. The question was: were they able to take all four of their legs off the ground at the same time? And so, they did this continuous series of photographs, contributed to the invention of motion pictures. Eadweard Muybridge. who took these photographs, viewed himself as one of the inventors of motion pictures. But Leland Stanford, who hired him, thought he was the one with the idea and he had merely hired this photographer to carry out his idea. In any event, Stanford imbued his new university with an orientation to practical investigation.

The faculty and the original founding members were recruited in this direction. The first President, David Starr Jordan, was recommended by Andrew White, the President of Cornell University in New York, founded as a Land-grant university. This was an idea that took off in the 1860s, that universities should be founded in each State of the country, with Federal Government resources in land that was given to each State, land taken from the Native population of course, theft, but nevertheless, it was controlled by the Federal Government, and it was given out in order to have universities that would develop expertise in scientific agriculture.

This had been a theme that had been going on since the 1830s among scientific farmers, who then wanted help from their Government improving agriculture and so in Connecticut they lobbied the State Government to set up a research station. Then they wanted their children trained to be scientific farmers and so they lobbied for a college. Instead of having the research operation and the education entity separate, they combined and founded them together.3 This idea spread and eventually it became a national policy during the Civil War. Why then? Because the Conservatives who opposed Government intervention and Government action had left the Union to found a separate country, and so the way was open for more radical experiments. A Land-grant university system was started that gave support to the University of California at Berkley.

Although Stanford wasn’t part of this Government-funded program, the idea and ethos and background for the University came out of the Land-grant movement, and sometimes Stanford is called a private Land-grant as in essence Leland Stanford gave his ranch. He had the resources for this ranch from the funds that he had earned by getting Government grants, in land, to build the Union Pacific railroad.

That’s the origins of Stanford that then had faculty and an engineering school that were oriented to practical developments. But they were in a region which was not industrial. It was an open, greenfield site and there was no industry. So, the thinking was: you can’t have an engineering school without industry, and so the university will have to play a role in starting industry. This was then the basis for encouraging spin-offs from the university, from the late nineteenth century. At that time it wasn’t in terms of new discoveries, it was simply in terms of using the knowledge that universities had in existing industrial areas like electricity: to form firms in existing industries that would fill out a greenfield site in Northern California.
The previous industrial base of the region had been in mining and so the one area of expertise was in moving large quantities of water. And this then became the basis for State programs to move water from the north to the south. While California’s early agricultural expertise was in arid zone agriculture that eventually became superseded by these water movement projects, which essentially created the ability to have large urban conurbations in deserts: the basis for Los Angeles, the basis for Silicon Valley as an industrial area, was this expertise in moving water on a large-scale that became the basic thesis for development of the State.4

Silicon Valley is an outcome of university, industry, and Government interaction. First Government and university creating industry, and then the university helping to create more firms. The basic organizational mechanism for this, the key, is the venture capital industry that was invented in Boston out of the original triple helix conurbation in the Boston region. In the 1920s, the problem was to renew a region whose industry had declined. The thesis arose that this could be done on the basis of new discoveries and inventions coming out of universities, and especially out of MIT, the Massachusetts Institute of Technology. There had been examples of firms being formed from MIT and Harvard, as well, from the late nineteenth century.

The Origin, Transfer and Expansion of Venture Capital

It was realized that to expand this phenomenon you would need new elements, especially a source of financing focused on new firms. The existing sources of financing from banks and insurance companies were tied to large industries, and for supporting the existing industries of the country. Not to founding new firms. This was the gap that they saw, and so they invented what we now know as the venture capital firm, and the first one was organized in 1946. To invent it you had to change the laws in order to allow investments in a financial entity that would support new risky ventures that were precluded by the existing law. The people involved in the discussions on regional renewal, convened by the Governors of New England, were from university, industry and government. They had the ability to change laws to allow this new type of investment entity.5

By 1958, they also established the law to spread this idea across the country, through the Small Business Investment Corporation (SBIC) of the Small Business Administration. To this day you can get funding to help start a venture capital firm through this law. The first people who tried to found a venture capital firm in Northern California could not raise enough private funds. However, they heard about this law and applied for Government funding to help start the first venture capital firm in Northern California, which became the basis for the Silicon Valley venture capital industry.6

The concept for the venture capital industry, developed in Boston, was transferred to California via federal law, which also provided funding to help start early venture capital firms. Now we’re long past that, venture capital firms are able to raise money from university endowments, from pension funds, from government funds in many countries that are looking to translate their sovereign wealth from oil or whatever into new technology. So, it’s a long way from the beginnings, but the beginnings had their source in a university that was going to develop technology and in government programs to help found new firms.

The Role of Government in the Origins of Silicon Valley

Government as a research funder, as a customer, played many roles in the creation of this high-tech conurbation that came to be known as Silicon Valley. It was the source of contracts to the emerging firms in the radio industry, in the early nineteenth century, because Government was interested in reaching the new colonies in the Philippines and they needed communications equipment, and so, there was Government funding to support these new firms, such as Federal Telegraph, which were closely tied to Stanford. Students coming to work there, as internships, had close relationships between the university and these new firms that the university was involved with.

And then by the time that the beginnings of Silicon Valley which was based on the transistor, which was invented at Bell laboratories in New York, as part of the AT&T regulated monopoly, but as a condition of that regulated monopoly, which was then under threat of an antitrust suit, they had to release all the information from their patent for the transistor. They basically ran courses, and anybody could come and learn how to do this. They had to spread it rather than keep it within the firm. If it had been kept within the firm, the transistor industry would likely have been located in Lehigh, Pennsylvania, which is the location of the Western Electric manufacturing arm of AT&T, but instead people left Bell Labs, like one of the inventors who happened to … again, a contingent event: his mother was from Northern California, so he wanted to come back home. Also, the head of the engineering school at Stanford encouraged him to come. A confluence between the contingent event and an entrepreneurial university seeking people to come back and start firms in the area was the basis of the first transistor firm.

But again, the firm couldn’t have grown into an industry unless there was a market. At that time, the market was again from Government, from the Army that was looking to miniaturize communications equipment, to make radio devices into small ones that could be carried in the field and they were willing to pay any price for this small transistor. So that was the basis for transistors being scaled up in production. Through that learning process the price went down and the next step was taken towards the development of the integrated circuit. Government played a key role, not just as a regulator, but as a customer.

Silicon Valley Unbound

Silicon Valley today is well beyond Stanford and any University. It’s an agglomeration of several large firms, surrounded by a hyper number of start-ups, and the ecosystem creates more start-ups which are still loosely connected to the universities in that they supply sources of employees. However, for at least the last twenty-thirty years people are attracted globally, to come to the region, to work in these firms, and to start their own. So, for some decades now, Silicon Valley has become a global phenomenon. Nevertheless, it was grounded in a particular geographical space, where these firms were located.

Increasingly, many of the firms started to outsource, so when I visited Hewlett-Packard fifteen years ago, the building was almost empty. The cubicles were empty. The engineering work of the firm mostly had been outsourced to India. Silicon Valley was being decentralized to other parts of the world, in terms of the work being carried out. But still, in terms of new firms being formed, to connect to the venture capital industry you had to show up in person and become part of their network. A whole series of innovations were brought about to introduce people to the Valley, various kinds of incubator and accelerator programs: entrepreneurs paid to join the networks.

The model then was an internalized organization, like Google and Facebook, which try to keep you at the job twenty-four hours a day, by providing free food and other perks. That was the model until a few months ago when everyone was sent home, and when that happened it was realized what people already knew: that you didn’t really need to be in the same physical space. One immediate effect of that has been that Facebook, and especially Google, that were buying land and buying buildings: they’ve stopped their plans of physical expansion, and it remains to be seen if they will begin again. I doubt they will, at least not locally on the scale envisioned.

The start-up process continues, but it doesn’t necessarily have to be by locating all the founders together in a physical space. If the network and the founders can reach the venture capital industry that now is no longer tied to the notion that you have to be within a twenty-minute drive of where your founders are. But if you’re interacting with them over the Internet, Silicon Valley then becomes a global phenomenon of an intersection between entrepreneurial universities, government funding programs for technology, venture capital, which can take place virtually anywhere where these elements are present. And it won’t be tied to any one physical space.

HENRY ETZKOWITZ
International Triple Helix Institute
Silicon Valley
www.triplehelix.net

 

1 Lightly edited excerpt from Interview by Riccardo Fino, University of Bologna, Department of Management Webinar, July 2020.
2 Etzkowitz, H. (1983) Entrepreneurial Scientists and Entrepreneurial Universities in American Academic Science. Minerva
3 Rossiter, M. (1975) The Emergence of Agricultural Science, Justus Liebig and the Americans 1840-1880. New Haven: Yale University Press
4 Starr, K. (1984) Inventing the Dream: California Through the Progressive Era. Oxford: Oxford University Press
5 Etzkowitz, H. (2002) MIT and the Rise of Entrepreneurial Science. London: Routledge
6 Draper, W. (2011) The Startup Game: inside the Partnership between Venture Capitalists and Entrepreneurs. New York: Palgrave Macmillan

 

 

Published by the Triple Helix Association  –  ISSN 2281-4515

 

Print Friendly, PDF & Email