30 West 3rd

Very Early Stage Technology Investing

A Fool’s Errand, Happily Run

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When I was working and building a company in the Washington D.C. area in the ’90s, the region was caught up in becoming the next Silicon Valley. Around the country everyone wanted to be the next Silicon Valley. Silly, imitative names like Silicon Alley (NYC), Silicon Prairie (somewhere flat, I suppose), and Silicon Dominion (Virginia, aka the Old Dominion) were all the rage.

Initiatives were put in place, public money spent, economic development types rallied, and everyone started to think that what happens in the Valley was formulaic and imitable. The mood of that period, especially in the late ’90s, supported this kind of misguided thinking.

Today none of those areas has managed to take market share from the Valley in terms of invested venture capital. Many have moved on to claim the title of “biotech capital” with equally dubious credibility. Again, concentrations of expertise and capital will determine where biotech companies emerge, and states can do little in the near term to change that.

It’s understandable why others covet the Valley’s magic. But what happens there has taken decades to build out and represents a unique economic ecosystem. It is not unlike NYC’s past dominance of the domestic financial world or LA’s dominance of entertainment. Yet no one runs around saying, “Hey, why can’t we create our own version of Wall Street right here in Atlanta!” It’s just not credible. Regional self deception distracts from the need to exploit local strengths. Communities must focus resources and capital around companies that have a reason to germinate, grow, and prosper in the local economic soil. Nothing else, save random chance, will work.

Some companies can start anywhere. Wal-Mart, JB Hunt Trucking, and Tyson Chicken all grew up in northwest Arkansas long before a freeway or jet-service airport existed. But the blend of Stanford grad student energy and innovation, venture capital insight, and tech-savvy adult supervision that coalesced into Google is extraordinarily rare outside the Valley.

Away from the Valley it’s important to focus on ideas that can thrive on local energy, talent, and connections. In my first few months of looking at regional IT deal flow far away from the coast (Southwest Ohio) this has become abundantly clear. The most promising ideas are those brought forward by people involved with the region’s large number of world-class companies.

These prospective enterprises are grounded in some unique insight of the entrepreneur about how to apply technology to a business process. The entrepreneur has the experience to recognize the issue and propose an acceptable solution to a sophisticated buyer for feedback and adjustment, and the innate talent to drive the idea forward. With a judicious application of capital and assistance, the best ideas can be brought to scale.

So the cynic in me says that trying to build out technology companies in the MidWest is a fool’s errand. But by disposing of silly nicknames (Silicon Tri-State?), focusing on regional strengths, and holding entrepreneurs to the same standards applied in VC centers like the Valley and Boston, we hope to end up with the last laugh.

CincyTech executive-in-residence Mike Venerable has launched a blog that applies his insider insights and his characteristic irreverence to current tech and VC events.

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Written by Mike Venerable

July 6, 2009 at 3:38 am

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