Why Isn’t Silicon Valley in LA?
Alan Pentz, CEO
Washington DC
January 8, 2020 - One of the keys to innovation seems to be the clustering of talent. Silicon Valley is the prime example but before that we had media and finance in New York (along with many other things), entertainment in LA, and government in that swamp. There are great stories about each. LA is the center of film because Thomas Edison’s thugs couldn’t collect on patent fees there and, of course, the weather played a part too. DC is in former Maryland and Virginia territory because of a deal cemented at a dinner between Hamilton and Jefferson arranged by President Washington (in this case I’m quite sure the weather wasn’t as much of a factor.) As I work on a book about the need to invest in R&D in the face of our competition with China, I’ve been looking at some of the historical case studies in spurring innovation. The Silicon Valley story is one of the best and I couldn’t believe it when I read it.
By rights, Silicon Valley should be in LA. The backer of the original semiconductor manufacturer in California was located in LA which could have resulted in it being the global center of technology. Think about that - tech and entertainment could have merged much sooner. We wouldn’t have had to wait 50 years for Silicon Valley and LA to have their Austin love child.
The first California semiconductor company was founded in 1955 by a scion of MIT and the California Institute of Technology named Bill Shockley. Shockley Semiconductor was funded by the founder of Beckman Instruments located in Orange County. Shockley’s mother was ill so he insisted on keeping the company closer to her home in Palo Alto. So, that’s why Silicon Valley is located in the Santa Clara rather than San Fernando Valley. But the story doesn’t end there.
Shockley hired a lot of smart people but he was a terrible manager. A year into the company’s existence, a group of top engineers approached Beckman and demanded that he remove Shockley. Dubbed the Traitorous Eight, the protestors soon left to found Fairchild Semiconductor. Among them were Robert Noyce (the Mayor of Silicon Valley) and Gordon Moore of Moore’s Law fame. They were enabled by an investment banker from New York named Arthur Rock. Rock, who coined the term venture capital, arranged for Fairchild Camera to fund the Traitorous Eight under the company umbrella similar to the Beckman model. Soon, the corporate parent became overbearing and refused to invest enough in the semiconductor operation. Gordon Moore and Noyce went back to Rock, now in California and operating as a venture capitalist, and he helped them found Intel. The rest is history.
Of course, Silicon Valley was not a success because of one man’s decision to stay close to his aging mother. The cluster was built on top of large investments from the US Government concerned about the threat of the Soviet Union. Billions were poured into Boston and California (among other areas) to build better weapons and after Sputnik, better spaceships. Add to that the vision of people like Arthur Rock who saw that the old Wall Street way of financing new ventures needed to change to accommodate new industries. That led him to abandon New York and investment banking for California and venture capital. Soon he was funding Apple Computer despite his distaste for the shaggy Steve Jobs and Steve Wozniak. Of course we must add the universities also in turn funded by the government to the mix as they pumped out brilliant scientists and innovators to found and staff these companies.
In the end, innovation is driven by an ecosystem of highly educated scientists and researchers, financial innovators, and competition. But what we often forget is the entire system was undergirded by government funding.
Author
Alan Pentz, CEO and Founder of Corner Alliance, has worked with government leaders in the R&D and innovation communities across DHS, Commerce, NIH, state and local government, and the non-profit sector among others. He has worked in the consulting industry for over ten years with Corner Alliance, SRA, Touchstone Consulting, and Witt O'Brien's. Before consulting, Alan served as a speechwriter and press secretary for former U.S. Senator Max Baucus and as a legislative assistant for former U.S. Representative Paul Kanjorski. He holds an MBA from the University of Texas at Austin.
