Schmidt: Don't Bet Against Silicon Valley - Or Its Weather
By Tom Foremski - November 4, 2009
"Anyone who bets against Silicon Valley is betting against a successful track record of 40 or 50 years," says Eric Schmidt, CEO of Google [GOOG] in an interview with the Wall Street Journal, when asked if Silicon Valley is losing its edge.
But despite these advantages, Mr Schmidt believes it all comes down to the weather(!)
It is a surprising statement. I think the weather is a nice cherry-on-a-cake thing to enjoy. I think people are here for the cake, the layer cake that Mr Schmidt describes. It's not the weather.
If it is about the weather then we should be concerned about innovation centers springing up in Hawaii or Florida.
Here are some additional observations by Mr Schmidt:
Q: A lot of workers in Silicon Valley have been laid off. Do you think they will end up back in the tech sector? Will Google hire them?
Q: Many of the industries you have outlined, like biotech and energy, require sustained investment and lots of investment in capital-intensive infrastructure. Does Silicon Valley have the culture to wait for those sort of transformative initiatives to bear fruit?
Excellent question but I can see plenty of reasons why capital-intensive businesses won't be "built in the same cauldron as these low-cost ones."
If you take a look at VC funding, there are very few funds willing to invest in businesses that require large amounts of capital. If you add the higher risk of longer periods between exits for many clean-tech/green-tech, pharma, and biotech businesses, even during normal times, that's not going to attract the same type of VC funds that invest in IT software and Web 2.0.
As it is, we don't have enough funding going into Silicon Valley's traditional investments -- that funding certainly isn't going to shift into riskier, longer-term investments in biotech and energy. VC funding is currently very risk averse.
It's surprising that Mr Schmidt didn't mention Google's investments. It is funding several projects in biotech and energy. This includes investments in 23andMe, a biotech startup founded by Anne Wojcicki, the wife of Sergey Brin, co-founder of Google; and investments in solar and wind energy ventures.
Google's investments are expected to make money but they are strategic in nature designed to help seed important new industries -- they are not directly related to its core business.
Google can make such investments without much concern for any concerned shareholders because its founders, and other insiders, own the majority of the voting rights. They own preferred stock with ten times the voting rights of regular shareholders,
Intel Capital also makes a large number of strategic investments but they are all related to its business and are chosen because they will help drive sales of its technologies.
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Comments (2)
On that point of the weather, you wouldn't have to worry about Hawaii because it is inconvenient to live so far away from everything else, so the weather is overshadowed by that negative. And if you've ever lived in florida, you'd know that the weather there is utter crap -- always humid with no seasons. Silicon Valley weather is so much better.
Posted: November 5, 2009 12:54 AM
Albert, you make a good point but is the point of SIlicon Valley really about the weather? I live in San Francisco and my district has unremarkable weather. I've never heard anyone tell me they come out here for the weather. Surely people come here for the opportunities, the chance to do something on a global scale.
Posted: November 5, 2009 10:04 AM