Silicon Valley Money Trees
Oh, is that why they call it “seed funding”? Asking for a friend……
You’ve probably heard a few venture capital terms, or firms that sound similar to nature…like seed funding, growth equity, Sequoia Capital, etc. That’s because when an investor injects funds into a startup in exchange for equity, they are planting these “seeds”, which are the first official funds a startup raises. You can think of the "seed" funding as part of an analogy for planting a tree. This early financial support is ideally the "seed" which will help to grow the business. Given enough revenue and a successful business strategy, as well as the perseverance and dedication of investors, the company will hopefully eventually grow into a "tree”, aka an exit opportunity or IPO.
So where is everyone planting these seeds, and why? San Francisco/Bay Area aka Silicon Valley!
Originally a Spanish mission and pueblo, the San Francisco Area was first conquered by the United States in 1846. Little did anyone know that just a few years later, this city would become so coveted due to the 1848 Gold Rush. This opportunity brought hundreds of thousands of people to this city in search of gold, and this sudden influx of ambitious people spurred up the beginning of a newfound golden city. Roads, schools, churches, and markets were all initiated to accommodate the population.
The San Francisco area may have had intrinsic luck in this case, but the real treasure comes over a century later, when the name Silicon Valley was coined and became a global synonym to represent the area. This name sprung from the silicon material needed to make semiconductor computer chips.
You must be thinking, how does silicon compare to gold? Money was initially backed by gold, however that is no longer the case as this backing only applies to less than 4% of the funds in circulation. In my opinion, data is the new gold...and computers are the cornerstone for data collection and efficient organization, which made them crucial for the new generation of startups to operate and succeed. We value our startups based on ideas, data, and potential. In this day and age, a startup can be valued in the millions even if it is pre-sales, pre-revenue, and even pre-product. Definitely worth more than a block of gold. Tell this to someone back in 1848 and they would laugh in disbelief!
Data is what makes the world go round. Now take all this data, and create from it. Analyze it, manipulate it, capitalize on it - and there you go. You’ve created your own gold mine. The San Francisco area has become the breeding ground for many of the nation’s brightest entrepreneurs who trek from far away to come get a piece of the pie, just as back in the 1848 Gold Rush. If you are eager to roll your sleeves up and put in the work, the rewards would be endless. The size of talent it has attracted has also lured the millionaires and billionaires with funds to invest. While a lot of risk averse investors hung on to their safe strategies, the investors who were interested in more precarious investing jumped on this bandwagon, where it then only took a few winners to prove the goldmine of industry. As more and more investors flocked, entrepreneurs were encouraged to bring their ideas to life because of extensive and available funds. Overall, this combination of creators and investors brewed up a suitable ecosystem for inevitable success. A notable idea brought to fruition meant a golden ticket into the garden of money trees.
Over the last few decades, the bay area has been home to some of the world’s familiar tech powerhouses such as Apple, Google, Facebook, Netflix and more. Many of which modern day consumers heavily rely on. But this could have happened anywhere else.. Why Silicon Valley? This land of fog and delicious tacos isn’t the easiest to replicate. The Valley didn’t come freighted with old attitudes and cultures. It started when professor Frederick Terman, the iconic dean of Stanford Engineering during the 1940’s and 50’s, inspired a tradition of faculty starting their own companies. These engineers were not after money, but instead they were motivated by creating what didn’t already exist. However, funds were needed in order to get the ball rolling, so many of these early startups sought after funding from the financial capital, New York. What started off with these conservative sources of funding, increasing demands and risks birthed the Venture Capital industry which could seamlessly cater to, and focus on these niche investments which were often early stage technology companies.
This generated many VC firms to open up offices on the west coast, as opposed to the formidable financial center, New York. Some of these early firms were Kleiner, Perkins, Caulfield and Byers, and Sequioa Capital, which were actually adjacent to the Stanford campus. The secret to Silicon Valley's success? Failure. This is what fuels and renews this place. It serves as the foundation for innovation. In order to innovate, a company must realize that what it’s doing isn’t working. Realizing this failure will trigger the company to adapt to an ever changing climate of consumer needs, and in turn create success. This is the secret sauce. Venture Capital only follows innovation, and as long as entrepreneurship is embedded into the fabric of Silicon Valley, there will be no shortage of investors running to gladly hand over their money.
Since end goal of VC investors and entrepreneurs are parallel, this is far from a zero-sum game. Will you end up a creator, investor, or both? At the end of the day, all we want to do is enjoy the fruits of our labor, grown from the very seeds we planted, and leave behind a meaningful footprint!