Decoding Silicon Valley: The Next Evolution

Mark White contribution to a reflection on Silicon Valley and California post-COVID, featured in Forbes Japan!

We have a saying in Silicon Valley, ‘When the traffic is bad, the economy is good.’ Trains were full of people going to work or meetings; the traffic was heavy, you parked the car and, racing to your first meeting, run into people you knew. Later in the day, you stopped by a meet-up, saw some familiar faces, and met interesting new people. At the end of the day, you stepped onto a full train or got in your car and braved heavy traffic all the way home again.

It has been 1 year since California went into a state of emergency and then into a statewide lock down on March 19, 2020. Since then, things have dramatically changed.

Everyone is working from home now. The highways are relatively empty even during the 5-7 pm ‘rush- hour’, and trains appear empty and seem to run with less frequency. Google employees might return, part time, to their offices in September 2021 while Salesforce recently announced that its employees would have the option to work remotely full time, even when it is safe to return to the office.

In December 2020, both HP Enterprise and Oracle announced they were moving their corporate headquarters to Texas. Within days of these announcements, billionaire CEO Elon Musk announced he had already moved to Texas. His announcement followed on the heals of Dropbox CEO Drew Houston’s announcement that he had purchased a home in Austin, Texas. And why Texas? The Lone Star state can deliver huge financial gains because there are no personal income taxes in the state. Contrast that to California, where personal income tax is the highest in the United States, or 13.3%.

It was not only high-profile tech entrepreneurs and their companies departing Silicon Valley. The employees are going too. According to PublicCommentsSF.com, 124,131 change of address requests were filed between March and November 2020 roughly equating to 89,000 households that left California since the lockdown. By September 2020, Realtor.com reported that studio apartment rents dropped >30%, compared to one year earlier, while rents for 1-and 2-bedroom apartment dropped 24% and 21% respectively. Buildings are dark, the streets are empty, air pollution has dropped, while coyotes have been spotted walking on San Francisco sidewalks.

One advantage Silicon Valley has always relied upon is the concentration of talent, technology, and capital. If the technology and talent are moving, does it mean Silicon Valley is dead or dying? Will there be more, or less, oxygen available to feed the startups and entrepreneurs after such high- profile departures? What about investment capital for startups? The answer is complicated but let us be clear on one thing: this is not an obituary for Silicon Valley.

Despite the pandemic, 2020 global venture funding was up 4%, year over year, to $300 billion according to Crunchbase. While venture funding did rise, where investors put their money did change. Early-stage investments dropped while more funding went to late-stage companies that had more traction in market. M&A was up too. In 2020, more than 1,500 companies were acquired for $149 billion, by 1,300+ acquirers with the most active acquirers being Apple, Microsoft, and Cisco.

Mark White of the White-Summers law firm has seen many evolutions of Silicon Valley over the years, having represented companies such as Tesla, Hotmail, and Prezi with legal expertise through various business cycles. “There is a ground swell of discontent. California is not great for business. The money and the talent are here, or used to be, but the cost of living, the traffic, and staffing costs, are all factors. Lifestyle and quality of life matter—individuals are leaving the state and businesses are following their people out of state. People are giving up on the bureaucracy,”

Carmen Hughes, Managing Director of IgniteX, an integrated marketing and public relations agency echoes this sentiment. As a native Californian, her firm has helped launch and scale, some of the most iconic tech brands and companies. “I am thrilled people are leaving; why come to Silicon Valley with such little housing and land here? Why plant an anchor with a headquarters here? I have always wanted companies to look elsewhere, build it somewhere else! I applaud the companies for leaving and hope it continues. I give them my blessing.”

Silicon Valley is different now. Social distancing forced us to improve our game significantly on e- commerce, online meeting and classroom tech, telemedicine, and our own home meal planning after online grocery shopping and delivery forced us to be better prepared. Social isolation finally incentivized the grandparents to figure out Facetime, WhatsApp, and Zoom so they could speak with their grandchildren. The January 2021 Consumer Electronics Show (CES) was all virtual this year and introduced lots of pandemic-related technology. New touchless devices, protective masks, germ destroying UVC robots, contact tracing hardware, and sophisticated air purifiers were introduced to help us live, work, and learn better from home through social distancing and social isolation.

Pre-pandemic, some investors abided by the 50-Mile Rule, i.e., only investing in companies that were within a 50-mile radius of their Silicon Valley office. This allowed them to attend board meetings in person, meet the CEO for lunch, and stay more engaged with their portfolio companies. Immediately after the March 2020 lockdown, many new investments were temporarily paused as both investors and CEOs tried to figure out what the lockdown meant to their business, their processes, and growth plans. In short order, investors evolved and resumed funding companies, no longer meeting the teams in person. This has created new opportunities for companies outside the Valley and California, to raise capital from Silicon Valley investors. Startups no longer feel pressure to move to the region. Depending on the structure of their funds, investors will finance more international companies because great companies and founders are not only in Silicon Valley.

Not everyone, or everything, is leaving the region so how does business get done in the near term? Brian Manning is CEO of Xona Space Systems, a fast-growing startup focused on the next generation of satellite navigation, feels the absence of in-person events. “We all naturally have become a little more ‘hermitted’. But one thing are the conferences and the lack of in-person conferences – one the biggest hits we have seen. It is damaging to business development because conferences are where we have made connections with potential investors, business partners, and other folks. It is not the presentation and the person asking the presenter questions. You find the right person afterwards, shake their hand in the hallway, or sit down with them at lunch. I think conferences are really struggling with how to recreate that environment. Things like that don’t exist right now.”

Networking has certainly evolved in Silicon Valley. Gone are the unplanned coincidences of meeting interesting people at meetups, events, and conferences. Serendipity and being in the right place at the right time, has also disappeared. “There is no more randomness, and we are leveraging off existing relationships, so no ‘net new’ contacts. Business is conducted in a very different way”, says Mark White of White-Summers.

Networking through existing contacts, to get to those that can help your business, is now be more intentional than ever. Without the advantages of in-person meetings that build rapport and trust, and create the all-important first impression, we must be more thoughtful about our connection requests and do much more advance research to ensure a good exchange of value.

Overall, the basic process of effective networking is still valid, i.e., 1) develop a profile of the people you want to meet and why, 2) navigate a path to them through your existing contacts. More than ever, LinkedIn is a critically important tool, as is your up-to-date personal profile. The message you craft for the email introduction, the value the recipient will receive should they agree to an online meeting, and your follow-through process, are all under increased scrutiny. We no longer have the luxury of a ‘gut check’, when first meeting a person. We used to schedule coffee meetings for about an hour. Only ask for a 30-minute online meeting, today. If you cannot get your message or request across within 30 minutes, find a mentor or advisor to help you before your meeting. Good meeting etiquette matters even more now, as do your listening skills. Lastly, Zoom fatigue is real, so start and end the meeting on time.

The pandemic has created a unique and unexpected opportunity for companies to assess every aspect of their business which, in turn, has led to new offerings from service providers such as attorneys and consultants. “Restructuring is a growing service White-Summers is now offering—companies are re- thinking their personnel, their physical office space, and so much more. They are no longer constrained by how they did business in the past” says Mark White.

Silicon Valley has always been tightly connected to the rest of the world--a hub where most people have a disparate and unique network of contacts depending upon prior jobs, travel patterns, and professional expertise. Today, our interconnectedness takes on a new importance –we still need something from each other for survival and growth. What happens with the hiring process in a startup? Can we accurately gauge the character of the prospective employee on Zoom since we cannot hold in-person interviews? When an international company needs to open a US bank account to transact business, how does that happen if they cannot visit their bank in person to sign the bank signature cards? These are simply temporary problems and business minutia. Undoubtedly a smart entrepreneur, somewhere in the world, will build a product, service, or transform a business model to solve these issues.

Constant change is a cornerstone of Silicon Valley and it is still happening. It is just so much harder to see it because we are at home all day, every day. We do not go to meetings, we are not driving on the highway or riding the train, nor are we seeing all the new buildings under construction. The feeling of things happening real time, is so more difficult to perceive and akin evolutionary change. It’s not visible to the naked eye, but it is happening.

Tech trend watcher and technology evangelist, Robert Scoble sum it up well. “Silicon Valley is morphing yet again. It has morphed many times to be different than it used to be. Very possibly, this is where high end of computer science will be done, such as autonomous cars. Silicon Valley is a very optimistic place.”

Michelle E. Messina

Michelle is a thought leader on entrepreneurship, innovation, and startup ecosystems. She is also co- author of the best-selling book, Decoding Silicon Valley: The Insider’s Guide, and has worked in more than 60 countries around the world. mmessina@explorainternational.com

Michelle Messina
M2Messina.com