Author of books on Silicon Valley explained the phenomenon of the ecosystem and the reasons for the failure of its clones

On September 14, with the support of the Egor Gaidar Foundation, another lecture was given by Ilya Strebulayev, a professor of finance at Stanford University Graduate School of Business. Ilya is the author of his own course and book on Silicon Valley.

Russia is among the five most active countries supplying start-ups to Silicon Valley. Among the projects of the valley 5% of Russian origin. But more than 30% of the projects are launched by immigrants from India.

In an interview with the Slon reporter, Mr. Strebulaev also shared his thoughts on the secret of the success of Silicon Valley and the reasons for the failure of its clones.
')
"Megamind" leads the most interesting statements of the professor.

Dosed state support

The US government provided new investment mechanisms by adopting the Prudent Man Investor Act in 1979, which allowed insurance and pension funds and other investors to invest in risky assets through venture funds. Thanks to the Prudent Man Investor Act, total capital inflows to the technology sector increased 50–100 times.

But it is equally important that rather quickly the state almost completely left decisions, to whom and with what to give money. This is precisely what many countries fail to do, where they rely on state financing: the state gives money “from and to”, without attracting private capital and without creating structures that would allow the state to withdraw at some point.

The best example of the "cloning" of Silicon Valley

It was possible not to make this mistake, perhaps, only to Israel, which can be considered the best example of recreating the Valley. In Israel, the state created funds for investment in technology, but in conjunction with American funds, which were then replaced by Israeli private investors. Israeli officials did not indicate who would invest in which projects, and this is very correct. I do not know of a single career American official who understands the financing of innovation as well as a professional investor. When private funds do not give money to Solyndra, the manufacturer of solar panels, and then the project is supported by the state, this does not end well: taxpayers lose hundreds of millions of dollars.

Continuous financing of technology projects

You can raise several tens of thousands of dollars when you only have an idea, and you can expect to attract billions of dollars when you go to an IPO. And since the path of innovative companies to profit takes a long time (on average from the first investment to an IPO takes eight years), such an incessant chain of capital inflows is a matter of life and death.

Only 10% survive Silicon Valley, and only 0.5–2% prove to be truly successful, then guarantees and back-ups are needed. They are given by such instruments as convertible preferred stock (convertible preferred stock) and convertible loans (convertible note). They assume that if the investor does not return the invested funds, he gets all rights to the company and all its exhaust. On the other hand, an entrepreneur, whose company is gaining momentum, can count on a large piece of cake.

Evolution of financing in Silicon Valley

In recent years, the "ladder" of continuous funding has been changing. First, there is a noticeable inflow of investments in the early stages. Ten years ago such angels boom could not be: to start a software project, an entrepreneur needed at least several million dollars (to buy Oracle systems, rent an office, hire developers), and such funds could be given mainly by venture funds.

Now at the start, $ 50-100 thousand is enough, therefore there are much more private investors. Technologies of a higher level need investors with more expertise and more impressive sums, so that neither angels nor crowdfunding crowd out venture capital.

So although now in the Valley the investment climate is good, but there is no doubt that there will be a recession. It is hard to say how soon it will begin. But it definitely cannot be considered a failure of Silicon Valley, this is a normal stage in the development of such ecosystems.

Combining theory and practice

Stanford University and other leading US universities remain the intellectual core of Silicon Valley. In Russia, Stanford is perceived as a top university, which can be compared with Moscow State University. This is not true. In Russia, a university is an educational institution, and scientific research lives in the institutes of the Russian Academy of Sciences. In the USA, science and education are developing together, Stanford performs the functions of both the RAS and Moscow State University.

In Russia, many scientists believe that they should not stoop to commerce, that respected researchers are apart from money and implementations. This is quite the opposite of the American, a little sanctimonious approach: the vast majority of Stanford scientists are “advisors” in venture funds and start-ups. There, on the contrary, if you have an idea and you can embody it, it will well affect your reputation.

Is it possible to repeat the synergy of science and education embodied at Stanford? Yes. I do not follow the development of Skolkovo, but if it is this idea that lies in the project of the innovation center, it is correct. The main thing is for officials to understand that in order to repeat Stanford’s success, it’s not enough just to pour in $ 2-3 billion, invite corporations and build beautiful buildings. There are many factors to consider.

The reverse side of ups and downs

There is a risk taking culture in the Valley: people are not so worried that it will not work. Of course, nobody is guided by failures, but if this happens - this is not the end of a career, not a cross on the possibility of success. Therefore, many multi-billion dollar companies have fired not with the first idea of ​​their creators, but after the pivot.

In many countries of continental Europe, in Asia, the right of error is not recognized for a person. If, for example, you open a restaurant in a French village and you burn through, you and your family will most likely have to leave, because within 50–100 years you and your family will be known as those who failed the business. And according to French law, you, as the former general director of a closed company, will not be able to stand at the helm of business again in the next 5–10 years.

Accordingly, with such an attitude, the pivots will not work: the first thought of an investor, who discovers that his money does not make the idea for which he gave money, but a new one, is the idea of ​​withdrawing money. In Silicon Valley, all financiers understand that they are investing in an idea that may change.