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A new study suggests that Silicon Valley, considered the world’s technology and innovation capital, may be breeding inequality and sameness among budding entrepreneurs.
Beneath the multi-million-dollar deals and startup utopia, Silicon Valley’s “uneven” investment environment is actually an obstacle for many new companies, says a study from the University of Stirling and Georg-August University of Göttingen.
But the researchers suggest other countries could learn from the more insightful entrepreneurial ecosystems that have produced giants like Apple and Google and be more selective in how they support startups.
It’s not uncommon for Silicon Valley investors to pump millions of dollars into relatively early-stage companies, but research shows that multi-million-dollar deals come with a price.
Those who succeed in Silicon Valley are either already successful or well-funded and resourced, leaving many potential entrepreneurs behind, say researchers Dr Michaela Hluskova and Dr Katariina Scheiden, making the region a “double-edged sword for entrepreneurs,” they say.
Their research, based on qualitative interviews with 63 US and German entrepreneurs and investors, found that Silicon Valley entrepreneurs are typically expected to bootstrap their companies until they can demonstrate significant connection with customers through revenue and user numbers.
This is in stark contrast to the entrepreneurial ecosystem in Berlin, also a major startup hub, where only the strongest teams with investment-worthy ideas tend to be sought after, but the investment activity and number of startups is much lower.
The authors argue that if companies invest after they have gained business momentum, the risk of failure is lower and the return on investment is likely to be higher. It also means that startups need to get more creative in structuring their companies and leveraging resources before they can secure investment.
Dr Mikaela Hruskova, entrepreneurship lecturer at the University of Stirling’s School of Management and co-author of the study, said: “Our research shows that Silicon Valley represents the Olympics of the startup world – it’s a place that rewards the most fit talent and is in many ways a place for entrepreneurs, innovators and change-makers who are already successful.”
“Unlike their UK and European counterparts, Silicon Valley entrepreneurs must first build a product and gain significant traction to generate sales, often using the founders’ personal savings, before approaching investors. This uneven playing field is a double-edged sword for entrepreneurs: it reinforces inequality, particularly among entrepreneurs from socio-economically disadvantaged backgrounds, and can lead to homogenisation among start-ups.”
Dr Hluskova added: “But there are lessons other countries can learn from Silicon Valley’s more insightful entrepreneurial ecosystem, which forces start-ups to adopt creative ways to launch their companies. A little improvisation can go a long way in entrepreneurship.”
The research appears in the chapter “Demystifying Silicon Valley: Unequal Entry Thresholds Across Entrepreneurial Ecosystems”, co-authored by Dr Katariina Scheiden and Dr Michaela Hluskova, in the Oxford University Press book “Entrepreneurial Ecosystems in Cities and Regions: Emergence, Evolution and Future”, which can be found here.
For more information:
Demystifying Silicon Valley: Unequal entry thresholds across entrepreneurial ecosystems.
