HighTech StartUps and Industry Dynamics in Silicon Valley

1
High-Tech Start-Ups and IndustryDynamics in
Silicon Valley

• Junfu Zhang
• Public Policy Institute of California

2
Dynamics Key to Understanding the Valley
The Henton Model Evolution of Silicon
Valley 1950-2000
?
Internet
Valueadded
Personal computer
Integrated circuit
Defense
1950
1960
1970
1980
1990
2000
2010
3
Dynamics in a Habitat An Alternative
Framework
Death
Silicon Valley
Moving in
Moving out
Growth MA
Birth
4
Two Longitudinal Datasets

• National Establishments Time Series, 1990-2001
• Dun Bradstreet raw data
• Information on firm location, industry,
  employment, etc.
• VentureOne Data, 1992-2001
• The most comprehensive database on
  venture-backed companies
• Work experience of start-up founders

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OutlineThe Dynamics of Silicon Valley

• Job creation
• Access to venture capital
• Firm-level spin-offs
• Firm migration

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Many Firms Founded Each Year in SV
4,000
3,500
3,000
2,500
Number of start-ups
2,000
1,500
1,000
500
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
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Despite Failure of Some,Many Others Survive
100
80
Survivalrate()
60
40
20
0
0
1
2
3
4
5
6
7
8
9
10
11
Age (years)
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Start-Ups Create Jobs
Software industry in SV grew 136 during 1990-2001
Firms founded after 1990
140,000
Firms existed in 1990
120,000
100,000
Employment
80,000
60,000
40,000
20,000
1990
2001
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Venture-Backed Firms in Valley Got Venture
Capital Quickly
Average age of start-ups at first-round finance
(1992-2001)
25
22.5
20
16.6
16.6
Months
15
11.5
11.9
10
5
U.S.
SV
Bay Area
Boston
D.C.
10
Silicon Valleys Quick Access to VC Appears in
Every High-Tech Industry
Average age of start-ups at first-round financing
All U.S. firms
Boston firms
SV firms
25
20
Months
15
10
5
Commun.
Con./Bus. Services
Electronics
Semicond.
Software
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OutlineThe Dynamics of Silicon Valley

• Job creation
• Access to venture capital
• Firm-level spin-offs
• Firm migration

?
?
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Silicon Valley Has More Firm-LevelSpin-Offs Than
Boston
Raytheon
Boston sample size 1,184
7
9
EMC
12
Wang
13
Data General
26
Lotus
DEC
53
SV sample size 2,590
SGI
51
74
Oracle
78
Intel
95
Apple
101
Sun
117
HP
20
40
60
80
100
120
140
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Firm Migration Into and Out of the Valley

• More moving out of Valley, fewer moving in
• High-tech firms more likely to move thannon-tech
  firms
• Those moving in are younger than those moving out

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When Moving Out of SV, FirmsAre Likely to Stay
in California
Top 10 Destination States (1991-2001)
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In Fact, They Are Most Likely toMove into Nearby
Cities
Top 10 Destination Cities (1991-2001)
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California Losing Businesses,But Effect Is Small
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Measuring Turbulence in Labor Market

• jobs created by new establishments
• jobs
  eliminated by dead establishments
• Rate of vitality
  
• 
  total employment
• 
  jobs moved out of Silicon Valley
• jobs
  moved into Silicon Valley
• Rate of mobility
  
• 
  total employment

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Labor Market Turbulence Driven Primarily by Firm
Birth/Death Rather Than Relocation
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18
16
14
12
Rate ()
10
Rate of vitality
8
Rate of mobility
6
Rate of interstate mobility
4
2
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
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OutlineThe Dynamics of Silicon Valley

• Job creation
• Access to venture capital
• Firm-level spin-offs
• Firm migration

?
?
?
?

• Where do we go from here?

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What About the Recession in SV?

• Walk on two legs to get out of a recession
• Increased capital spending of whole economy
• New demand created by innovations

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Conclusions

• SV does have regional advantages
• Focus on firm creation
• Continue support of research universities
• Help retain access to foreign talents

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Thank You