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Silicon Valley Is Facing A Reality Check

The Bay Area bubble is bursting

8Apr

It’s been quite the decade for Silicon Valley. The financial crash of 2007-08 saw an inevitable and costly drop off in entrepreneurial activity in the San Francisco Bay Area and the situation looked as bleak as anywhere. Much like during the collapse of the dot-com bubble in the early 2000s - which Silicon Valley was considered to be at the middle of - investment dropped and entrepreneurship followed suit.

Since the start of 2009, though, entrepreneurship potential in the Bay Area has spiked. When economies fail, the resultant lull is followed by a period of renewed optimism and investment as the economy gets back on its feet. Silicon Valley flourished and now accounts for one-third of all venture capital investment in the US, and the region employs over a quarter of a million IT professionals. Entrepreneurial potential is now a massive 50% higher than it was at the peak of the dot-com era, and the region is as synonymous with tech startups as Wall Street is with banking. But these things don’t tend to last forever.

Silicon Valley is slowing down

After years of dominance, it appears that the swell felt in Silicon Valley is due something of a reality check, and many predict that the bubble will burst once more. A shaky stock-market, bloated valuations and the worst IPO climate since 2008 has the area crashing back down to reality.

Investors have labeled the period ‘The Great Reset’ and, according to Business Insider, the industry is facing death by a thousand cuts. Tech startups in the region are cutting costs, often by laying off employees, and investors are now being propositioned sustainable businesses rather than just sexy ones. The reality check is affecting stock prices, and once sky-high valuations of startups are being slashed. Public companies like LinkedIn, for example, have seen their valuations cut nearly in half, which in turn makes the private tech startups seem very much inflated by comparison. And, according to Vanity Fair, companies like Uber are ‘avoiding going public, though their CEOs are being admonished by venture capitalists for it.’ Unicorns are becoming an increasing rarity, too,

The area also faces protracted issues of culture on top of the financial instability. Gender inequality is widely reported and initiatives focused on getting more women into tech positions are offset by the lasting inherent misogyny reported by women in the region. Community-created lists by Fairygodboss do include some Silicon Valley companies in the ‘tech companies where women are happiest’, but even today 60% of women with a decade or more experience in Silicon Valley reported having been sexually harassed. Statistics like this are not necessarily damaging for investment, but growth of talent becomes a problem when such a huge percentage of the workforce feel alienated.

Location Does Affect Success

Despite Silicon Valley’s problems, location still very much affects a startups likelihood of success. Graduates leaving university equipped to enter the field of tech flock to areas based on not just their pay-rates and quality of life but their likelihood of being part of something successful - the two are, naturally, tightly connected. The map below shows both the concentration and the quality of startups in the US; the bigger the mark, the more concentrated the area is with startups, the darker the color, the higher the quality of startups in the region.

We can see that there are pockets of innovative startups in all four US regions - the West dominates, but all four have their hubs. It’s the quality that varies. The central states see some concentration of startups but for quality you largely have to look west. And the map visualizes the notion that there are startup black-spots in the US, and that investors and entrepreneurs tend to flock to likeminded regions to make their millions. California, unsurprisingly, sees a concentration but as does the north-east, and the US’ startup culture is far from limited to Silicon Valley alone. If indeed the Bay Area bubble does burst, the US will not be void of innovative startups, rather they will spread and find new hubs to exploit, be it inside the country or out. 

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