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Thursday, February 16th, 2012
When it comes to entrepreneurial success in technology, everyone thinks of Silicon Valley. The irony here is that, in spite of its highly entrepreneurial and technology-savvy environment, the Greater Washington Region (GWR) has not been able to catch up with Silicon Valley. This issue has perplexed many people in the GWR and spurred them to try and bridge this entrepreneurial gap. However, some things are not so easy to solve, and this conundrum has many different angles to it. Luckily, Amplifier Ventures’ own Jonathan Aberman, who is also co-chair of Startup Virginia and president of FounderCorps, has developed a report on the GWR and how it fares in surpassing Silicon Valley as the center of technology entrepreneurship.
Another Way
As Aberman discusses, businesses within the GWR have tried to understand why Silicon Valley remains at the helm of technology entrepreneurship. Like most of us, these businesses have looked towards the everlasting concept: To defeat your opponent, you must become your opponent. Such thoughts have led many to consider one of two options on how the GWR can become the new Silicon Valley:
1) We can mimic Silicon Valley’s infrastructure by fostering particular aspects of its entrepreneurial demographic such as its capital and workforce.
2) We can adopt the cultural mentality of Silicon Valley by creating a greater sense of connection and support amongst the entrepreneurial community.
Although these are good ideas, Aberman sees fault in how the supporters of these theories are viewing the issue at hand. No two people are alike, so we can hardly expect that two separate regions can be the same. Aberman feels that we cannot look for patterns that contribute to Silicon Valley’s entrepreneurial success just so we can copy it. Rather, he believes we must utilize these observed patterns in a way that caters to the GWR’s own unique infrastructure and culture. This being said, Aberman proposes that the GWR’s solution to overtaking Silicon Valley lies in mergers and acquisitions.
The Hard Facts
Of course, nothing changes if a proposal has no foundation. That is why Aberman has provided a convincing series of facts regarding M&A in both the GWR and Silicon Valley. Aberman examines the Financials, Healthcare, High Technology, Industrials, Media and Entertainment, and Telecommunications industry sectors of both regions from 2007 to 2011 in order to find substantive evidence to his claim.
Across these technology-intensive sectors, two particular points stick out. First of these is the difference in the amount of each regions’ local acquisitions. Of the acquired Silicon Valley companies between 2007 and 2011, approximately 45% were bought up by local firms. On the other hand, only around 37% of GWR companies were acquired by firms in the same region. The second point that deserves attention is the diversity of acquisitions among the various sectors. Silicon Valley saw around 64% of its acquisitions in High Technology. Although this is the same sector that the GWR had the majority of its acquisitions in, it was only around 37%. This means that, despite both regions focusing on High Technology, the GWR was much more diversified amongst the sectors.
What does it Mean?
From the differences in local acquisitions and the amount of diversity across the sectors, Aberman demonstrates his opinion of the issue at hand. By experiencing almost half of its acquisitions locally, Silicon Valley is essentially recycling its own resources. Beneficial assets such as innovative ideas, patents, and knowledgeable workers are not leaving Silicon Valley, but staying together. This consolidation allows for acquiring companies to gain valuable products and services from others with the same regional mindset, ensuring that the acquisition itself will be smoother.
On the other hand, Aberman explains that Silicon Valley’s inclination towards High Technology provides yet another reason that the GWR has trouble catching up. By focusing so much more on High Technology than any other sector, entrepreneurs within Silicon Valley can quickly create startup companies, sell them, and begin again. In the GWR’s case, focusing more evenly on the various sectors means that there are less companies that are looking to acquire startups, therefore causing a slower creation and acquisition cycle.
Putting it all Together
From these two points, Aberman surmises that businesses in the GWR are not catering enough to their own region. Entrepreneurs in the GWR need to focus more on what local businesses are demanding. By doing so, the likelihood of companies being created and bought will increase and the cycle will speed up. Although such a process will take a large deal of time and effort, Aberman offers a far more feasible solution that past ideas which proposed a simple copy and paste method.
If anyone is interested in gaining a better understanding of this issue, contact info@startupva.org and request a copy of “Merger and Acquisition Trends in Silicon Valley and the Greater Washington Region: 2006 – 2011.”
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