Silicon Valley is the epicenter of innovation and creativity. This would not have reached the dimension it has today without entrepreneurs who founded companies as HP and Google. Most of the time people focus on this side of the story, but there is also another key part which wiithout these companies could have never achieved the success they have nowadays. This is, the financing from Venture Capital industry.
This industry invests money from rich people and companies in startups that are in an early stage of the business. The risk of these investments is very high, with an average rate of success around 10%. It is also true that when one of these start-ups succeeds, the return on the investment is tremendous, compensating the failure of other investments.
On the 5th of July we had the opportunity to meet Santiago Corredoira, CEO of Stepone. Stepone helps IT Spanish startups establishing in San Francisco. They collaborate with the Spain Tech Center, an incubator sponsored by Icex and Banesto that offers complete advisement for Spanish companies that look for coming to San Francisco and doing business here: from legal and marketing to accounting advise. He explained us how the Venture capital industry works and the importance it has in Silicon Valley. A good example to illustrate this is the fact that 50% of the money invested in American start-ups takes place in San Francisco. This industry has enormously changed during these last decades, adapting itself to the changing environment. Studying trends, it is clear that this industry is quickly increasing the number of deals and the money invested in start-ups, overtaking the numbers of 2007. It is also clear that VCs are redirecting themselves to the earliest stage of the company, the seed capital, where the risk is the highest but if things go well the potential gains are extremely appealing.
Start-ups are a key industry in San Francisco. They account for the biggest portion of employees working in San Francisco. There are some false myths about this industry. Some people believe that most entrepreneurs are young and that they are only engineers. Data shows that this is not correct, 50% of start-ups are run out by people between 35 and 45 years and engineers only represent 11% of all entrepreneurs.
What is not a myth are the high salaries employees earn in Silicon Valley. The average wage is 92.000$, and if you work for companies like Google, Linkedin or Facebook, your salary could be around 160.000$ a year. Not bad . However , life cost goes hand in hand with what people earn: the average monthly cost of renting a house is of 2241$, 75% higher than the national average. One trend observed is the exponential increase in the number of foreign entrepreneurs, although for the moment they only represent the 16%.
Santiago stressed on the fact, that despite the importance of having a solid business plan, the key for obtaining financing in the Valley is networking. He told us a sentence that he especially liked in the presentation video of Dreamer Cesar Mariel: “To bake you need your hands”. He said that it is essential to build good relationships and highlighted business is all about knowing people. Since we arrived we have heard that neither Baseball nor American football are the national sports in USA. It is Networking.
After 2 weeks here, we can affirm this is true.
One last thing Santiago talked about was the direction Silicon alley is heading to, using the term SOLOMO. This is an abreviature of Social-Local-Mobile. He is convinced that mobile penetration and its usage will continue expanding at the fast rate we have seen in these late years and that this will offer tremendous opportunities in technological world. Numbers are out there: there is one mobile phone per person in the earth, Smartphone users spend 2/3 of their time playing with apps, Americans have an average of 35 apps on their mobile phone, 28% of the users use mobile devices for searching information about their localization and what can they do…So remember, SOLOMO is the future.
At the end of our visit we met three Spanish entrepreneurs that were part of Spain tech Center. Their names were Victor Mendiluce from Unsusual Studios, Guillermo Ruiz from Toolea and Alfredo Rivela from Local Heroes. They all have brought their businesses to San Francisco in order to develop them to the next stage. They all believe that if you are an entrepreneur, Silicon Valley is your place. They told us that once you are here you cannot be afraid. Here people think big, and failure is well seen.
American companies consider that you can learn more from failure than from success. They also said that it is positive to go out of Spain and see how things are done in the rest of the world, specially in places like Silicon Valley. There is an incorrect concept in Spain that recommends retaining the talent. That is not convenient, the talent has to move, innovate and educate. Then the talent will decide what to do and where. Another great difference of these two places is when you have a good idea back at home you keep it for yourself, afraid of someone stealing your idea. In Silicon Valley it is completely the other way around. You have to tell everyone your idea. The more people you talk with, the more useful feedback you will have for your business and more new ideas you will get.
Finally, there is a fact that made me feel proud of Spanish entrepreneurs. Most of their businesses and its development is in Spain, they just come to Silicon Valley to obtain new ideas, see how big players work and promote what they do. They believe that in Spain there are exceptional professionals with great potential that are just waiting for an opportunity. They feel they have an internal obligation of promoting the place they come from and make it a better place for living. It is hard to find more noble motivations than this one.
And you? What are you going to do?