This article is getting a lot of play and I’m sure they’ll be some pretty vigorous debate about Steve Blank’s observations. I’m not a VC and I don’t have the stellar reputation of Mr. Blank but in my small little circle of working with startups all I can offer is that I see everyday in my communities what he is talking about. I also work with most, but not all the institutions I mention below.
Steve focuses mostly on VCs in the valley but there’s a penultimate movement that we can look to and see if some of Steve’s theories are going to come true—I give you the modern startup accelerator. Accelerators like Techstars, Y Combinator, 500 Startups, built the playbook that valley VCs are trying to emulate now. Right or wrong and for better or worse these entities are the arbiters of taste when it comes to determining what is cool and/or valuable.
Make no doubt about it, these are successful organizations that ARE generating wealth and I’m no more blaming them for this paradigm shift that Steve is blaming VCs. But a reasonable question to ask is where do the folks that want to solve the HARD problems go to get capital and support because the systems that have been in place to support that innovation have shifted—probably permanently. This shift is/will leading to a dilemma that would have been crazy to propose even a few years ago—is the US facing an innovation gap?
Most of the new accelerators that are sprouting up in the US or all over the world are emulating these new accelerator models. You have some holdouts like Houston Technology Center, Austin Technology Incubator and other institutions that are supported by state government and academic institutions. You have regional programs like Pipeline Entrepreneurs and highly organized angel networks like Triangle Angel Partners and Nebraska Angels that have strong regional focuses. Many of these local groups serve as areas of refuge from those that have built their careers around innovation by securing SBR (small business research) grants or transitioning from the public to private sector in areas like aerospace, bio-science and security. Finally you have a few technology companies that have dedicated research units (Google, IBM and Microsoft most quickly come to mind).
But the reality is that these groups are probably not enough and they don’t fully make up for the fact that a big sector of our economy that support innovations and entrepreneurship in bio-science, engineering and aerospace has moved and shifted their focuses to segments of the economy that allow for quicker returns on investment.
The two concepts that fuel this, social and software are often the only areas getting attention from anybody these days. But if you look at what is happening in China and places like Israel and Russia you should be a bit worried, the innovation gap is something that could manifest much more quickly than we all think. The question is how to keep what we have and make sure that we’re poised to grow these capabilities in the US. If it were up to me I’d suggest we need a program similar to the Moon program that serves as a catalyst to spurn innovation, or better yet a Marshall Plan that provides that funding to enable ecosystems to work on wicked problems and the capital, patience and oversight to bring them to life.
It’s easy to be dismissive of government involvement in something like this with the inevitable friction that they bring to the table but big problems need big entities to help solve them and it’s one of the few places where sovereigns have not just an obligation but also an opportunity to lead.
My advice to regions that want to be the next Valley? Don’t, it’s unlikely you’ll ever have a perfect collection of skills that makes the Valley so successful (See Fred Wilson’s excellent post on this subject). Leverage the strengths that you do have and zig where others zag. Communities that are starting to emerge and be successful with entrepreneurship are doing just this and in future posts I’ll highlight some regions that I think are doing this well.