Business

Silicon Valley is more than just social media and $4 toast — way more

Above: Tesla Motors: Located in Silicon Valley, and still working on "hard" problems.

Image Credit: Windell Oskay
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Over the past few years, San Francisco has gradually started to view itself as part of Silicon Valley.

It’s not.

Yes, tech plays a much bigger role in San Francisco than it has in the past. The number of tech workers in the city has sharply increased, from 3 percent of the workforce in 2000 to 6 percent today, according to The New York Times‘ Nick Bilton, a relative newcomer to this city. (Yet those tech workers apparently represent 100 percent of the restaurant and coffee shop clientele, Bilton writes.) Major tech companies now have their headquarters here, including Salesforce.com and Twitter. The business climate is very startup-friendly, and a host of incubators and co-working spaces make it easy for entrepreneurs to set up shop.

And, most tellingly, San Francisco is attracting a much larger percentage of the region’s venture capital. 74 percent of the region’s venture deals, or 423 fundings, were for San Francisco companies in 2013 — up from just 61 fundings in 2003, according to the Wall Street Journal. In dollars, those SF companies raised $4.58 billion in 2013, up from $339 million a decade before.

So when people speak about Silicon Valley these days, they often mean the entire San Francisco peninsula, from San Jose north to San Francisco.

That leads many people to a profound misconception about the state of Silicon Valley: namely, that it is no longer focused on the “hard” technologies: chips, computers, networking — in short, the fundamental, core technologies that gave the region its name. Looking at the San Francisco tech companies that lead the headlines, many people think that “Silicon Valley” — especially its younger segment — has given up on silicon entirely, preferring instead to focus on social media sites, new forms of web publishing, foolish photo-sharing sites, and $4 toast.

That perception is wrong. In reality, what has happened is that the social media/web publishing/photo-sharing startups, which are mostly located in San Francisco, have become the central focus for most tech media coverage. That’s not surprising, given that most tech reporters live in San Francisco.

Plus, as Jeremy Conrad, the founder of hardware startup incubator Lemnos Labs told me, “People who do social media are inherently easier to find online.”

The companies that have the biggest mindshare are, quite naturally, those that most people can relate to, because they’ve used them: Instagram, Facebook, and Twitter.

But the hard technology startups never went away. In fact, most of them are still down in Silicon Valley — the traditional Silicon Valley, which runs from San Jose north through Palo Alto, roughly — just as they have always been; companies like FireEye ($9.3 billion market capitalization), Palo Alto Networks ($5.8 billion market capitalization), Fusion-io ($1.27 billion market cap), and Nicira (sold to VMware for $1.26 billion).

Or consider Tesla Motors, which has a nearly $30 billion market capitalization and is tackling one of the hardest tech problems around: reinventing the entire auto industry. It is a product of Silicon Valley proper (headquarters: Palo Alto) and manufactures its cars in Fremont, right across the Dumbarton Bridge from its Palo Alto headquarters. Nothing easy or “San Franciscan” about that.

As for startups, in Silicon Valley proper, there are fewer deals than in San Francisco, but they’re larger. San Francisco’s $4.58 billion 2013 raise is just 65 percent as large as the $7.04 billion raised by Silicon Valley companies, according to the WSJ.

And far from becoming a social media-centric world, the landscape of Silicon Valley startups remains surprisingly diverse.

Silicon Valley-based Khosla Ventures partner Keith Rabois told me late last year that he, too, has seen a surprisingly rich variety of innovation in the tech world.

“I was shocked when I joined Khosla Ventures how impressive and how broad ranging hard-core technical innovation, how vast and how impressive the number of entrepeneurs who are working on complicated and difficult things, was,” Rabois said.

“I had almost no idea about the breadth and quality of technical innovation going on until I started this new job. Every day it feels like I meet at least one if not more entrepreneurs who are fighting off really incredible challenges — and thriving. From reinventing batteries, reinventing databases, reinventing rockets, reinventing food and agriculture — it’s shockingly, incredibly impressive.”

SV Angel founder David Lee, based in San Francisco, echoed that sentiment earlier this week, writing, “The number of startups doing really hard stuff has skyrocketed recently. Bitcoin, drones, food substitutes, 3D printing, bioinformatics, deep learning.”

Now, the “old” Silicon Valley doesn’t have a lock on this kind of hard-core innovation. Conrad’s Lemnos Labs is based in San Francisco, and he says people “come out of the woodwork” when Lemnos hosts hardware-oriented meetups. A monthly Hardware Startup Meetup regularly sells out — within minutes of tickets going on sale — with 150-200 San Franciscans attending. San Francisco-based Redwood Robotics and Bot & Dolly are two robotics companies Google acquired last year.

But if you thought San Francisco’s tech scene and shifting north and shifting towards social media at the same time, you’re mistaken. Long after the glow has faded from Facebook’s WhatsApp and Instagram acquisitions, people in the Silicon Valley area will still be working hard on making the gadgets, chips, and infrastructure that make all that social media possible.

Long live Silicon Valley.

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More information:

FireEye has invented a purpose-built, virtual machine-based security platform that provides real-time threat protection to enterprises and governments worldwide against the next generation of cyber attacks. These highly sophisticated c... read more »

Tesla's goal is to accelerate the world's transition to electric mobility with a full range of increasingly affordable electric cars. Palo Alto, California-based Tesla designs and manufactures EVs and EV powertrain components. Tesla ha... read more »

SV Angel is the micro VC firm located in Silicon Valley and founded by angel investors, Ron Conway and David Lee. SV Angel provides capital investments to early stage companies focused on the Internet, e-commerce, and information techn... read more »

Keith Rabois is a member of the Khosla Ventures investing team, joining in March 2013. Most recently, Rabois was Chief Operating Officer at Square where he oversaw the company’s business operations including marketing, communication... read more »

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