Is Silicon Valley losing its edge?

August 31, 2018

Editor’s Note: This article originally appeared on Inc. here.

Silicon Valley has always been Hollywood for tech. While there are other places to make movies, Hollywood is where most are produced. It’s where the big studios are and where the funding is.

That’s still true, but many movies these days are shot in cheaper locations, like Canada. Bollywood now makes a lot more movies and sells more tickets than Hollywood, even though it makes less money, and China’s box office is set to eclipse North America’s in 2020.

Silicon Valley is subject to a similar dynamic. Though it’s likely to remain dominant in the tech industry for the foreseeable future, the rest of the world and the rest of the country are catching up.

That’s good news for everyone. Here’s why.

Silicon Valley’s (slightly) waning dominance

Last year, $26.6 billion in startup funding was raised in San Francisco and San Jose, according to Bloomberg. Meanwhile, $19.3 billion was raised in New York and Boston.

Compare that to 2015 when San Francisco and San Jose raised $28.8 billion while New York and Boston raised $14.1 billion. In another sign that Silicon Valley’s dominance is declining, Singapore is now the top city for tech talent, according to Startup Genome’s 2017 Global Startup Ecosystem Report.

Clearly, it’s not accurate to say, as some have, that Silicon Valley is dead. Instead, Silicon Valley, like the U.S. itself: It’s still the major superpower in tech, but is increasingly challenged as the rest of the world catches up.

The democratization of tech

We take it for granted now that one industry – technology – has now had a major influence on every other industry. But this is an unusual and unpredictable turn of events. You wouldn’t expect manufacturing to influence finance. It’s only been the past few years in which every company has been expected to be a tech company.

This stunning change means that all of the sudden, every industry has a pressing need for tech talent. If you’re a young engineer, you no longer need move to Silicon Valley to reach the top of the salary scale and do interesting work. You can stay home or move somewhere with a lower cost of living.

This is one reason why cities like St. Louis, Indianapolis and Salt Lake City have emerged as tech hubs. It’s also why we see unicorns like Magic Leap (Florida), Kabbage (Georgia) and Qualtrics (Utah) emerge outside of Silicon Valley.

I’ve invested in many companies outside of Silicon Valley. I’m not the only one to realize that there are tech opportunities outside of San Francisco and San Jose: Steve Case’s Revolution VC fund aims to back companies outside of the U.S.’s major tech centers.

In 2004, I invested in ExactTarget, an Indianapolis-based company. Eight years later, it had an IPO–and in 2013, it was acquired by for $2.5 billion. It was able to take advantage of the low costs and specialized talent of their home markets, as many of these startups do when cut off from Silicon Valley funding.

The effect of globalization

The top unicorn so far this year is China’s Ant Financial, formerly known as Alipay. With a valuation of $150 billion, it dwarfs Uber. This is the new world order; the world’s most valuable tech startups are dominated by Chinese and American firms.

An Economist analysis states that China’s tech industry is 42 percent the size of America’s and catching up fast. The Chinese government’s commitment to making the country the world leader in artificial intelligence should worry us, particularly since we don’t have any type of similar commitment from our government.

The disbursal of tech talent and funding is a wonderful thing. People everywhere feel empowered to start their own companies and look for gaps in the market to fill. That will lead to more opportunities for tech talent and better experiences for consumers.

It may not be the ending that some would like to see. Of course, neat resolutions are Hollywood’s stock and trade, not Silicon Valley’s.

Founder & Partner

As the founder of OpenView, Scott focuses on distinctive business models and products that uniquely address a meaningful market pain point. This includes a broad interest in application and infrastructure companies, and businesses that are addressing the next generation of technology, including SaaS, cloud computing, mobile platforms, storage, networking, IT tools, and development tools.