A lesson from America


The “can-do” attitude, energy and positive approach referred to in the article on California in the June/July issue of “Director” magazine, published by the Institute of Directors in the UK, are all features of this US state, and in particular its Silicon Valley area, that were mirrored in my recent research into the investment practices of US venture capital firms compared to their counterparts in the UK and Europe. The “uniqueness” of  Silicon Valley and the environment in which these VC firms operate was a common theme arising from my interviews with VCs, entrepreneurs and other stakeholders.

Reference was made by my interviewees to the outlier performance of Silicon Valley based VC firms, the operational and /or entrepreneurial background of investment executives, the more risk-taking approach of Silicon Valley VCs, the disruptive technology that comes out of Silicon Valley and the brand strength of well-known Silicon Valley based firms which helps to attract the best deals. West Coast VCs also tend to  syndicate with fellow VCs at the earliest stages of company development to get a “foot in the door” with potential home-run companies and they have  better contact with corporate buyers for eventual exits. Reference was also made to the huge added value afforded to portfolio companies through the extensive networks in the Valley plus the non-proprietary willingness to share time and resource in a “giving back” culture in Silicon Valley.

All Silicon Valley VC firms in my sample were in the top performing category, that is they had at least one fund with top quartile performance. The operational characteristics of Silicon Valley based VC firms and the benefits the firms derive from being located in such an interconnected cluster contribute to their excellent performance. My interviewees were clear about the more open and sharing ecosystem in the US which contrasted with a more closed and proprietary approach in Europe. The more open networks exhibited in the US encourage information sharing and hence better knowledge of new technology developments and potential markets for new products and services. These networks can lead to better investments being made and nurtured by VCs. As the article in “Director” states, the energy that is so evident in California and Silicon Valley  “isn’t replicated anywhere else in the world”. There is much that the VC sector here in the UK could learn from the US; perhaps a “Director” roundtable on the issue involving business owners, entrepreneurs and VCs could help to stimulate some ideas on the subject.

Dr Keith Arundale, FIoD

An edited version of the above appeared in the August / September issue of the IoD’s “Director” magazine. 

Please send your comments to me here or email: keith@keitharundale.com