The document discusses factors that contribute to innovation and success in Silicon Valley as described in the book Blue Sky Mining. Key factors include strong research universities, tolerance for risk-taking, access to sophisticated risk capital, knowledge sharing between entrepreneurs, supportive government policies, and positive aggregate returns from successful investments that outweigh failures.

1. “INNOVATION IS ONE OF THE MOST FUNDAMENTAL
PROCESSES UNDERPINNING ECONOMIC GROWTH,
THE DRIVER OF GROWTH IN OUTPUT PER UNIT OF LABOR
AND CAPITAL INVESTED.”
- OECD
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2. “ASK 10 PEOPLE TO DEFINE INNOVATION AND YOU’LL
GET 10 DIFFERENT ANSWERS. PEOPLE CONFUSE IT WITH
ENTREPRENEURSHIP AND, JUST AS OFTEN, INVENTION.…
INVENTION IS JUST ONE TYPE OF INNOVATION AND
IT’S OFTEN NOT THE MOST CRITICAL.”
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4. STRONG RESEARCH DRIVEN
UNIVERSITIES WITH ENDOWMENTS
“Google was started at Stanford. The intellectual property
that was the initial foundation was spun out and the
university kept a relatively small percentage
of the resulting company. No onerous restrictions were
placed on the IP that would hinder Google’s ability
to raise additional capital. No onerous restrictions either on
what could and couldn’t be done with the intellectual
property, and no onerous managerial or business controls
on the resulting entity. The result was epic. According to
the Wall Street Journal, at time of IPO the university’s stake
in Google was worth $179.5 million. Since that time the
value of Google stock has increased almost 10-fold.”
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5. HIGH TOLERANCE FOR RISK
“The tolerance for risk taking is a huge contributor
to the success of Silicon Valley, and not just for
entrepreneurs. Employees in the Valley understand the
value of risk taking. They know if a company is
successful, their stock options will be worth a lot of
money. Specialised banks show a willingness to offer
venture debt and lines of credit to new ventures with
little or no operating history and unproven revenue
models. Attorneys are willing to work pro bono until a
new venture secures venture funding. Landlords are
willing to rent or lease space to new ventures with no
operating history. Residential landlords and personal
banks are willing to take risks and support people who
may have only just started working with a new venture.”
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6. ACCESS TO
SOPHISTICATED RISK CAPITAL
“Ron Conway is one of the most prolific and well known
angel investor in Silicon Valley. Ron is invested in my
company, Mocana. He was an angel investor
in Google, and is invested in Facebook, Twitter and
hundreds of other startups. He brings not only money but
connections, and is savvy in his investment
methodology. An example is an event I attended
in the month prior to the publication of this book.…The
forum was an interactive discussion with Ron’s portfolio
CEO’s about the highest impact practices for building new
ventures, and a discussion on market trends. Huge value
add. Investors like Ron also understand and ensure that
the early fundraising rounds are clean and not overly
aggressive to ensure that the new venture can attract
follow-on financing.”
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7. KNOWLEDGE SHARING
“We see a wonderful dynamic in Silicon Valley around
knowledge sharing. People are willing to share their
experiences openly. I recall last year going to a
local Churchill Club event where Larry Ellison,
CEO and a founder of Oracle, was talking about what
it was like to be CEO of a fast-growing company at
different stages of its evolution. The Churchill
Club, founded by Tony Perkins and Rich
Karlgaard, personifies this culture of knowledge sharing
with
an annual calendar of high-caliber events that allow
entrepreneurs to network and learn from each
others’ experiences.”
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8. CREATIVE DESTRUCTION
“A great example of this in action in Silicon Valley is
Twitter. What few people know is that Twitter started out
as a side project by the founder of a company called Odeo.
Odeo was a blogging site that was going nowhere fast. The
founder, Jack Dorsey gave back Odeo investors’ money and
offered them the chance to invest in Twitter when it
appeared Twitter had more potential, even though it was
still unproven. There aren’t many places in the world
where this would happen. On secondary market
exchanges, Twitter has a value today that is approximately
$4 billion, and some suggest as high as $8 billion.”
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9. GLOBALLY EXPERIENCED
REPEAT ENTREPRENEURS
“What most people don’t know is that the founder and
CEO of SpaceX is Elon Musk. He is also the CEO and
founder of the electric car company Tesla, a NASDAQ listed
company with a market capitalization of more than $3.5
billion. (25) He is also Chairman and primary investor in
the largest financier of solar installations in the U.S., a
company called Solar Winds. Before starting or becoming
an investor in these companies, Elon was a founder of
PayPal that was acquired by eBay for $1.5 billion, and also
Zip2 that was acquired by Lycos for $307 million. Elon
Musk is 38 years old.”
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10. CONSTRUCTIVE FAILURE
“Constructive failure means learning from the
experience of failure in a constructive way that benefits
the individuals involved as well as the ecosphere as a
whole.…On the surface, Go was a $75 million failure. But
the executive team learned an enormous amount
working together through those turbulent times. In
other non-financial ways it was not a failure at all: Bill
Campbell went on to run Intuit (and mentor other
CEOs), Stratton Sclavos went on to start Verisign, Mike
Homer went on to help start Netscape and Randy
Komisar went on
to run Lucas Entertainment.”
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11. SUPPORTIVE
GOVERNMENT POLICY
“Another example of supportive regulation is the ability
to hire employees ‘at will’ in California and Silicon Valley,
meaning they can also be let go at will and without
cause. This labor flexibility is crucial to a new venture’s
ability to adapt to the market and to the ecosphere as a
whole. Counter intuitively it doesn’t lead to lower
employment, it fosters new venture creation, and
consequently additional employment. Still another
example is tax incentives to encourage new venture
creation.”
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12. SOCIAL CAPITAL
“What you see below are the linkages between one
venture capital firm, the companies it has invested in
and the executives within those companies. It is this
massive number of connections—the social capital—
that also allows venture firms to add value beyond mere
money. The firm shown here is Sequoia Capital,
investors in Yahoo and Google among others. They also
invested in YouTube, acquired by Google, as well as
Cisco and a whole host of companies Sequoia helped
grow that Cisco acquired over the years.”
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13. POSITIVE AGGREGATE RETURNS
“In Silicon Valley the financial returns for winning
investments are huge. They need to be, in order to
compensate for the failures or losses. Silicon Valley has
spawned iconic global businesses, providing stellar
investor returns. As mentioned previously, and to
illustrate just how big these returns can be, Benchmark
Capital put $6.7 million into eBay and two years later the
stake was worth $5 billion.
What good Silicon Valley investors do better than
anyone else is help turn small companies into massively
profitable, global companies.”
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