In a recent post, Nazia Vasi notes that “for years, young, talented, well-educated individuals left India, China, Dubai, and Hong Kong to pursue better, more rewarding careers in the West…[but] the children of this same highly-educated talent pool are casting their eyes East, back home.” While Vasi focuses on the shift of financial talent to “increasingly influential hubs of finance in Asia, the Middle East, Europe, and Latin America” – basically, everywhere other than New York and London – this activity belies a potentially more fundamental shift with more long-lasting implications in the capital markets and elsewhere.
For the past 50 years, the United States has been a magnet for the world’s best and brightest, and has let this talent run amok in an environment conducive to educating, supporting, and financing high-impact entrepreneurship. This has resulted in dense, thriving technical sectors where innovation, institutions, opportunity, and talent have congealed and co-evolved: Route 128. Silicon Valley. Fairfax. This has worked out quite well for U.S. venture capital firms who have been able to find, fund, and support innovative, high- growth firms close to home. For other countries aping the U.S. model, not so much. Attempts to develop “home grown” domestic early-stage venture capital industries have met with dismal results leading some to conclude that investment in early-stage, technology-focused new ventures is – like gourmet raw food, G-Funk, and the Free Speech Movement – a West Coast Thing.
But that was then and this is now. Venture capital investment may largely be conceptualized as a local business, but both talent and entrepreneurial opportunity have globalized. This poses a problem. While the United States may continue to attract the best and the brightest, the fact remains that it is getting harder and harder to convince them to live in Burlingame or Boston rather than Beijing or Berlin. It is undeniable that technological expertise is no longer as concentrated in the United States as it was even one decade ago, and that technological creativity is based on the talent of human beings, who are more mobile then ever.
Fred Wilson, a NYC-based venture capitalist and prolific blogger, notes that, in the late 90’s, “I’d look at a deal if it was between 34th Street and Canal Street, between 1st Avenue and 10th Avenue.” Two years ago, Union Square Ventures started investing outside of New York, and now outside of the United States. Promising entrepreneurial opportunities are less localized then they have ever been. For a number of the most promising technologies – wireless, software security, and the emerging technically driven products and services that will drive the emerging energy economy – the United States is not the clear leader. Ditlev Engel, the president of the world’s largest energy turbine company, is located in Denmark. He notes that the competitive heat and light in the wind market comes from China, with “35 new competitors…in the last 18 months, and not one out of the United States.”
These changes have important implications for the financing of entrepreneurial firms, the speed of innovation and technological transformation, and which regions and nations will experience economic benefit of the next boom. For U.S. venture capital firms, breathing the same air that the firms inventing the future are breathing increasingly means getting on a plane and heading out of the country. And for policy-makers concerned with the efficacy of their national innovation system, getting this right means riding the next 50-year cycle of entrepreneurial activity.