A challenging culture, a taste for risk, a favourable climate that attracts scientists from all over the world, close links with the University: this cocktail has made this region located in the San Francisco Bay area the world champion of innovation. A race in the lead that has been going on since…. 1909.
Six thousand companies including Apple, Hewlett-Packard, Intel, Google, Oracle, eBay, Cisco Systems and Facebook, nearly 1.5 million jobs, a GDP of around 500 billion dollars, annual investments in excess of 10 billion dollars…. Located in the southern part of San Francisco Bay, in the heart of California, Silicon Valley – the “Silicon Valley”, a name coined in 1971 by journalist Don Hoefler in reference to the basic material of electronic components – embodies the dominance of the United States in the field of high-tech and high-tech industries. An undisputed world champion in value creation, it is the result of an exceptional combination of factors: an unparalleled concentration of grey matter in the world due to the existence of high-performance university centres – including Stanford University -, very close links between the academic and business worlds, the presence of all the major venture capital firms, not to mention, of course, the climate, which helps to attract scientists from all walks of life to the region. Because Silicon Valley is a real summary of the world: seduced by the excellent training and the possibility of finding a job very quickly, students from all over the world flock to the region. In addition to all these factors, there is a very particular state of mind where a certain taste for risk goes hand in hand with a protestant and idealistic culture inherited from California in the 1960s. Contrary to a widespread idea, Silicon Valley start-ups have not invented much technically. Neither the personal computer, nor the transistor, nor the Internet, nor the microprocessor was born in California. But to all these products, the prodigious children of Silicon Valley have brought their personal touch and their vision of the world: the desire to make the computer user-friendly and accessible to everyone for the founder of Apple, universal access to knowledge for the creators of Google or the possibility for everyone to communicate easily from one end of the planet to the other for the father of Facebook. In many ways, Silicon Valley’s phenomenal success has been built on dreams. Dreams that have generated billions of dollars in profit…
Stanford University, a breeding ground for business creators
The history of Silicon Valley does not begin in the 1960s, with the first rise of computer technology, or a decade later with the invention of the microprocessor. While these two events bring the region into a new era, the area around the cities of San Jose and Palo Alto has long been home to high-tech industries. In this case, it all began in 1909 when a former Stanford University student created the Federal Telegraph Company (FTC) in Palo Alto to exploit Poulsen’s patent on electric arc radio emissions. While radio is still in its infancy, the company is quickly establishing itself as one of the main American networks. At the same time, a multitude of small companies were created to provide radiocommunication services to sailboats and commercial vessels operating in the San Francisco Bay Area. Almost all of their founders come from Stanford University, which has had a department specializing in electrical communications since 1893. A department initially founded to support California’s electrification but which is increasingly training radiocommunication experts. From that time on, one of the keys to the success of the future Silicon Valley – permanent bridges between the University and the company – was in place. In this progressive emergence of a region dedicated to high-tech industries, another institution plays a crucial role: Defence, and in particular the Department of the Navy. In 1912, he signed a contract with the FTC to take charge of his radio communications. Twenty years later, due to the strategic nature of the San Francisco Bay Area, a major naval base was created between Palo Alto and San Jose. It encourages the emergence of a new wave of companies operating in the field of radiocommunications but also, already, in the field of on-board electronics.
On track since the beginning of the century, Silicon Valley would never have seen the light of day without the decisive intervention of a Stanford professor: Fred Terman. Born in 1900 in Indiana, the “father of Silicon Valley”, as he is known on the other side of the Atlantic, arrived in California in 1905, where his father decided to settle to treat chronic tuberculosis. D. in chemistry, he continued his studies at the Massachusetts Institute of Technology (MIT), where he earned a PhD in electrical engineering. At MIT, he studied under the direction of Vannevar Bush, future adviser to President Roosevelt, who, during the Second World War, was to lead the major federal scientific research programmes. Bush was also going to play an important role in the development of Silicon Valley. For the time being, with his studies completed, Fred Terman is going back to California. Now he is professor of electricity and electronics at Stanford. We are then in the early 1930s. Very attached to his adopted country, Terman does everything to convince his students to create companies on the spot rather than join the major groups on the East Coast, which have been hit hard by the economic crisis. From that time on, Professor Terman considered that Stanford University was destined to become a real incubator for electronics companies. A design that seduces many of his students, starting with David Packard and William Hewlett. In 1939, pushed by Fred Terman, they created in Palo Alto the company that still bears their name today and whose flagship product is a precision audio oscillator. Walt Disney Studios, their first customer, purchased eight of the company’s devices from the young company for a total amount of $572…
Start-up” state of mind since 1939
Across the Atlantic, Hewlett-Packard is credited with kicking off the history of Silicon Valley. A reputation that has been somewhat usurped, moreover, as several Fred Terman students had created, before David Packard and William Hewlett, electronics and electricity companies around Palo Alto and San Jose. If it is not the first company in the valley, Hewlett-Packard is the first to concentrate all the ingredients of the Silicon Valley myth: the penniless founders – the company was created with 580 dollars -, the modest garage in Palo Alto where the first audio oscillators were manufactured and which is now classified as a national monument of the State of California, the rapid growth (the first million dollars of turnover was reached in 1943) and above all the state of “start-up” spirit, embodied by the famous “HP Way”. Established in 1939, it aims to promote an open and friendly management that symbolizes the possibility for everyone to speak directly to the founders.
By the late 1930s, thanks to Fred Terman’s determined action, the region around San Francisco Bay was already home to some sixty companies joined by a growing stream of young Stanford graduates. Companies that, during the Second World War, thanks to the relations established between Fred Terman and Vannevar Bush, obtained a significant share of orders from the Department of Defense. It is in Palo Alto, as well, that the radar detection systems used by the US Navy or the US Air Force will be invented or improved. Silicon Valley’s destiny would undoubtedly have been very different without the war and the massive injections of federal funds. These do not exclusively benefit local companies: Stanford University also benefits greatly from public funds. They allow Fred Terman to sponsor the creation of new companies.
In the aftermath of the Second World War, when the Cold War further increased the strategic nature of advanced technologies, Fred Terman managed to make 3,200 hectares of university land available to companies created by former Stanford students. Thus was born, in 1953, the Stanford Industrial Park, which, since its creation, has welcomed about a hundred companies. Two years later, Terman created the Honors Cooperative Program, which gives local companies privileged access to the university’s research programs. All that remains now is to bring in the venture capital firms. The Federal State, in the case, plays a key role by passing, in 1958, the Small Business Investment Act, which allows privately financed financing organisations investing in business start-ups to borrow up to three times their capital with the guarantee of the State. In 1960, the first venture capital firm set up in California: Davis and Rock. In 1962, it made its first major “coup” by investing $280,000 in Scientific Data Systems, a company created the previous year that manufactures computers for NASA. Seven years later, the sale of his stake brings him no less than $990 million! Silicon Valley is now on the move….