East coast cool, West coast cooler?

START-UPS US:Silicon Valley in California and Wall Street in New York are polar opposites, one a centre of money and banking, the other a hub of technology and start-ups. Both have huge influence, but can they find common ground?

OCCUPY SILICON Valley? Hardly. Pretty much everyone gets the idea of Occupy Wall Street. That is the place and those are the guys who got us into the financial mess that is rocking the foundations of the global economy. Those investment banks, those hedge funds, those brokerages centred in the Big Apple’s financial ground zero, stuffed full of graduates from East Coast Ivy League universities.

A few thousand miles across the US, over on the West Coast, the view is different. Yes, there was a small occupation on Market Street in San Francisco, the centre of that city’s financial district. (Notably, the area came into existence in the mid-1800s to service the state’s original entrepreneurial culture, the gold prospectors.) But “finance” on the West Coast generally doesn’t mean the varied and complicated investment apparatus of Wall Street that can topple banks and leave entire nations wobbling on the brink of bankruptcy.

“Finance” on the West Coast typically means venture capital: investor funds looking for the next Google. Rather than play the East Coast game of finding complex ways to have money generate more money by moving it around from one financial vehicle to another, Valley money goes into companies and ideas. The few square miles of the Valley capture more than a third of all venture capital available in all of the US.

Instead of Wall Street’s money cathedrals, those skyscrapers of glass and steel casting their shadows over nearby neighbourhoods and now, the rest of the world, Silicon Valley has low-slung two-storey venture capital (VC) offices lining the gentle slope of Sand Hill Road, which hugs the edge of oak-covered Stanford University land.

This distinguishing feature of the Valley’s financial architecture led to a standing joke that, during the dotcom crash, when venture capitalists tried to hurl themselves out the window in despair over their losses, they couldn’t to do much damage because they were jumping from only one floor up.

And where Wall Street sees those East Coast types rushing to their high-rise offices dressed in crisp shirts and ties and dark suits, the Valley’s financial army wears casual khaki.

Walk into the Macy’s men’s store in the deluxe Stanford Shopping Centre and you’ll see acres of chinos. It is Levi’s Dockers heaven (of course, Levi’s are a West Coast brand). Ties, on the other hand, are not a part of the Valley financial uniform, reserved for funerals or dinners with president Obama. (When Obama came to town last year and had a tete-a-tete dinner with an exclusive circle of the Valley’s best-known entrepreneurs, the question convulsing local media was whether Facebook’s Mark Zuckerberg, a devotee of hoodies, would actually put on a tie. He did).

All of which may seem trivial, but, as with so much in life, such minutiae are the semaphores differentiating two different cultures: East Coast versus West Coast.

The East Coast, particularly New York, values money, while the West Coast, meaning Silicon Valley, values power, or at least that’s what Silicon Valley’s famed Y Combinator tech incubator founder Paul Graham wrote in a blog post a few years ago. He has the insight of somebody who started out on the East Coast: his first start-up, which made his fortune when he sold it to Yahoo for $49 million, was based in New York.

He wrote: “As much as they respect brains in Silicon Valley, the message the Valley sends is: you should be more powerful. That’s not quite the same message New York sends. Power matters in New York too, of course, but New York is pretty impressed by a billion dollars even if you merely inherited it. In Silicon Valley no one would care except a few real estate agents. What matters in Silicon Valley is how much effect you have on the world. The reason people there care about Larry (Page) and Sergey (Brin)is not their wealth but the fact that they control Google, which affects practically everyone.”

Recently, Graham attended a much anticipated Y Combinator event in New York city, and ruffled feathers (to put it mildly) by announcing that he had no intention of opening a Y Combinator in the city because he didn’t think New York had what it takes to create an adequately entrepreneurial environment for technology start-ups. Thenextweb.com reported, rather irritably, on the event.

“Graham described most successful entrepreneurs from the Valley as ‘prophets compared to the dudes on Wall Street. The most successful founders I know are concerned above all with the quality of what they’re building. And by ‘above all’, I mean even above money.’ And this is when Graham begins patronising, suggesting that New York’s obsession with money is deeply rooted and ‘not something you can fix by having meet-ups . . . The Valley is a magnet for nerdy visionaries. NYC is for rapacious dealmakers’.”

Patronising, perhaps, but many have written about this difference in culture. Some have argued that it isn’t just about making lots of money on Wall Street, however, but that Wall Street is simply better at luring graduates from East Coast universities than other business sectors. Washington Post economics blogger Ezra Klein recently interviewed a graduate and summarised the discussion thus: “The impression of the Ivy-to-Wall Street pipeline is that it’s all about the money. You’re saying that it’s actually more that Wall Street has constructed a very intelligent recruiting programme that speaks to the anxieties of the students and makes them an offer that there’s almost no reason to refuse.”

In a consideration of Klein's article, academic and economic commentator James Kwan, utilising a Star Trekanalogy, wrote, ". . . As a system, it's a bad thing that a small handful of highly profitable firms are able to invest those profits into skimming off some of the top students at American universities . . . and absorbing them into the banking-consulting-lawyering Borg."

Vivek Wadhwa, Berkeley academic at the University of California, noted in a recent opinion piece for the Washington Post that “one of the greatest challenges for New York entrepreneurs is that they have to compete with the financial sector for talent. For the investment banks, money is no object; they can offer hefty salaries and six-figure bonuses to anyone they want to hire. When times are good for finance, it crowds out the technology industry.”

But yet again, perhaps all of this speaks to a gulf in entrepreneurial culture between the two coasts. There are plenty of top students in California too. Why aren’t they all rushing into the finance sector?

Wadhwa writes that only 21 per cent of the graduates of New York’s universities choose to start a company there, contrasted with 69 per cent of California graduates deciding to set up a company in California. This, he says, poses a serious challenge for New York’s Mayor Bloomberg, who is in the midst of a $100 million (€73 million) competition to lure an entrepreneurially focused university to the city to help in his goal of eventually having New York surpass Silicon Valley (Stanford, incidentally, is strongly in the running to set up an East Coast branch).

Is that enough, though? Wadhwa isn’t too sure. “In Silicon Valley, you come across many entrepreneurs who left New York for greener pastures, but very few move from the Valley to New York, or from anywhere else.” He suggests using that $100 million to fund start-ups or educate the underprivileged to become entrepreneurs.

The bottom line in the East versus West competition may simply be down to the intangibility of the perceived coolness of starting your own company. The West Coast considers it to be cooler to be neck deep in start-up culture, to be aiming for the fun, the power and the geek glory of being the next Google, than to join an investment bank even if it carries the promise of making mountains of money.

TCD Science Gallery director Michael John Gorman taught at Stanford a decade ago, and recalls: “I asked my Stanford Science, Technology and Society undergrad students how many were interested in starting their own company and about 80 per cent were. About 10 per cent were already involved in start-ups.”

(He adds, somewhat soberingly: “I asked an Irish university first-year computer science class same question two years ago and no hands went up.”)

As Graham told his New York audience: “In the Valley it’s just cool to begin a start-up. As long as New York remains the big finance hub, you’re always going to have that dragging you down.”