Silicon Valley, known worldwide as the center of tech and innovation, can create inequality and sameness among new entrepreneurs, according to a study from the University of Stirling.
Behind the big-money deals and stories of start-up success, Silicon Valley’s uneven investment scene poses a challenge for many new businesses.
Yet, the researchers suggest other countries can learn from the careful selection process that produced giants like Apple and Google, becoming more selective in supporting start-ups.
Double-edged sword
While it’s common for Silicon Valley investors to pour millions into early-stage companies, these deals come with a catch, the study shows. Those who succeed in Silicon Valley often have a head start or substantial resources, leaving many potential entrepreneurs out. This makes the area both promising and problematic for new ventures.
The study, based on interviews with 63 entrepreneurs and investors in the U.S. and Germany, found that Silicon Valley entrepreneurs usually need to fund their own companies until they can show significant customer interest through sales or user numbers.
This is very different from Berlin’s start-up scene, where a strong team and a good idea are often enough to attract investment, though Berlin has fewer investments and start-ups overall.
A winning bet
Investing after a start-up has gained traction reduces the risk of failure and likely increases returns. It also forces start-ups to be more inventive in building their business before securing funds.
Silicon Valley is like the Olympics of the start-up world, rewarding only the best-prepared—those who have already achieved some success.
“Unlike in the UK and Europe, Silicon Valley entrepreneurs need significant traction before approaching investors, often using their own savings to build a product and generate sales,” the researchers conclude. “This uneven playing field fosters inequality, especially for entrepreneurs from less privileged backgrounds, and can lead to sameness among start-ups.”
“But there are lessons to be learned from Silicon Valley’s selective environment. Start-ups there have to find creative ways to build their companies. A bit of improvisation can go a long way in entrepreneurship.”
