Silicon valley: Not the start-up paradise we thought, new research shows

Credit: Unsplash+.

Silicon Valley, often seen as the world’s center of technology and innovation, may not be the ideal start-up paradise it’s made out to be.

New research from the University of Stirling and Georg-August-University Göttingen reveals that this tech hub can actually create inequality and sameness among new entrepreneurs.

The study highlights that while Silicon Valley is famous for its multi-million-dollar deals and success stories like Apple and Google, its investment landscape is uneven and poses barriers for many aspiring entrepreneurs.

The researchers, Dr. Michaela Hruskova and Dr. Katharina Scheidgen, suggest that other countries can learn from Silicon Valley’s selective approach to backing start-ups.

In Silicon Valley, it’s common for investors to put millions into early-stage companies. However, these deals come at a cost.

According to the research, only those who are already somewhat successful or have significant resources can make it in this competitive environment. This leaves many potential entrepreneurs on the sidelines.

Dr. Hruskova and Dr. Scheidgen conducted 63 qualitative interviews with entrepreneurs and investors in the U.S. and Germany.

They found that Silicon Valley entrepreneurs are typically expected to self-fund their businesses until they achieve significant customer traction, such as sales revenue or user numbers.

This is very different from Berlin, another leading start-up hub, where having a strong team with a promising idea is often enough to attract investment, though the scale of investment is generally smaller.

The authors argue that investing in a company after it has proven its business potential reduces the risk of failure and increases the chance of a high return on investment. This approach forces start-ups to be more creative and resourceful before securing funding.

Dr. Michaela Hruskova, a Lecturer in Entrepreneurship at the University of Stirling Management School, explains, “Silicon Valley is like the Olympic Games of the start-up world. It rewards the fittest—those who have already achieved some level of success.

Unlike in the UK and Europe, Silicon Valley entrepreneurs need to show significant traction before approaching investors, often using their own savings to build a product and generate sales. This creates an uneven playing field and fosters inequality, particularly for entrepreneurs from disadvantaged backgrounds.”

However, there are valuable lessons to be learned from Silicon Valley’s entrepreneurial ecosystem. “Start-ups in Silicon Valley are forced to adopt creative ways to bootstrap their companies. A little bit of improvisation can go a long way in entrepreneurship,” says Dr. Hruskova.

This research is detailed in the book chapter “Demystifying Silicon Valley: Unequal Entry Thresholds between Entrepreneurial Ecosystems,” co-authored by Dr. Katharina Scheidgen and Dr. Michaela Hruskova, in Entrepreneurial Ecosystems in Cities and Regions: Emergence, Evolution, Future, published by Oxford University Press.