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Startups vital to Silicon Valley’s economy- Study says new firms create most jobs – How to encourage and nurture them here.
The 1990s were a decade of growing up fast and dying young for Silicon Valley companies.
Carrie Kirby, Chronicle Staff Writer
That may be no surprise for formerly high-paid technology workers now drawing unemployment checks. But a new report from the Public Policy Institute of California reveals that startups are more central to the area’s economy than many realized — on both the upswing and the downswing.
Almost all high-tech jobs created in the Valley in the 1990s were at companies formed after 1990, the report found. While new firms hired 258,796 people during the decade, existing firms actually lost 120,559 jobs.
But more than half the high-tech firms started in the decade did not live to see it out. Life was riskiest for small companies; 50.9 percent of those with four or fewer employees went under, were purchased, or otherwise ceased to exist. But bigger companies led a precarious existence as well, with 40 percent of those with 2,501 to 5,000 workers disappearing.
Three-quarters of new high-tech firms never got beyond employee No. 5, either going out of business by that point or simply staying small.
Compared with the huge fluctuations caused by the birth and death of startups, companies moving into and out of Silicon Valley had a minor impact. Only 2.9 percent of high-tech companies moved out of the area during the decade, and 1.7 percent moved in from other regions. Those companies that did move were not likely to go far; the top 10 destinations for high-tech firms leaving the Valley are all in California. Most companies that did move went to San Francisco, Hayward, or other Bay Area cities.
The study also measured the benefits of being in Silicon Valley. For instance, startups in the Valley get venture capital an average of five months faster than their counterparts elsewhere.
"In the high-tech industry people move so fast, and a few months can buy a huge first mover’s advantage," said Junfu Zhang, the study’s author.
The Public Policy Institute had a few suggestions for encouraging more startups and helping them stay afloat:
— Continue strong support of research at local universities, where the ideas for startups are often born.
— Encourage entrepreneurs with tax breaks, publicly provided seed capital and business incubators.
— Keep the workforce flexible by allowing plenty of high-tech workers from other countries to work here.
That last suggestion is a controversial one. Temporary-visa programs that bring hundreds of thousands of skilled foreigners to the United States each year are liked by employers but opposed by many American workers.
Employers say the programs allow them to find better talent by accessing a worldwide pool, but local workers complain that bringing in foreign workers depresses wages and increases unemployment.
E-mail Carrie Kirby at [email protected].
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