Have we reached peak Silicon Valley?

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Mike Seidenberg: Having failed is something that almost is a badge of honour amongst many of the entrepreneurs, and I don't think that mindset necessarily persists elsewhere. I think that there is a gravitational pull to Silicon Valley for many tech entrepreneurs, and I would expect that to persist for a long time.

Cherry Reynard: Hello and welcome to Silicon Valley Bitesize, where we explore some of the biggest ideas shaping technology and investing. Now, every few years, someone declares that Silicon Valley has had its day. China is investing heavily in technology. Europe wants to build the next generation of tech champions, and AI is becoming increasingly global. So, with that in mind, have we reached peak Silicon Valley? Now, to answer that question, I'm joined by Mike Seidenberg, lead manager of the Allianz Technology Trust. Mike, great to see you.

Ms: Nice to see you.

CR: So, Mike, let's start with the obvious question. I mean, every few years we hear that Silicon Valley dominance is coming to an end. Do you think we've reached peak Silicon Valley?

MS: First, I think if you take a step back and think about leadership in technology over the past 40 or 50 years, Silicon Valley has really led technology innovation.

MS: it isn't unique only to Silicon Valley. I think the notion that peak Silicon Valley is occurring is a very difficult one to prove. I've heard it a lot, even as recently as a couple of years ago in San Francisco, when people were talking about the death of tech. And lo and behold, we have another big secular theme emerging, which is driving a variety of different big trends in the Bay Area. So, look, I think the combination of an incredibly talented and well-educated workforce coupled with access to capital, in addition to a lot of mid-level managers who know how to operate the machine, really makes the notion of peak Silicon Valley a very difficult one. Again, it doesn't mean that this is the only centre of the universe for technology. But we've heard this before, and I think it's a very challenging premise to prove.

CR: Yeah. I mean, various countries over the years have tried and either partially succeeded or totally failed to create a sort of replica of Silicon Valley. I wonder why the ecosystem is so difficult to replicate, why it's become so sort of self-reinforcing, if you like.

MS: Well, I think it really boils down to the fact that if you think about, let's just think about a factory, right? In many of these technology companies, the widgets are the people, the cogs in the machine that basically operate the business. And you could go function by function. Those types of talent pools are very persistent in Silicon Valley. So, you have groups of people that go from company to company in high-growth phases that basically execute on the business models. And from my experience, having worked many decades ago at Oracle, I saw it with my own two eyes.

MS: And it can't be understated how important it is to have this type of functionality to grow a business. And you combine that with incredibly talented individuals coming out of just world-class universities, which are kind of cutting edge. So, if you go back and think about when it was search, a university like Stanford was leading the charge for engineering talent around search. You can go back to every secular theme that we've seen, and you'll see that Silicon Valley has typically led it. Look, it doesn't mean that other portions of the world aren't in the conversation, it's just that the scale of Silicon Valley tends to allow entrepreneurs to build these big businesses fast. And I think that's the operative point. I think that is what really is the differentiator.

CR: And I know, culture is important to you when you're looking at companies. I wonder if you can sort of expand that to the whole of Silicon Valley. I mean, is there a, like a Silicon Valley culture, a sort of collective ambition, if you like.

MS: I think first, having failed is something that almost is a bit of a badge of honour amongst many of the entrepreneurs, and I don't think that mindset necessarily persists elsewhere. I think there's also this notion of building barriers around your business and the ability to say, "Hey, it's okay if we lose money for a while to build the moat around our business." I just don't think that framework is as prevalent. If we go back along the food chain to the venture capital industry, I think there's just a different mindset amongst investors, depending on where you are in the world. And I think for the most part, if you think about these businesses that have been built that are household names, a lot of them lost money for years and years in order to build what ended up being, in some cases, a multi-trillion-dollar market-cap business.

CR: I'm interested in that idea of failure like that. It's not the opposite of success, but it’s kind of part of success. I mean, do you see that in companies?

MS: I lived it because when I left Oracle to go to a startup, which was an absolutely great idea with an absolutely terrible product that couldn't do things that people on this call would say, "Well, of course you should be able to sort alphabetically." I think you learn a lot from understanding where the misses are. What was wrong? And that gives you an algorithmic thought process in your next endeavour as to how to do it differently. In my case, I ended up coming to the buy side. But I will tell you, I learned a lot from a company that didn't work, which was backed by some of the biggest names in Silicon Valley.

MS: I learned a lot, and I think that I'm not unique in that perspective. It would be much better to go to a company that took off like a rocket ship and was successful. But there is something to be said for learning from missteps and making sure that you have a different playbook for the next company.

CR: And then you talked a bit about the kind of talent pool there. I wonder if you could expand on that a little bit. Why is it one of its biggest strengths? And is it drawing that kind of talent pool from across the world, really, because it does seem to be a hub for entrepreneurship everywhere.

MS: 100%. Look, I think that the thing that makes the talent pool unique is not only the depth but also the breadth, right.

MS: So, you have people that want to come here to execute on their careers, and the opportunities are many. You also have a group of people, and I've seen it with my own two eyes, who kind of go from hot company to hot company, and they're good at what they do, whatever that functionality is, and that's really valuable, right? Because if we were talking to CEOs of a fast-growing company today, she or he would tell you that hiring is such a huge part of the job. It’s time well spent because you're looking for this notion of a force multiplier, right? Which is getting a really, strong employee that can attract other people. But it can also, if you think about it, I always think about a rocket. And the most important thing about getting a rocket off the ground is terminal velocity.

MS: Not to geek out on people, but that's what you're trying to get in these companies, which is breakout revenue growth, breakout product adoption, whatever it is. It just requires people that attract good people who are excited about the idea, and therefore the culture is so important. You hear it time and time again in Silicon Valley, being a great place to work, a place where people really want to build their careers and stay with a particular company for a long time. I think we've seen that, and it's super interesting to watch from somebody who, in my case, just loves spending time with businesses.

CR: It must be really interesting to be part of one of these dynamic companies.

CR: it's not about one company or one breakthrough. It's almost like the machine beavering away.

MS: I think it's a journey, right? Some people are successful and it is one company. They can potentially stay there for a really long period of time. You look at the household names that you and I talk about, where they have this ability to attract really good talent and keep that talent. But I think for a lot of people who come out here, and look, you're talking to somebody who moved from New York City after business school to Silicon Valley, just because the excitement, the opportunity and the kind of change that's happening here is something that I really wanted to be a part of.

CR: Yeah, absolutely. I guess it would be useful to know how you're using your position in Silicon Valley to judge where the next big wave of technology trends are coming from. Is it speaking to people in cafes and visiting companies? How are you absorbing and generating ideas?

MS: Yeah, it's a great question. Look, I think ultimately it goes back to a mosaic, right? It's taking a variety of inputs. As you just alluded to, it's not only talking to public companies, but private companies, and going to talk to chief information officers to understand where budgetary dollars are flowing, or to chief security officers to understand what's keeping them up at night. It's a variety of inputs. It's also anecdotal. You can't help but run into people who are working on interesting things, or people who are in a particular business that's being impacted by that particular technology.

MS: So, I think it's a variety of inputs. I have tons of stories I could tell you, whether it's running into executives on the street in San Francisco or sitting with somebody at a sporting event and talking for the next two hours about what artificial intelligence means to their HMO, health maintenance organisation. So, I think it runs the gamut. The important thing is to have a framework and to be able to take those inputs and really understand where you should be looking for those investment ideas.

CR: So, it sounds like we're very much not at peak Silicon Valley.

MS: first of all, I really don't know. But I would tell you places like London are just full of intellectual capital. Look, I think I've heard this question before.

MS: I heard it during the pandemic when everybody supposedly left Silicon Valley to go to other places. And lo and behold, guess what? A lot of people are moving back here. Look, I think that there is a gravitational pull to Silicon Valley for many tech entrepreneurs, and I would expect that to persist for a long time.

CR: Okay, great. That is an optimistic note to end on. Thank you so much for all those insights today, Mike, for joining us.

MS: It's great to be here.

CR: Now if you'd like to learn more about the Allianz Technology Trust and the team's long-term approach to identifying the technologies shaping our future, you'll find portfolio insights, performance information and the latest commentary on the Allianz Technology Trust website. If you're enjoying Silicon Valley Bitesize, please like, subscribe and follow the series. Thanks for joining us.