Strengthening The MassachusettsThe Massachusetts Innovation Economy

Todd Hixon

Presentation to the Oasis Group

February 24 2009February 24, 2009

Agenda

Massachusetts is viewed as one of the primaryMassachusetts is viewed as one of the primary innovation regions in the U.S.

B t Si V ll h d ti ll t f d MBut, Si Valley has dramatically outperformed Mass in the last 30 years, especially in Tech

How did Si Valley develop such powerful advantage?

What can Mass do to build a stronger innovation economy?

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Mass Has World Class Intellectual ResourcesIntellectual Resources

Two of the world’s top10 Two of the world s top 10 research universities, within walking distance

7

8

9

Four major research hospitals in Boston

5

6

7

hospitals in Boston

Route 128 tech cluster2

3

4

Kendall Sq. Bio/Med cluster

0

1

Nobel laureates/Pop Patents/Pop (x100) Small Cos/Pop (x10^4)

2

CA MA

SOURCE: Highland Capital Partners, 2008; Pop = 1 million of population.

But, W. Coast Dominates Tech,

NASDAQ proxies control of “NASDAQ 104” Tech Market Cap pinnovation sector wealth created since ~1970

NASDAQ 104 totals $1 5 Trillion

p(64% of companies; 80% of Market Cap)

NASDAQ 104 totals $1.5 Trillion of Market Cap• Northern California = 46%

• West Coast = 76%

• Mass. = 5%

• East Coast = 13%

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NASDAQ 104 = NASDAQ 100 plus four MA companies: ADI, EMC, BSX, & AMT Circle size proportional to market cap.SOURCE: NASDAQ, Yahoo Finance, as of 2-19-09

Si Valley Also Leads Bio/Medy

“NASDAQ 104” Bio/Med Market Cap

Northern California is 26%

W t C t i 30%

(16% of companies; 12% of Market Cap)

West Coast is 30%

Massachusetts is 21%

East Coast is 45%

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NASDAQ 104 = NASDAQ 100 plus four MA companies: ADI, EMC, BSX, & AMT Circle size proportional to market cap.SOURCE: NASDAQ, Yahoo Finance, as of 2-19-09

Money Follows Performance

Si Valley gaining share% of U.S. Venture Capital Investment Si Valley gaining share

Mass constant at about 10 percent

40%

45%

(12-month rolling average)

Si Valley 10 percent

Other East Coast d li i

25%

30%

35%y

declining

10%

15%

20%

Mass

0%

5%

10%

995

998

001

004

007

5

19 19 20 20 20

Si Valley Other CA NW MA Other EC

SOURCE: PWC/NVCA Moneytree database, as of 12/31/08.

Silicon Valley: An Overnight Success?An Overnight Success?

“As recently as 1950, the area that was to become Silicon Valley still touted itself more modestly as the “Prune Capital of America”.

Source: Mark Suchman, Understanding Silicon Valley, p. 726

Radio Days1900 19551900-1955

1900

Si Valley East Coast

• FTC founded• Magnavox spins out of FTC

1900

1910

• IBM’s IPO

• FTC acquired by ITT, moved to NJ

1920

• IBM s IPO• RCA formed by GE and Navy• “Radio group” controls radio patents• Raytheon founded by Vannevar BushC acqu ed by , o ed o J

• Litton Industries spins out of FTC

• H-P founded

1930

1940

ay eo ou ded by a e a us

• Polaroid founded• Bush runs OSRD, 1/3 of $ to MIT

• Varian founded• Terman returns to Stanford, creates

Sanford Industrial ParkS f

1940

1950

• MIT Rad Lab works on radar; Termanspends war at Harvard

• AR&D formed (1st institutional VC)W L b f d d• SRI founded

• Stanford EEs> MIT• H-P’s IPO

• Wang Labs founded• Raytheon leads US transistor

production 7

A Butterfly’s Wingy g

In 1955 William Shockley co inventor of theIn 1955, William Shockley, co-inventor of the transistor [at Bell Labs], decided to establish a firm to exploit his invention. To secure $1 million of p $funding he approached Raytheon. After a month of bargaining Raytheon demurred. Arnold Beckman, founder of L.A.-based Beckman Instruments, funded Shockley to start a firm in Palo Alto.

Source: Martin Kenney, Understanding Silicon Valley, p. 2308

Hardware Days1956 19941956-1994

• IBM San Jose lab opens1955

Si Valley Route 128p

• Schockley Semi founded• Lockheed moves to Stanford IP• Varian & H-P IPOs

Fairchild Schockley; Draper I formed

1955• DEC founded• Honeywell ← Raytheon• Military > 50% of Rte 128 revenues

• Fairchild ← Schockley; Draper I formed• Military buys >50% of semiconductors• Intel ← Fairchild; options; Stanford TLO• PARC founded: “Silicon Valley” coined

1965• DG ← DEC• Prime ← Honeywell• Computervision founded

• Kleiner Perkins I ($8m capital)• UCB + SJ State EEs> Stanford• “Homebrew” computer club; Apple founded• Oracle & 3COM founded; Apple IPO

1975 • Apollo ← Prime• “Massachusetts Miracle” coined• VAX introduced• EMC founded• Oracle & 3COM founded; Apple IPO

• Adobe, Intuit, & Symantec founded• Sun founded; IC co.s exit DRAMs• Cisco founded

1985• EMC founded

• MIT TLO• Wang files Ch. 11

• LSI Logic, Cypress, Cirrus, Maxim; Xylinx, Altera founded

• Juniper founded

1995• Apollo acquired by H-P• Parametric founded• American Tower founded 9

Components & Semiconductors EmploymentEmployment

70,000

50 000

60,000

,

30 000

40,000

50,000

Si Valley

20,000

30,000 Route 128

0

10,000

1959 1965 1970 1795 19801959 1965 1970 1795 1980

Source: A. Saxenian, Regional Advantage, p. 79; data from County Business Patterns10

Internet Days1994 20051994-2005

1990DEC ld t C

Si Valley Route 128

• Netscape & Yahoo founded• Netscape IPO

eBay founded1995

• DEC sold to Compaq

• American Tower founded• eBay founded• Yahoo IPO

• Google founded

1995

• American Tower IPO• Akamai foundedGoogle founded

• eBay IPO2000

Akamai founded• Akamai IPO; Prime sold to PTC• Data General sold to EMC• Polaroid Chapter 11

• Google IPO2005

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Recombination

Silicon Valley has its share of failuresy• DRAMs, Disk drive “fruit flies”, minicomputers

Bi t h i i Sili V ll lBig tech companies in Silicon Valley are only incrementally more successful than those in the East

Intel is stodg H P lost its “ a ”• Intel is stodgy; H-P lost its “way”

What Silicon Valley does remarkably well is “recombination”:

• Create new companies to pursue new opportunities

• Refocus resources to exploit

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What Enables Recombination?

Communityy

Open System

Equity culture

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Community

“Rebel Alliance” – beat the big Eastern companiesg p• Less secretive and litigious

St f d ti h bStanford a proactive hub• SRI, Industrial Park, Honors Program, TLO, VC investment

• Faculty encouraged to start companies

Critical mass and density disseminates ideas• Homebrew computer club

Big tech companies feed small onesBig tech companies feed small ones

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Open

Bias to open systemsp y• Ethernet & Unix vs. Token Ring & VMS

• Internet vs. AOL walled gardeng

High employee mobility (no non-compete)

Design focus with aggressive outsourcing• Component specialists, manufacturing outsourcing

(Flextronics), fab-less IC cos

Multi-cultural• “Silicon Valley was built on ICs: Indians & Chinese”

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Equity Culture

Start-ups are the path to successp p• “Everyone knows people who got wealthy from options”

“G tti l id ff i h t t t ”“Getting laid off is a chance to start a new company”

Egalitarian – everyone is a shareholder

Heros and role models:N M G Kl i• Noyce, Moore, Grove, Kleiner

• Jobs, Joy, Clark, Ellison, Doerr, Draper, Metcalfe

O id P B i Y• Omidyar, Page, Brin, Yang

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Fuel for the Bonfire …

Companies in the East adopted a feudal approach toCompanies in the East adopted a feudal approach to organization. There were kings … and yeomen and serfs … with protocol and perquisites to establish boundaries. Noyce … rejected the idea of a social hierarchy at Fairchild. Everywhere the [Fairchildren] went, they took the Noyce approach with them … the atmosphere of the new companies was so democratic, it startled businessmen from the Eastit startled businessmen from the East.

- Tom Wolfe

Source: A. Saxenian, Regional Advantage, p. 3017

Geeks vs. Suits

The … counter-culture intent on arming the masses with new gtechnology … made the Valley the place to be. Added to this was the absence of Old World snobbery … back East engineering had always been viewed as glorified manual labor … no one thought of Harvard as a place you went to become an engineer The Valley gave engineers a placebecome an engineer. The Valley gave engineers a place where they could make their living outside the enormous gray corporations.

- Michael LewisThe New, New Thinge e , e g

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It’s Not About The Money …y

Very few people understand why what works hereVery few people understand why what works here and in Boston works. It’s very difficult to clone environments. Too many people think that the y p pcriticality in the environment is the money. For me the criticality in the environment is the entrepreneurs.

- Don Valentine (1988)Fairchild founderFairchild founder,Sequoia GP

Source: M. Kenney, Understanding Silicon Valley, p. 9819

What Boston Needs …

Community: focus mass and densityCommunity: focus, mass, and density

Commitment to “Open”• Systems and technologies

• Employment practices, immigrants

Equity culture – belief in the value of start-ups• Proactive leadership from universities & governmentProactive leadership from universities & government

• Role models and heros

Boston really is half way between Europe and California20

Time to Regain Leadership

California is in disarray:California is in disarray:• All but bankrupt

• Venture returns down➔ Stanford and CalPERS sold portfolios• Venture returns down➔ Stanford and CalPERS sold portfolios

We are the underdogs, with the advantage that brings

New era of investment in society

New innovation domains are a level playing field: biotech, energy

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