Sprouting new innovation during challenging financial times

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You may not know it, but before Silicon Valley had its silicon namesake, thriving orchards populated the area. From the late 1880s until the 1940s, more than 8 million fruit trees filled the Valley. The region was known for its apricots, cherries, prunes, almonds, and walnuts. By 1939, San Jose was home to the largest canning and dried-fruit packing center in the world.

That all changed in 1956 when startup company, Shockley Semiconductor Laboratory, manufactured Northern California’s first silicon transistor prototypes. This ground-breaking innovation seeded a new crop of innovation in Silicon Valley.

Since then, Silicon Valley has been home to some of the most powerful technology our lives have ever known. From a mobile computer in your pocket, unlimited information at the click of a button, and social networks that keep us connected with friends and families, Silicon Valley is home to it all. The household brands we know so well — Apple, Facebook, Google, among others — were once startups that made it. Yet, that’s not always the case.

The tech industry is competitive and the tech startup failure rate is significantly higher than other industries. In fact, 63% of tech businesses fail within the first five years.

While not considered a traditional tech startup, Silicon Valley Bank (SVB) predominantly served startups and their venture capital firm investors. The New York Times reported that “For 40 years, the institution catered to the fact that high-growth, high-risk tech start-ups and their backers do not adhere to normal business practices. These companies put a priority on breakneck growth, shift strategies frequently and celebrate failure as a learning opportunity.”

Silicon Valley startups require a lender who understands the boom and bust of tech companies, and that business — especially in Silicon Valley — is built as much on capital as it is on relationships. In the case of SVB, the bank built relationships across established and startup tech companies, as well as venture capitalist firms and founders.

While the aftermath of the SVB situation has slowed, there’s a real impact on startups, in Silicon Valley and around the country. Banks are still witnessing depositors pulling their cash from accounts and putting them into market funds or other investments. The domino effect of banks losing deposits is that “they lose a source of cheap funding.” It’s this loss of in-house cash that makes banks less likely to extend existing or pursue new loans. And when lending slows, so do most avenues of company growth, hiring, projects, company office space, and more. Simply, the failure of banks make it harder for companies to get the money they need to innovate and grow.

When working at intersection of tech and humanity, we see these cycles. There’s a tendency to overreact when things aren’t going well, but Silicon Valley has deep roots, so let’s not push the panic button because one tree fell in the orchard. The ecosystem itself is still strong and bearing fruit.

For example, during the global recession in ‘08, young entrepreneurs Brian Chesky and Joe Gebbia were struggling to pay rent and decided to rent out their mattresses. Fast forward 15 years, Chesky, Gebbia and Nathan Blecharczyk (who joined later) created one of the world’s largest companies, Airbnb. Slack and Square were also founded that same year.

We know that innovation requires gall, a fair chance, and access to capital. And we also know that not every company survives — even when they have all that. With over 20 years of helping tech-forward brands partake in and lead the conversations that matter, we’ve witnessed companies disrupt the status quo and define new categories. We’ve helped make emerging brands into technology greats. The intersection of technology and humanity have become the new crop of Silicon Valley, and we foster these stories for our clients.

Make no mistake, this is a challenging time. But Silicon Valley has returned from other difficulties and, at RPG, we have no doubt that Silicon Valley will continue to innovate and grow.


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