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Why is Silicon Valley being compared with Detroit?

Milken Institute finds strong start-up culture, but some entrepreneurs looking elsewhere

June 3, 2009 03:52 PM ET

Computerworld - It is held without question that Silicon Valley is the center of the high-tech universe in the United States. It's still undisputed. A Milken Institute study released this week places Silicon Valley at the top of its list of top-50 high technology regions in the U.S. And the majority of U.S. venture capital money still flows into that region's technology industry.

But it seems that increasing numbers of people are wondering if Silicon Valley is worth it.

Penelope Trunk explained in a blog post this spring why she moved to Madison Wis. rather than Silicon Valley to launch her third start-up, Brazen Careerist. "The bottom line," she said in a post titled Starting a company in Silicon Valley is stupid, "is that I wanted to be able to support my family and take the wild risks that come with having a startup. Supporting a family in [New York City] or Silicon Valley is insanely expensive, especially for someone who has no cushion to fall back on during the months when funding is tight."

Meanwhile, Robert Scoble, of technology blog site Scobleizer, said that Silicon Valley may be setting itself up for a "brain drain" because, among other things, "entrepreneurs are figuring out that they can start companies elsewhere and do just fine."

And Farrokh Hormozi, a professor at Pace University in New York who studies the IT labor market, compares Silicon Valley in a way to Detroit, where auto manufacturing has been in a gradual decline for decades "My feeling is the time for Silicon Valley is over," he said.

Nonetheless, the Milken Institute report said Silicon Valley's start-up culture has given it an "unmatched ability to spawn entrepreneurial firms." The region employs some 244,000 people and accounts for 5.7% share of North American wages. And according to National Venture Capital Association data, nearly $11 billion of more than $28 billion in venture capital invested this year has gone to Silicon Valley firms..

However, the Milken study also found several other regions house significant numbers of technology workers, including midwestern firms where wages are lower than on the west and east coasts. For example, the Milken reported that said Minneapolis area has 131,000 technology workers, Houston has 151,000 and Wichita about 50,000. Such numbers could put pressure on Silicon Valley.

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