This is a presentation I put together for the Oasis Group, a group of successful Boston area professionals who meet monthly to share ideas

1. Strengthening
The Massachusetts
Innovation Economy
Todd Hixon
Presentation to the Oasis Group
February 24, 2009
24

2. Agenda
Massachusetts is viewed as one of the primary
innovation regions in the U.S.
But, Valley has dramatically outperformed M
B t Si V ll h d ti ll t f d 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?
1

3. Mass Has World Class
Intellectual Resources
10
Two of the world’s top
world s
9
10 research universities,
8
7
within walking distance
6
5
Four major research
4
hospitals in Boston
3
2
Route 128 tech cluster
1
0
Kendall Sq. Bio/Med
Nobel laureates/Pop Patents/Pop (x100) Small Cos/Pop
(x10^4) cluster
CA MA
SOURCE: Highland Capital Partners, 2008; Pop = 1 million of population. 2

4. But, W. Coast Dominates Tech
,
“NASDAQ 104” Tech Market Cap
p NASDAQ proxies control of
p
(64% of companies; 80% of Market Cap)
innovation sector wealth created
since ~1970
NASDAQ 104 totals $1 5 Trillion
$1.5
of Market Cap
• Northern California = 46%
• West Coast = 76%
• Mass. = 5%
• East Coast = 13%
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 3

5. Si Valley Also Leads Bio/Med
y
“NASDAQ 104” Bio/Med Market Cap
(16% of companies; 12% of Market Cap)
Northern California is 26%
West C
W t Coast is 30%
ti
Massachusetts is 21%
East Coast is 45%
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 4

6. Money Follows Performance
% of U.S. Venture Capital Investment
(12-month rolling average) Si Valley gaining share
45%
40% Mass constant at about
35%
Si Valley
y
10 percent
30%
25%
Other East Coast
20%
declining
d li i
15% Mass
10%
5%
0%
995
998
001
004
007
19
19
20
20
20
Si Valley Other CA NW MA Other EC
SOURCE: PWC/NVCA Moneytree database, as of 12/31/08. 5

7. Silicon Valley:
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. 72
6

8. Radio Days
1900-1955
1900 1955
Si Valley East Coast
1900
• FTC founded
1910 • Magnavox spins out of FTC
• IBM s
IBM’s IPO
• RCA formed by GE and Navy
1920
• “Radio group” controls radio patents
• FTC acquired by ITT, moved to NJ
C acqu ed , o ed o J • Raytheon founded by Vannevar Bush
ay eo ou ded a e a us
1930 • Litton Industries spins out of FTC
• Polaroid founded
• H-P founded • Bush runs OSRD, 1/3 of $ to MIT
1940
• Varian founded • MIT Rad Lab works on radar; Terman
• Terman returns to Stanford, creates spends war at Harvard
1950 Sanford Industrial Park • AR&D formed (1st institutional VC)
• SRI f
S founded • Wang Labs f
W L b founded
d d
• Stanford EEs> MIT • Raytheon leads US transistor
• H-P’s IPO production 7

9. A Butterfly’s Wing
y g
In 1955 William Shockley co inventor of the
1955, Shockley, co-inventor
transistor [at Bell Labs], decided to establish a firm
to exploit his invention. To secure $ million of
p $1
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. 230
8

10. Hardware Days
1956-1994
1956 1994
Si Valley Route 128
• IBM San Jose lab opens
p
1955
• Schockley Semi founded • DEC founded
• Lockheed moves to Stanford IP • Honeywell ← Raytheon
• Varian & H-P IPOs • Military > 50% of Rte 128 revenues
1965 • Fairchild ← Schockley; Draper I formed
• Military buys >50% of semiconductors • DG ← DEC
• Intel ← Fairchild; options; Stanford TLO • Prime ← Honeywell
• PARC founded: “Silicon Valley” coined • Computervision founded
1975 • Kleiner Perkins I ($8m capital) • Apollo ← Prime
• UCB + SJ State EEs> Stanford • “Massachusetts Miracle” coined
• “Homebrew” computer club; Apple founded • VAX introduced
• Oracle & 3COM founded; Apple IPO • EMC founded
1985 • Adobe, Intuit, & Symantec founded
• Sun founded; IC co.s exit DRAMs • MIT TLO
• Cisco founded • Wang files Ch. 11
• LSI Logic, Cypress, Cirrus, Maxim; Xylinx, • Apollo acquired by H-P
1995 Altera founded • Parametric founded
• Juniper founded • American Tower founded 9

11. Components & Semiconductors
Employment
70,000
,
60,000
50,000
50 000
40,000
Si Valley
30,000
30 000 Route 128
20,000
10,000
0
1959 1965 1970 1795 1980
Source: A. Saxenian, Regional Advantage, p. 79; data from County Business Patterns
10

12. Internet Days
1994-2005
1994 2005
Si Valley Route 128
1990
• DEC sold t C
ld to Compaq
• Netscape & Yahoo founded
• Netscape IPO • American Tower founded
1995 • eBay founded
• Yahoo IPO
• American Tower IPO
• Google founded • Akamai founded
2000 • eBay IPO • Akamai IPO; Prime sold to PTC
• Data General sold to EMC
• Polaroid Chapter 11
• Google IPO
2005
11

13. Recombination
Silicon Valley has its share of failures
y
• DRAMs, Disk drive “fruit flies”, minicomputers
Big tech
Bi t h companies i Sili
i in Silicon V ll are only
Valley l
incrementally more successful than those in the East
• Intel is stodg H P lost its “way”
stodgy; H-P “ a ”
What Silicon Valley does remarkably well is
“recombination”:
• Create new companies to pursue new opportunities
• Refocus resources to exploit
12

14. What Enables Recombination?
Community
y
Open System
Equity culture
13

15. Community
“Rebel Alliance” – beat the big Eastern companies
g p
• Less secretive and litigious
Stanford
St f d a proactive hub
ti h b
• 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 ones
14

16. Open
Bias to open systems
p y
• Ethernet & Unix vs. Token Ring & VMS
• Internet vs. AOL walled garden
g
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”
15

17. Equity Culture
Start-ups are the path to success
p p
• “Everyone knows people who got wealthy from options”
“Getting l id ff i
“G tti laid off is a chance t start a new company”
h to t t ”
Egalitarian – everyone is a shareholder
Heros and role models:
• Noyce, M
N Moore, Grove, Kl i
G Kleiner
• Jobs, Joy, Clark, Ellison, Doerr, Draper, Metcalfe
• Omidyar, P
O id Page, B i Y
Brin, Yang
16

18. Fuel for the Bonfire …
Companies 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 East
East.
- Tom Wolfe
Source: A. Saxenian, Regional Advantage, p. 30
17

19. Geeks vs. Suits
The … counter-culture intent on arming the masses with new
g
technology … 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 place
engineer.
where they could make their living outside the enormous
gray corporations.
- Michael Lewis
The New, New Thing
e e , e g
18

20. It’s Not About The Money …
y
Very few people understand why what works here
and in Boston works. It’s very difficult to clone
environments. Too many people think that the
yp p
criticality in the environment is the money. For me
the criticality in the environment is the entrepreneurs.
- Don Valentine (1988)
Fairchild founder
founder,
Sequoia GP
Source: M. Kenney, Understanding Silicon Valley, p. 98
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21. What Boston Needs …
Community: focus mass and density
focus, mass,
Commitment to “Open”
• Systems and technologies
• Employment practices, immigrants
Equity culture – belief in the value of start-ups
• Proactive leadership from universities & government
• Role models and heros
Boston really is half way between Europe and California
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22. Time to Regain Leadership
California is in disarray:
• All but bankrupt
• 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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