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Valley losing federal 'mega-investments' race

Speakers cite gap in clean tech funding between Valley and regions like Huntsville

Silicon Valley is losing the race for huge federal investments that will jumpstart the industries of the future, a panel of Valley leaders said.

As the Obama administration makes "a series of mega-investments in the future," Silicon Valley trails regions such as Huntsville, Ala., in procuring funds, CEO Emmett Carson of the Silicon Valley Community Foundation told more than 1,000 attendees at a 2010 "State of the Valley" conference Friday in San Jose.

The conference was convened by the Community Foundation and Joint Venture: Silicon Valley Network, a non-profit "analysis and action" group.

Carson and others outlined a regional funding gap in clean technologies.

He said the Valley is getting none of the $2 billion federal funds now being disbursed for research in vehicle batteries and only $4 million of a $184-million federal investment in energy storage.

Silicon Valley got none of the $3.5 billion going to smart-grid technology, and just $38 million of the $16 billion going to energy efficiency and renewable energy, he said.

Warning against complacency, he likened the region to the Indianapolis Colts' overconfidence leading up to the Super Bowl game Feb. 7 before the Colts were trounced by the "underdog" New Orleans Saints.

"We're not the Saints, we're the favored people," he said. "If we think the game is ours we're going to have that outcome and it will be Huntsville celebrating."

Attendees heard a range of expert analyses of the 2010 Silicon Valley Index, an annual measurement the region's wealth and health.

Joint Venture CEO Russell Hancock announced he will create a new position to run "special ops" for procurement of federal investment for Silicon Valley.

"The person will travel to Washington, D.C., a lot and mobilize the entire region to advocate and cheerlead for the federal funds we require," Hancock said.

The special-ops person will report to a steering committee representing Joint Venture, Stanford University, the Silicon Valley Leadership Group and the Bay Area Council, he said.

There is a Silicon Valley mythology that could feed overconfidence: That entrepreneurs created it all by themselves, Managing Director Gary Pinkus of McKinsey & Co. said.

But the reality is that early companies such as Fairchild Semiconductor secured 80 percent of their original contracts from the Defense Department, he said.

Technology payoff can be long-term, said venture capitalist John Gage, former chief researcher and vice-president for the Science Office of Sun Microsystems.

Valley pioneers such as Intel's Gordon Moore and Andy Grove benefited from federal scientific research investment made as far back as the 1940s, and Sun benefited from investments made in Stanford and the University of California by the Defense Advanced Research Projects Agency (DARPA).

Other countries have learned to do this as well, Gage said. Only two of the world's top 10 companies in solar, wind and battery power are in the United States. The rest are in places such as Germany and China, he said.

"Today we not only look to Berkeley and Stanford, but to IIT (India Institute of Technology) for the source of so many technology innovations," he said.

Today's equivalent of DARPA is ARPA-E, the U.S. Department of Energy's Advanced Research Projects Agency - Energy, Gage said. Silicon Valley should focus on trying to shape the direction of investment there. he said.

"Clean technology" has the potential to generate 4 million jobs by 2030, CEO Barry Cinnamon of the Los Gatos-based Akeena Solar said. Though cleantech manufacturing is likely to go to lower-cost overseas locations, cleantech development and installation will provide good jobs here, Cinnamon said.

McKinsey's Pinkus said business and congressional representatives could do more to secure federal investment in California noting it is currently a "net outflow" state in terms of taxes sent to Washington vs. federal funds returning

Even worse, "California is arguably a terrible state to do business in relative to other states. We have high taxes and high regulations that we're going to have to fix in the context of Sacramento," he said.

But despite the problems Pinkus said the state still has many factors working in its favor.

"We're still the eighth-largest economy in the world, though it might not be going quite in the right direction.

"While 90 percent of our economy is in services, we still hold the highest level of manufacturing employment in the country, ahead of number two, Texas.

"And we've got a unique set of assets. Our public university system is still arguably the best in the country, perhaps the world. We have the core of the venture-capital industry here. We have a solid industrial base.

"We've got a well-deserved reputation for innovation, creativity, managerial capability and climate."

Pinkus said people are starting to talk about the possibility of "backshoring" some jobs that have left the United States for distant overseas locations.

"What if you could combine low-cost manufacturing with high-intellect, high IP (intellectual property) jobs and bring them closer together have the higher jobs in California and the low-cost jobs be in Mexico, which is much closer than China, India or Brazil?

"It would ensure a tighter interface between the ideas and the production if ideas. It could even be in Nevada or in the Central Valley," he said.

Staff Writer Chris Kenrick can be e-mailed at ckenrick@paweekly.com.

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Comments

Like this comment
Posted by Bottom Line
a resident of another community
on Feb 16, 2010 at 7:18 am

Bottom line for The Valley after all the marketing hype and bs are cut through: venture capital dollars have shrunk dramatically since 2000. That's the real deal.


Like this comment
Posted by Morris
a resident of Barron Park
on Feb 16, 2010 at 10:48 am

> He said the Valley is getting none of the $2 billion federal funds
> now being disbursed for research in vehicle batteries and only $4
> million of a $184-million federal investment in energy storage.

> Silicon Valley got none of the $3.5 billion going to
> smart-grid technology, and just $38 million of the $16 billion
> going to energy efficiency and renewable energy, he said.

Obviously the companies that got this money were better represented in Washington, or maybe, just maybe, they were better suited to do the work than a SV company that was "fishing" for some federal money.

> He said the Valley is getting none of the $2 billion federal funds
> now being disbursed for research in vehicle batteries and only $4
> million of a $184-million federal investment in energy storage.

How many SV companies are world-famous for their battery technology?

> There is a Silicon Valley mythology that could feed overconfidence:
> That entrepreneurs created it all by themselves, Managing Director
> Gary Pinkus of McKinsey & Co. said. But the reality is that early
> companies such as Fairchild Semiconductor secured 80 percent of
> their original contracts from the Defense Department, he said.

According to various sources, about 25% of the Valley's revenues came from the Military/CIA's "Black Budget". With the cold war over, this money dried up.

> "Clean technology" has the potential to generate 4 million jobs
> by 2030

Are these full-time jobs, or just 1-2 year jobs to replace the older, analog technologies and replace with the newer, digital technologies. Oh, and what about the jobs that are "lost" because of phase-out of the older equipment/infrastructure? How do these jobs get fitted into the "jobs equation"?

> Pinkus said people are starting to talk about the possibility of
> "backshoring" some jobs that have left the United States for
> distant overseas locations.

What about automation, which will do a better job that human (especially Union) workers? The US is long overdue starting to automate its factories to their fullest potential.

It does sound like the VCs have decided that it's better to spend other people's money than their own. What ever happened to all that much-vaunted bravado that justified the $2,000 suits and $100K Tesla roadsters?

Why can't the VCs raise $1-$3B today, like they've done in the past, to jump-start SV? Has the market gotten wise to their tricks?

Stop whining you Sand Hill Road guys, and get to work!


Like this comment
Posted by KenN
a resident of Duveneck/St. Francis
on Feb 16, 2010 at 1:20 pm

"Silicon Valley got none of the $3.5 billion going to smart-grid technology, and just $38 million of the $16 billion going to energy efficiency and renewable energy, he said." -- That's misleading. The smart grid money is matched by utilities and spent all around the country on new power networks. Those networks buy routers from Cisco and meters from Silver Spring or Itron or Echelon and software from eMeter or others. These are SV companies making sales. Similarly, of the energy efficiency money, SV's Serious Materials will get some, as will many of the local energy controls companies. SV is not supposed to get those grants, but rather to sell products to the utilities and local governments that win them.


Like this comment
Posted by Jon
a resident of Another Palo Alto neighborhood
on Feb 16, 2010 at 3:36 pm

But how come *our* utilities got none of that money ? Survey after survey shows CA is a net exporter of cash. Our politicians are just not doing their jobs of advocating for our slice of the pie....


Like this comment
Posted by Wondering
a resident of Crescent Park
on Feb 18, 2010 at 12:55 pm

This very strongly suggests that Anna Eshoo should be replaced in November.

But why is the government making "investments that will jumpstart the industries of the future"? Under the American economic system, private investors and entrepreneurs do that. Government is notoriously bad at "investing", and completely incompetent at identifying "industries of the future." Did government "jumpstart" Intel or H-P or Google or Cisco or Juniper?


Like this comment
Posted by Wondering
a resident of Crescent Park
on Feb 18, 2010 at 12:58 pm

Taxpayer dollars going for "energy efficiency and renewable energy"? Gee, if those "opportunities" can't draw private capital, it's because you get a better return on investment by burning the money to generate heat.


Like this comment
Posted by marty
a resident of Meadow Park
on Feb 19, 2010 at 1:07 am

Face it folks. California is the low dog on the totem pole. We supported the wrong presedential candidate who has failed to recogize that the support he got from twits in California put him in the White House. Some appreciation we're getting. Come November, we will return the favor in kind.

As for Eshoo, don't look to her for help. She's more interested in supporting illegal immigrants. Indeed, she hasn't met an illegal immigrant she doesn't want to give sanctuary to--including her promise to unite families. Mom, Dad, and a hundred aunts, uncles, sisters, brothers, add infinitum, will all be welome regardless of the cost to California.


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