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Why Startups Are Leaving Silicon Valley

In the September 1st cover story of The Economist the author makes the bold claim that Silicon Valley has reached its peak and supports the claim with evidence that brings into play important concepts we’ve covered in class. Despite all of the merit and glory of the Valley, it seems as though people are fleeing from the ridiculous cost-of-living that comes with the brand. Even start ups are seeking out cheaper footholds in a trend dubbed “Off Silicon Valleying”–a name that reinforces the idea of the brand. Startups are paying four times more to exist in Silicon Valley than they would in most American cities. But why? To a certain extent, startups are paying for the embeddedness of the network of Valley: “the engineering expertise, thriving business networks, deep pools of capital, strong universities, and” risk taking culture. When a company is in its incubation period, it’s beneficial to be surrounded by a community that, while competitive, provides a wealth of resources and connections from which they can gain tacit knowledge and Silicon Valley is the place and investors know this too, which is why they invest nearly 2/3 of their money into Silicon Valley startups, who seem more likely to succeed by virtue of the Valley and its network.

Regardless of recent trends, Silicon Valley is still valuable–just not priceless anymore. Startups now have viable options in cheaper cities that cater to their industries according to the article: Phoenix and Pittsburgh for autonomous vehicles, New York for media and more. Each city has its value: the benefits it offers like location and resources and its price: like cost of living in the case of Silicon Valley. Every startup sets a value they are willing to pay for the city they want to inhabit and chooses based on the theoretical payoffs they’ll receive. But with more options, tailored to specific industries popping up around the country and the world (i.e. London for fintech), the relative value of Silicon value has gone down.


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September 2018