Houston Voices

Siliconned: Leaving Silicon Valley for universities

Tech startups are leaving Silicon Valley in droves — and some are finding benefits in heading back to school. Miguel Tovar/University of Houston

Silicon Valley has been a tech startup paradise for decades. It has been described as the modern day Florence in the Renaissance. Tech gods from Apple and Google to Facebook and Twitter were born here. We can credit Silicon Valley as the birthplace for such world-changing innovations like smartphones, microprocessor chips, Tesla automation, and WIFI-enabled teapots.

Okay, so maybe that last one isn't changing the world, but it was created in the Valley and it's changed my life, for whatever that's worth. If Silicon Valley were a country, it would have the 19th-biggest economy on the planet. There's no doubt it is an engineer's dream. A techie's haven. A capitalist's utopia. A beacon of the modern world.

Or at least, it used to be.

Now leaving the Bay Area

There is an exodus in Silicon Valley. It's been happening for about three years. For instance, according to a 2018 poll conducted by the Bay Area Council, 46 percent of survey takers admit they plan to leave the Bay Area in the next year. Couple that with the fact that Silicon Valley investors have allocated 66 percent of their funds into startups outside of Silicon Valley, compared with 50 percent just six years ago, and you have a recipe for a great exodus to other markets around the country.

Now, just for kicks, add to all of this that the Kauffman Foundation's research has pegged Miami-Fort Lauderdale as the number one city in America for startup activity. Where does Silicon Valley's Bay Area, formerly the world's preeminent hub for tech startups, rank? Fourteenth. How the mighty have fallen.

So, to what exactly can this mass egress be attributed?

Insufficient funds

The biggest reason is cost.

The cost of living in the Bay Area is one of the steepest on the planet. Startups in the Valley pay four times what they would in any other city in the country. In fact, just last year the California Association of Realtors reported that a typical family in San Francisco has to make over $300,000 a year in order to afford a median-priced house tagged at just over a million dollars. That includes a 20 percent down payment and an $8,000 monthly payment. Because most of the startups in Silicon Valley are in their infancies, the engineers, programmers, and non-technical employees don't get compensated enough to afford such a living. As a result, they are leaving the Bay Area in droves for places where the cost of living is manageable.

One location that tech startup entrepreneurs are flocking to is the university. Universities are also retaining tech wunderkinds on campus to blossom their startups, rather than seeing them leave for the microprocessor motherland known as Silicon Valley.

Now entering university life

One of the biggest reasons universities have become hotbeds for tech startups is that campuses provide a means for people with multidisciplinary backgrounds to intermingle within the same space. A chemical engineering student with a great idea might meet an MBA during a startup launch party. Together they can build and market the second iteration of "Secret Stuff" from Space Jam, or whatever that student has in mind.

The point is that universities position aspiring entrepreneurs to network with the right people for building their company from the ground up. Even the Innovation Leadership Forum attests that innovation is born when different ways of thinking clash. That is precisely what happens on campuses every day.

Furthermore, college students also have more room to take risks. Most aspiring entrepreneurs in college between 18 and 25 are not married, do not have kids, mortgages, or any other major financial responsibilities. This allows them to have the luxury of leeway when it comes to experimenting and trial and error.

The ecosystem of innovation

In essence, academic incubators are courting tech entrepreneurs because universities offer an ecosystem designed to support and grow startups from conception to commercialization. This ecosystem includes a space where researchers, faculty, and students of all disciplines interact and form working relationships. In many cases, it also includes university owned equipment and laboratories for use by startup researchers.

There is, of course, incentive for universities to concentrate so many resources to building incubators and luring startup entrepreneurs. There is an inherent sense of responsibility that universities have to create an academic climate that encourages students to explore new ideas. A sense of responsibility that encourages them to take more risks; to be fearless in their quest to use their intellect to enrich lives; to dream.

Moreover, university incubators also position schools as progressive institutions. Such positioning attracts elite researchers and enhances a university's reputation. Further, these incubators forge a bridge that links industry and academia in a way that Silicon Valley does not. That's because with academic incubators, startups are a stone's throw away from a place teeming with researchers, scientists, hungry students, and aspiring entrepreneurs: the university campus.

Consequently, it is no wonder that tech startups are leaving Silicon Valley for universities. It's also no surprise that students who have graduated are staying with their university's incubators to develop their companies. There, they have a place that cultivates innovation, encourages risk-taking, and is set up specifically to help them bring their tech to the world. In short, the university has become a hub set up to be conducive to thriving tech startups. And tech entrepreneurs have noticed.

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This article originally appeared on the University of Houston's The Big Idea.

Rene Cantu is the writer and editor at UH Division of Research.

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Building Houston

 
 

A Houston founder shares an analysis of relationship banking, the pros and cons of digital banking competition, and an outlook of digital banking inroads to develop relationship banking. Photo courtesy

After our doctor and our child’s school, a bank is an institution with which we share the relationship that is most personal and vital to our well-being in this world. Some might put a good vet third, but other than that, no private entity is more responsible for escorting us to a healthier and happier outcome over the course of our lives.

The bank vault is a traditional symbol of security and prosperity, and not just for our pennies. We safeguard possessions in banks that are so important we don’t even trust keeping them in our own houses. Wills, birth certificates, and the precious family heirlooms of countless families are held in safety deposit boxes behind those giant vault doors, and banks have been the traditional guardians not only of our wealth but our identity and future as well.

The importance of relationship banking

Faith and confidence in our banks is so fundamental to the customer relationship that it has evolved into a unique and otherwise unthinkable arrangement for any good capitalist in a healthy marketplace: banks pay us to be their customers. Imagine a doctor offering you $20 for trusting them to give you a colonoscopy and you’re on the road to understanding the sacrosanct union between bank and customer.

In fact, this trust is so deeply anchored in the American psyche that a new generation of digital banking companies has sprung up on the idea that it doesn’t need to exist in physical reality. The fintech industry has exploded in the last decade, and today, over 75 percent of Americans are engaged in online banking in one form or another. Every single one of those 200 million customers are taking for granted that they will be well served, despite having no personal guidance through any of the financial products and services that these online entities provide.

Benefits of fostering relationships with banking customers

In the late 90s and early 2000s brick-and-mortar banks realized that greater personalized care for their customers was going to be a critical point of competition. The in-person experience is an opportunity to offer advice and incentives for a wide range of products and financial management assistance. It’s rooted in an incredibly simple axiom that is taking hold in every aspect of modern society: everyone benefits if we all get along better.

There’s a lot of statistical traction behind this theory. Customers who report they are “financially healthy” are down 20 percent over the last year, which means people are looking for guidance. 73 percent of customers who visit a local bank branch report having a personal relationship with their bank, while only 53 percent say the same of their digital institution. Most importantly, although many digital banks are offering similar products and services to their real-world counterparts, customer engagement remains very low.

It starts with your products

The truth is, today’s bank customers still want that same personal relationship their great-grandparents had before they engage with deeper financial products and services. They believe it makes them more financially successful, and confirm that human connections and economic prosperity go hand-in-hand.

Products that are Challenging for Digital Markets

Residential mortgages, for example, are an $18 trillion dollar industry that deals in durations longer than most digital banking services have even existed. The perception of continuity and stability is highly valued by clients in the mortgage relationship. Today, most customers feel that only comes with a handshake and a smile from an employee who has to fit in a meeting before they pick their kids up from school.

While digital firms have proven themselves capable of offering savings and checking services, most have fallen flat on the mortgage front because of the premium on personal relationships. Loyalty is the reward for time, service, and shared experience, and financial institutions that cannot provide that package for their customers are never going to access a deeper and more meaningful portfolio of services.

Finding Well-suited Products for Digital Finance

The message for the digital finance world is as clear as it is pressing. The future of the industry will revolve around more personalized experiences, interactions, and long-term products. At the same time, the American public has embraced digital banking, and we are looking at a new generation of bank users who may never walk through a branch door in their life.

In order to compete, the digital industry will need to identify and develop a range of long-term products and services that make sense for customers in today’s environment. Mortgages may be out of the question, but the safety deposit box holds great promise for industry in-roads. Optimal services for deeper, more personal customer engagement include things like:

  • Legacy and estate planning
  • Will preparation and safeguarding
  • Preservation of cherished photos and videos
  • Important personal data storage


Because these things are product-based, they are well suited to the digital ecosystem. The cryptocurrency industry and modern online banking have solidified consumer confidence in the digital bank vault, and there is a great deal of faith in the perpetuity of electronic documents and storage.

The IRS estimates that upwards of 90 percent of Americans are E-filing their taxes and that only comes with a widespread belief that our highly sensitive information can and will be preserved and protected by digital architecture.

Secure your future

Digital banking firms that want to thrive in the upcoming decades are going to need to innovate in long-term financial planning products that bring their customers into a closer, more personal relationship with them.

The finance world will continue to change and develop, but the hopes, fears, and dreams of people trying to build and secure a better future for themselves and their children will remain the same for tomorrow’s customers as they were for their parents and grandparents.

It is up to the digital finance industry to adapt and develop to provide the customers of today—and tomorrow— with these invaluable services and securities.

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Emily Cisek is the founder and CEO of The Postage, a tech-enabled, easy-to-use estate planning tool.

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