California’s Last Growth Engine is Not as Strong as I Thought

The year 1972 was a big one for me. I left the US Air Force, and I married the woman I still love. Once it dawned on me that I needed income to support my wife and our future family, I started looking about for what to do.

I seriously considered working in one of Southern California’s aircraft manufacturing facilities. Good thing I didn’t, instead going into banking and later academia. Most California aircraft manufacturing jobs are gone. Lots of other jobs are gone too. In 1972, Southern California was a major manufacturing center. Beside aircraft, Southern Californians built cars, tires, ships, and lots of other things.

It was also a time of optimism and economic growth. California was still the place anything could be done. Since then, I’ve watched California lose one industry after another.

Today, California has few sources of economic growth. Our trade is increasingly threatened by an expanded Panama Canal, increased capacity in Mexico and Canada, and our own unwillingness to expand our ports and supporting infrastructure. Our entertainment industry is threatened by changing technology and increased competition from other geographies. Our education sector is threatened by funding challenges, bureaucracy, and a reluctance to adapt to a rapidly changing environment.

But, we still have one really good sector. Tech, with its venture-capital infrastructure and concentration of talent, will be a persistent source of economic strength for California. Or, so I thought before I recently met Dino Vendetti.
Vendetti is a serial entrepreneur and a veteran venture capitalist. He’s a Silicon Valley insider. He’s a threat to California’s tech future.

Startups used to require $10 million to $30 million to get going. The big investment was associated with big burn rates (rate at which losses ate up capital). They required big teams and big infrastructure. Because of this, they located in the Silicon Valley, New York, or Boston.

Not any more according to Vendetti. He talks about structural changes going on in early-stage tech entrepreneurship. According to him, the cloud, open-source development tools, low-cost bandwidth, web 2.0 as a distribution channel, modern accelerators, and scalable business models have allowed low burn rates by delaying scaling until revenues materialized.

This shift toward lean-start-up methodologies is changing the way start-ups are financed. It allows more risk taking, because smaller individual investments allow increased portfolio diversification. This is a threat to the Silicon Valley’s dominance. It is an opportunity for other California cities. If other cities don’t capitalize on the opportunity, it’s a threat to California.

All this is leading to what Vendetti calls a Democratization of Entrepreneurship. It’s reduced but not eliminated the disadvantages of a start-up located outside the traditional centers of venture-capital driven entrepreneurship. It’s made vibrant regional tech clusters feasible.

Vendetti says that anywhere with a university, risk capital, and accelerators can grow a tech cluster. I would add that you also need plenty of bandwidth and an airport with easy access to the traditional tech centers.

Vendetti is putting his money where his mouth is. He’s building what looks to me to be an entrepreneurial farm system in Bend Ore. It’s a complete venture-capital infrastructure that includes Start-up Weekends, where ideas undergo vigorous vetting for market and profit potential; mini three-week programs to follow the start-up weekends; and finally an accelerator,  (an intensive, few-months-long, process of building a business plan and firm to the point where it’s ready for initial-stage venture capital). He’s also organizing investors around a venture capital fund.

It’s not just Vendetti’s money. He has investors and partners from the Silicon Valley. This is a big deal for Californians. Entrepreneurial tech is our last economic engine. Somebody from Sacramento needs to talk to Vendetti and find out what it would take to keep him and others like him in California.

This previously appeared in the Orange County Register

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