The Good NET Guide

Women, Hispanics and blacks have always been underrepresented in the ranks of the Valley’s tech companies.  A new analysis by the Mercury News shows that from 2000 to 2008, the proportion of women tech workers in Silicon Valley dropped from 25.3% to 23.8%, and that the national numbers dropped from 30% to 27.4%.  In 2008, blacks and Hispanics constituted only 1.5% and 4.7% respectively of the Valley’s tech population — well below national tech-population averages of 7.1% and 5.3%. It seems that the problem I highlighted in my last post on the dearth of tech women is actually getting worse, particularly in Silicon Valley.  And it’s not just the women who are being left out, but also important minority groups.

Is the Valley deliberately keeping these groups out?  I don’t think so.  Silicon Valley is, without doubt, a meritocracy.  In this land, only the fittest survive.  That is exactly the way it should be.  For the Valley’s innovation system to achieve peak performance, new technologies need to constantly obsolete the old, and the world’s best techies need to keep making the Valley’s top guns compete for their jobs.  There is no room for government mandated affirmative action, and our tech companies shouldn’t have to apologize for hiring the people they need.  But at the same time, without realizing it, the Valley may be excluding a significant part of the American population that could be making it even more competitive.  False stereotypes may be getting in the way of greater innovation and prosperity.

Consider the data that I highlighted in my earlier post.  It wasn’t always like this, but girls are now matching boys in mathematical achievement.  In the U.S., 140 women enroll in higher education for every 100 men.  Women earn more than 50% of all bachelor’s and master’s degrees, and nearly 50% of all doctorates.  The companies they start are more capital-efficient, produce higher revenue, and have lower failure rates than those led by men.  Yet women are still a rare commodity in the ranks of tech CEOs and CTOs.

How do we fix the “hidden biases” and discrimination?  The experts I’ve spoken to have many great ideas.  They suggest we create role models, provide mentorship and financing, and teach entrepreneurship. Foundry group’s Brad Feld says that simple acts of encouragement from parents, teachers, and peers would make a big difference.  Cindy Padnos, of Illuminate Ventures suggested a solution that particularly resonated with me.  She says that women should follow the trail mapped by Indian entrepreneurs (no, not the American natives, but my kind: the immigrants).

Thirty years ago, there were hardly any Silicon Valley firms with Indian-born founders.  UC-Berkeley’s AnnaLee Saxenian documented that 7% of tech companies started in 1980–1998 had an Indian founder.  A survey conducted by my research team at Duke University found that this proportion had increased to 15.5% from 1995 to 2005. My team also determined that in this period, Indians started 6.7% of the nation’s tech and engineering firms.  These are pretty astonishing numbers considering that according to the U.S. census, in 2000 less than 0.7% of the U.S. population and only 6% of the Silicon Valley high-tech workforce was born in India.

I know from personal experience that Indian immigrants didn’t have it easy.  They suffered from the same types of stereotypes as women, blacks, and Hispanics.  Despite having co-founded a software company that we took from startup to $120m in revenue; profitability; and IPO in a record five years, I couldn’t get Research Triangle Park (RTP) VCs to even return my phone calls when I was ready to start my second venture.  I later found out why: “my people” were great at mathematics and made great engineers, but didn’t make great CEOs — “we” didn’t have the necessary management skills, didn’t like diluting our equity ownership by raising venture capital, and couldn’t “fit” into the rough-and-tough American business-management culture.  That’s what one RTP VC told me over lunch, to explain why his firm wasn’t inviting me to pitch my business plan.  They were very busy and had to be selective in who they met.

So how did “my people” rise above ignorance and bigotry?  When the first generation of Indians in Silicon Valley succeeded in shattering the glass ceiling, they decided to help others follow their path.  They realized that they had all surmounted the same obstacles.  And they could reduce the barriers to entry for others behind them by sharing their experiences and opening some doors.

In 1992, a number of highly successful Indian business executives formed a group called The Indus Entrepreneurs (which is now called TiE). Their mission was to give back to the community by fostering entrepreneurship.  They would hold monthly events, teach entrepreneurship, and provide mentoring and support.  And they would facilitate Indian-style matchmaking between entrepreneurs themselves and with investors and corporate partners.  They created two categories of members: a charter member, who took the role of guru, and a regular member, who would be a disciple.  The Guru had to donate time and money (minimum $1500/year) and was not allowed to gain any personal financial benefit.  When disciples achieved success, they would be expected to pass it forward by becoming charter members and helping others behind them.

One of my current research projects is to document and quantify the accomplishments of TiE. But I already know the impact TiE has made. After my lunch with the RTP VC, I cold-called TiE co-founder, Kanwal Rekhi. He told me that my experience was no different from what he and others in Silicon Valley had endured.  Rekhi advised me to look outside the region and to recruit a white male as president of my company.  TiE Charter Member Vinod Khosla advised me to contact VCs in Boston and gave me several introductions. After I followed Rehki’s and Khosla’s advice, it didn’t take long for me to get a term sheet from Greylock Partners (of Boston).  When the word of this got out, the RTP VCs came begging that I take their money.  (I didn’t take their money and after I achieved success, I became founding President of TiE-Carolinas and would usually spend five to seven hours weekly — even when I was really busy — mentoring fledgling entrepreneurs.)

Telle Whitney, President of the Anita Borg Institute for Women and Technology, says that TiE has done an amazing job and that its work is a great example of a mobilizing, formidable force in making change through networks.  But all networks are not created equal.  To achieve systemic change and have more women and minority-group members as entrepreneurs, we need to involve corporate leaders.  They need to personally be mentoring, proselytizing, and demonstrating by example a different model of investing in women and minority-group entrepreneurs.  There is nothing more powerful within an organization than having its own CTO talk about the importance of, for example, promoting women.

I agree with Telle. Neither Rekhi nor Khosla knew me from Adam, but both readily gave me invaluable advice.  That is the type of mentoring that women, blacks and Hispanics need. In addition to establishing stronger networks for these groups, we need to have the CEOs and CTOs of all of our top companies volunteer their own time to help others follow in their footsteps. They need to do this because this is the best path to diversity and this diversity will enrich their organizations. And we need to have VCs mentor the women and minorities they typically ignore. They need to do this not only for social good, but also for their own survival.

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Here are some links to women and minority networking groups which readers may find useful (If you know of others, please detail these in your comments).

Anita Borg Institute for Women and Technology

Astia

Forum for Women Entrepreneurs and Executives

National Center for Women & Information Technology

Silicon Valley Black Professionals

Silicon Valley Hispanic Professionals

Society of Hispanic Professional Engineers

Springboard Enterprises

The African Network

Women 2.0

Young Women Social Entrepreneurs

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Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.

In my last post, I discussed how the gap between the web and enterprise-computing worlds has narrowed. Some of the Valley’s developers are now building web-based systems that make old-world transaction processing seem like child’s play. After all, Twitter processes more transactions per day (in the form of messages) than the systems of many large corporations process in a month. Applications that would take years to design and develop can now be built in weeks.

I called on Silicon Valley entrepreneurs to rescue the California government—to help rebuild its legacy systems. I also went out on a limb and “bet” that an unemployment check-processing system that California State had budgeted $50 million to upgrade could be rebuilt from scratch for a tenth of the cost, in a fraction of the time.

To my surprise, Joanne Moretti, Senior Vice President of Product Marketing at software giant Computer Associates, posted comments saying I was naïve and clueless. Her demand: “don’t kick something you know absolutely squat about”. It was clear that my post had angered her. But what I think was behind these comments was the need for her to defend her aging product stream. She claimed that CICS/IMS (tele-processing monitors developed in the ’60s), “are two of the fastest transaction engines in the world, and could very well be valuable pieces of a well designed well integrated environment”. (Joanne, no hard feelings, but I don’t think that you’re going to sell any CICS/IMS systems in the Valley. And please ask your CEO, John Swainson, about my background. During his days at IBM, he licensed my technology to provide the backbone for IBM’s large-scale client–server systems-development tools).

But on the flip side, two entrepreneurs agreed to step up to the challenge. Jeff Whitehead, CEO of Real Time Matrix (who I had mentioned in my post), wrote:

We accept the challenge.

Real Time Matrix will make a $5 million bid to produce a 100% non-proprietary system to process California’s unemployment checks upon receipt of detailed specifications, and we’ll deliver the solution in less than a year.

I invite the State to reach out so we can help to free you from the strangle hold that companies like CA [Computer Associates] have been exerting. We’re here, able and willing to help.

Disclosure: Jeff worked at both of my startups. He has a reputation for delivering more than he promises. So I take his words very seriously.

Another entrepreneur who agreed to take the challenge is Scott Broomfield, CEO of Veeple, which provides cloud-based online video support. Here is part of what he wrote:

I will also rise to the challenge (along with Jeff) of delivering a solution to process CA’s unemployment checks, subject to seeing the detailed specification for $5M within one year of the sign-off of the system spec or FRD.

Note the qualifier in my acceptance of the challenge; that we could do it within 1 year of the time the FRD (Functional Requirements Doc) is signed-off. We would build it using COTS tools and databases and deliver the solution securely in the ‘Cloud.’ As some have noted in this amazing thread, often the issue with time and cost has more to do with government processes and regulations than with the technology. That said, as long as we have access to the State’s databases and as long as we can read AND write to those databases, we will do it for $5 million.

Scott is rightfully nervous about government bureaucracy. But he and his CTO, Craig Sproule, too have a solid track record of building large-scale enterprise systems. I believe they too can deliver what they promise.

To be clear, we’re talking about a system that processes payments for fewer than 1 million individuals. One reader wrote that he believes he could run the entire system from his laptop (and fit the database on a 32GB flash drive). I’m sure the system is much more complex than this. But I have little doubt that a new, stand-alone system could be developed for less than $5 million. I suspect that Jeff and Scott see this as a good alternative to raising venture capital and that that’s why they’re throwing their hat in the ring.

Does anyone else want to bid? Do I hear $4 million? ….

I also wanted to reach out to California State CIO, Teri Takai, and CTO, P.K. Agarwal. Teri/P.K.: I know you’re doing your best to modernize the legacy you inherited and that you have made great progress. How can we balance the scales so that entrepreneurs like Jeff and Scott have a chance to take on the giant state contractors who win all the bids and reap the fortunes? I think you’ll agree that we can save taxpayers many hundreds of millions of dollars and greatly improve public services if we get this one right.

Photo credit: Flickr/Matthew Smith.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.

With the year—and decade—coming to a close, the business press has been awash with stories about just how lousy the ‘00s were. As Paul Krugman details in the New York Times, it was a decade with a tiny amount of job creation, and the first decade on record where private-sector jobs shrunk. The typical family got no economic boost at all. And when the volatility rollercoaster ended there was also no appreciation in home prices and zero gains on stocks.

That pain was felt by venture capitalists as well. I’ve argued for a while now that once the gains from 1999 and 2000 fall off the ten-year index of VC returns, we’re going to be looking at an industry that has returns at or below the S&P 500. Given we’re coming out of a “decade of zero,” that’s a pretty bad thing. Especially for an asset class that is (supposed to) take huge risks in the name of potentially outsized returns.

Dow Jones VentureSource is releasing its year-end liquidity numbers for 1999 this morning and no surprise—it’s just another data point nail in the coffin.

At a high level you can put a good spin on the facts: In the fourth quarter acquisitions rebounded mightily. Public companies snapped up some 86 venture-backed companies for a total of $7.3 billion and three IPOs raised a—let’s be honest—paltry $220 million. And the median amount paid for a company in the fourth quarter was more than $100 million for the first time since 2000.

But as frequently happens in quarter-to-quarter surveys, that $100 million number was skewed greatly by a few large deals, most notably, Zappos’s $1.2 billion purchase by Amazon. Overall, for the year the median acquisition price was just $27 million.

And the overall rebound in fourth quarter liquidity is only impressive compared to the nine months prior. For the year, the industry produced just $17.1 billion in returns, 34% less than the $26.1 billion generated in 2008. And that wasn’t a particularly good year.

The surge in M&A and talk of some promising companies waiting in the wings to go public aside, this industry is in as much trouble as ever for three simple reasons. If these reasons don’t get addressed the 2010s may be worse than the ‘00s for the asset class.

1. The Math Doesn’t Work. An industry that invests roughly $20 billion a year (or even more), can’t survive on returns of roughly $20 billion a year. The basis of a portfolio investing business is that the hits have to make up for the losses—not just pay for themselves. It doesn’t matter how much you believe in innovation, how much you believe in the Valley and how much you believe in venture capital itself—the numbers are now and have for the last decade been hopelessly out of whack. Unless investors can discover an area that can produce many billion-dollar homeruns like the ecommerce, enterprise software and telecom did in decades past, there needs to be dramatically less money investing in early stage firms, period.

As we speak, many once proud venture firms are having a hard time raising their next funds, and many are turning towards less-desirable limited partners out of necessity. A host of funds were supposed to close in 2009 and haven’t yet. Watch the news in 2010 closely: If firms are taking money from state pension funds, raise an eyebrow. Back in the early 2000s state funds came under pressure from Freedom of Information Act requests to divulge information about underlying portfolio investments and privacy-conscious VCs turned their backs on those pension funds as a result. Anyone going back to them now was likely told no by nearly everyone else. Of course, those firms will still be in business. But not all firms will once their current funds are depleted, and ultimately, that’s a good thing for the industry.

2. M&As Alone Will Not Sustain VCs. While it’s true that the bulk of exits VCs get are from acquisitions, this is not where the bulk of returns come from. The economics of venture capital are based on homeruns. That’s why some 5% of the industry makes some 95% of the money. And those big hits come from IPOs or in some cases the threat of an IPO that makes a publicly-held competitor pay a huge premium for a startup. This is why M&A values surged so high in the late 1990s. Companies like Cisco had to shell out hundreds of millions or even billions to buy a company because it was so easy for them to go public. That’s not the case today and when you only have a handful of companies out buying, even a Google or Cisco shopping spree can only net so much in returns.

3. The Perilous Ripple Effect. There is a way that venture capital can adjust to a new normal of smaller exits with smaller multiples: Taking less risk and selling early. That means a switch of focus from building companies to building products. This is how much of the world outside Silicon Valley invests now. The benefit is it requires less capital and less risk. If you build something of value, there’s a likelihood you can get $5 million or even $20 million for it. But that’s the cap of what you’re going to get without a business to back that product up. But that’s OK economically, because you have fewer failures since you’re taking less risk.

Indeed in 2009, Dow Jones found that companies raised a median of just $18 million in venture capital before getting acquired. That’s 18% less than in 2008. And the companies sold faster. It took a median of five years to get an exit, versus six years in 2008.

A lot of entrepreneurs and angel investors argue there’s nothing wrong with this. With far less capital needed to start a company these days, what’s wrong with a smaller exit? You’re still making money, right? Not every idea has to be a $1 billion one to be worth starting.

That’s true for a bootstrapped or angel-funded startup, but not for venture backed deals and the Valley at large. That kind of thinking will eventually destroy an ecosystem that is built on a foundation of homeruns paying for all mistakes. Put another way, the reason we are so famously free to fail in the Valley is that a big homerun can economically make up for those failures. That is what has set Silicon Valley apart for decades. If that changes, the output of the Valley will change too.

And don’t forget: The companies providing these modest exits are the homeruns from previous decades. Without the past big hits of Google, Microsoft, Yahoo and Cisco, who’d be paying $20 million for your Web 2.0 app today? Consider that Facebook—a company that was ridiculed by the press and analysts for not selling for $1 billion or less back in 2006 —has already bid $500 million for Twitter and acquired FriendFeed. Good thing for the Valley Facebook didn’t listen to critics.

You don’t have to look too far to see what a world where VCs only build-to-flip would look like. It’s largely happened already in lifesciences. The industry that gave birth to Genentech, Amgen and a lot of promise for returns, job creation and cures, has now turned into big pharma’s outsourced R&D lab.

I’m not blaming investors. Because of the high costs of clinical trials, biotech companies used to go public to fund clinical trials. But in the post-2000, SarbOx chill it became all-but impossible for pre-clinical trial, pre-revenue companies to go public. That meant the work had to get financed another way, and that other way was licensing deals with big pharma. Unfortunately, that means a lot of the value from those breakthroughs goes to big pharma, all but ensuring the next Genentech or Amgen may never be created.

But tech doesn’t have those costly restrictions. Do we really want to embrace and celebrate an M&A only world of returns anyway?

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I’m tired. Very tired. It’s a little after 4am San Francisco time – noon GMT – and I’m sitting in the arrivals lounge Heathrow airport, thanking the lord for Boingo hotspots and trying to commit these few hundred words to cyberspace before the daylight finally penetrates my brain and my whole body goes into jet-lag meltdown.

And to think I was so organised 24 hours ago. My column was written – 1000 words on a big subject of the week; a big subject that I now can’t talk about, for reasons I also can’t talk about. Don’t ask.

Still, I’m a professional and there’s no use crying over spilt milk – I’ve spent five pounds on a coffee, opened a fresh Google Document and am all set to write am alternative column on  how happy I am to be back in London, and how excited I am for the opportunity to catch up with all the amazing and inspiring start-ups my erstwhile home has to offer.

But therein lies the problem. While I’m certainly happy to be here – it’s my 30th birthday tomorrow, and there is a party planned – the truth is, I’m just not all that excited about London’s current crop of dot com hopefuls.

When I moved to San Francisco at the start of the year, I promised myself I’d head back to the old country twice a year – mainly to keep my cynicism topped up and to make sure I didn’t lose the accent that your American women find so endearing. But also for a third, more serious reason: I don’t want to forget my roots. The London technology scene is where I cut my columnising teeth, and it’s Brit entrepreneurs that first inspired me to try – and fail – my hand at building a start-up. Whereas Valley entrepreneurs point to Facebook and Google as their inspirations, mine came in the form of Moo, Last.fm and Bebo. Smaller fish perhaps, but each with a uniquely British vibe that somehow made them more fun; more human. Also – say what you like about San Francisco as a technology hub, but the London scene’s parties shit all over the rest of the world.

But recently something has changed. I noticed it when I last visited back in June and, in what turned out to be my penultimate column for the Guardian, I  called time of death on London’s start-up scene. Everyone was running out of money, I said, people were getting laid off in their droves, and all the real action is – as ever – in San Francisco. Two days later, Guardian Tech’s freelance budget ran out of money, my column was laid off and I was hired by TechCrunch in San Francisco. QED.

And since then London has only become less relevant as a home for dynamic exciting start-ups. Take ‘Silicon Roundabout’. Last year, Dopplr co-founder Matt Biddulph noticed that a number of high profile start-ups – including Moo, Last.fm, and of course Dopplr – were all based within walking distance of the old street roundabout in East London. He jokingly suggested that the region be renamed ‘Silicon Roundabout’. Today the Old Street roundabout remains but Dopplr – and Biddulph – have left for Berlin, Last.fm is owned by CBS in New York and Moo has just opened a US base of operations in Providence, Rhode Island. A similar story is true right across the Capital, with Bebo laying off almost all of its local staff and countless other London 2.0 poster children looking to the US for money or a new base of operations. The idea that a company can thrive – or even survive – in London alone seems entirely implausible; ridiculous even.  Off the top of my head I can’t think of a single exciting web business that has come out of the UK in the past six months. Spotify is the nearest candidate and that was created by Swedes.

Moreover, in the few short months since my last trip back home I’ve gone utterly native in my attitude towards my homeland. I see plenty of my Brit friends when they visit San Francisco, but rather than asking for news from the old country, I’m more likely to ask them when they’re going to come to their senses and move to the Valley. I still visit TechCrunch Europe several times a week – Mike Butcher always does a solid job at covering what’s going on over here – but even there I’ve noticed a curious change in my attitude to what I read. Where once I read TCEU through the eyes of a local – noting new companies and inwardly congratulating the latest Belgian company to secure funding – I now look at European technology news in the way American news channels cover foreign stories about escaped bears. Not to learn anything useful, but rather to amuse myself on how parochial foreigners can be. Oh, bless, the French have launched their own rival to Facebook. Ho ho ho.

Things have got so bad that I’ve even started to mentally turn on my friends who are still toiling away near Old Street. A couple of days ago, one such friend – who I won’t name, sufficed to say he’s CEO of a hot London start-up – emailed me an amazing screed in response to a post by one of my TC colleagues hyping a Valley-based rival. The thrust of my friend’s complaint was that his company has been virtually ignored by TechCrunch.com even though TechCrunch Europe had hailed it as one of the continent’s rising stars. This disparity he blamed on the fact that TechCrunch (US) is only interested in local companies, created by people who happen to be friends of our writers. Six months ago, I’d have agreed with him – I mean, there really no need for ten thousand Pandora stories for every Last.fm post, or four hundred Foursquare plugs for every mention of Rummble. But on reading my friend’s email this week, my first response wasn’t sympathy, but apathy. Mate – I thought – that’s just the way it is. TechCrunch is based in San Francisco and so are most of the companies TechCrunch covers. Those are the rules of the game. If you don’t like it, stop whining and get on a fucking plane.

But the fact is, my friend is right; and I’m wrong. There are hundreds of amazing technology companies outside of the Valley, many of which haven’t taken a penny of American money and are making money hand over fist without a single San Francisco-based user. Just read a couple of Lacy’s recent dispatches from India of China; or week’s worth of TechCrunch Europe posts and you’ll see that’s true. The problem – my problem – is that living in the Valley has it easy to forget, or care, about them. The skin of the bubble is just too thick and the voices from Europe (and beyond) just too faint and distant.

And so I’ve taken my own advice and got on a fucking plane. In the three weeks I’m in town, I’m planning to meet as many UK-based start-ups as possible, to keep half an eye on what comes out of LeWeb next week, to catch up with friends who are still doing cool things near Silicon Roundabout, to re-avail myself of the kick-ass social scene here – and above all to remind myself that the old country is still home to plenty of new thinking. And then at the end of the month, I’ll return to the bubble – re-energised with cynicism and hopefully slightly less convinced that Foursquare represents the most important thing in the future of the world. I mean, everyone here knows that’s Spotify.

But all that will have to wait until next week. I’ve got a birthday to have first – and right now I just need to get some sleep.

Hello London. And goodnight.

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No one disputes that Silicon Valley is the global capital of the tech world. But this wasn’t always so. It is the Valley’s dynamism and networks which have given it an unassailable advantage. Silicon Valley has simply left rivals like Boston’s Route 128 in the dust.

I mentioned a little bit about my first Columbus Day in California in a previous column. But I didn’t tell you the whole story. I was invited to three amazing events on the night of October 12. Venture capital firm Alsop-Louie—known as one of the wackier and unconventional VC firms—invited me to their legendary Columbus Day party. On that same evening I had an invite from Henry Chesbrough, Executive Director of the Center for Open Innovation at the University of California-Berkeley to attend a dinner party for his forum. Down in Silicon Valley I also had an invite to speak at an event with India’s former Minister of Disinvestment, Arun Shorie—the guy who was once in charge of privatizing the country’s moribund nationalized firms and who is as close as you can get to financial royalty in India.

It was a really hard decision which one to pick. And I found myself wondering, where else in the world would I have to face such a decision? The answer is nowhere. Silicon Valley, which has expanded to embrace the entire Bay Area as an engine of entrepreneurship and innovation, is a unique place of powerful and concurrent overlapping networks. As a new arrival to Silicon Valley and San Francisco, I had read about this and did believe it. But it was hard to understand to what degree these types of concentric circles of connections were pervasive in the Valley. I am now studying how some of these networks develop and their influence on success rates in entrepreneurship.

I am focusing on what is possibly the largest of these networks, an organization called The Indus Entrepreneurs (TiE). This started as an Indian network and served as a mechanism for those from the Subcontinent to help each other. Silicon Valley is the birthplace of TiE and remains its stronghold. But at the latest TiE Global Conference, held in Silicon Valley a few weeks ago, an interesting debate broke out among the Board of Directors. While the organization remained largely Indian in composition, a significant number of non-Indians had joined TiE and become very active members (some had risen to the role of chapter president). Some members of the board thought it was time to change the name of TiE from The Indus Entrepreneurs to The International Entrepreneurs. They eventually agreed to drop the “Indus” from the name and to just call the organization TiE. The fact that such a debate even took place illustrates both the power of networks to embrace outsiders and draw them in, as well as the power of these networks, when unconstrained by convention or conservative establishment rules, to grow in unexpected ways. It’s a metaphor for Silicon Valley.

Which brings me to Boston. Ever heard of Route 128? To my surprise, neither have any of my students at Duke or the entrepreneurs I’ve met in Silicon Valley. I’m surprised because it wasn’t so long ago that Silicon Valley was considered a poor cousin of Boston’s tech center—a cluster of technology companies located along this freeway which partially rings the city. Starting in the 1960s and on through the 1980s, Route 128 was, if anything, more closely associated with tech than Silicon Valley. Today few young technology workers even know where Route 128 is located, let alone its importance in the tech world. Silicon Valley has simply left Boston’s tech center behind.

In the 1980’s the Silicon Valley and Route 128 looked very similar—a mix of large and small tech firms, world class universities, venture capital, and military funding. If you were betting on one you’d have been wise to bet on Route 128 because of its longer industrial history and proximity to a large number of high quality educational institutions (Harvard, Yale, Brown, MIT, Tufts, Amherst) and proximity to Bell Labs and other large corporate research centers. You remember Bell Labs, right? It’s where the transistor was invented. Now, aside from big biotech breakthroughs, Boston is a distant second nationally to Silicon Valley in technology entrepreneurship. So, what happened to Boston?

A young professor at UC-Berkeley, AnnaLee Saxenian, wrote a book in 1994 which answers this question. At a time when Boston still thought it was the powerhouse of the tech industry, Saxenian declared Boston the loser in the tech race and explained why it would only fall further behind. This book was titled Regional Advantage: Culture and Competition in Silicon Valley and Route 128. It kicked off a firestorm of criticism from the Boston elite. Saxenian also alienated friends at her alma mater, MIT.

She noted that Silicon Valley had an amazing dynamism about it. There were extensive professional networks, job hopping was the norm, information was exchanged openly, and the culture encouraged risk taking. The Silicon Valley ecosystem supported entrepreneurial experimentation and collective learning. In other words, Silicon Valley was a very open network—a giant social networking site working in analog before the concept of such a thing even existed.

This organizational mechanism was in sharp contrast to that of Route 128. Dominated by large, vertically integrated, and secretive minicomputer producers such as DEC, Wang, Prime, and Data General. Technology, skill, and know-how were trapped within the boundaries of the large corporations.

The differences were evident at many levels: venture capitalists in Silicon Valley had deep roots in local networks and were far more nimble than their east coast counterparts; educational institutions and research labs in the West partnered with local startups as well as more established firms, while those in the East worked only with the largest corporations; and the meritocratic openness of Silicon Valley made it a magnet for non-traditional talent and immigrants.

By the mid-1990s the east had missed the shift from minicomputers to personal computers as the flexible Silicon Valley ecosystem sped ahead with innovation across a diversifying range of components and systems going from chips, routers, and application software to ecommerce and search engines. Today Silicon Valley is the leading location for cleantech venture activity, an area widely considered to be the next big value creation engine for the U.S. and the world.

Boston, however, is no slouch. The Route 128 community remains the second biggest in the U.S. in terms of venture funds committed. Boston has powerful research institutions, still, and lots of very strong companies. In some areas, such as biotech, Boston may even rival Silicon Valley. But overall, its pretty clear that the Valley has not only won but is racing further ahead.

Most entrepreneurs and engineers that come to Silicon Valley, come to experience this network and to embrace the culture it has created. That’s why I came, too. Network effects don’t just work for fax machines. But then again, most of them knew that intrinsically. University guys like me need to do a bunch of surveys to figure it out. They voted with their hearts and feet.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.

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At first blush, it seems like Song Li is one of those stereotypical Chinese Web entrepreneurs. The kind who rips off successful US sites and hopes operating in the world’s largest consumer Internet market will magically create a successful company. After all, he made a good bit of money investing in ChinaHR—a job board site that sold to Monster.com for more than $200 million over two deals –  and right now he operates Digu.com, a Twitter-clone, and Zhenai.com an online dating site that could be the Chinese Match.com.

But if you dig a little deeper into that dating site, you start to understand how differently Li thinks, and how that thinking reflects an aspect of Chinese consumer Web sites that Westerners frequently miss. Where Chinese Web entrepreneurs shine is in taking an existing business idea – ripping it off, if you like – but then completely rethinking and reinventing that idea’s business model and process. This not only makes the companies more profitable faster, it’s a big reason why home-grown Chinese versions continually beat US companies trying to expand into China.

To a Valley entrepreneur taking someone else’s idea, improving on it and taking all the credit may seem unfair or even unethical. But Google didn’t come up with the search engine and Facebook didn’t come up with a social network. What mattered was execution. Put another way: Sure the Chinese can learn a thing or two about original Web ideas from the Valley, but the Web 2.0 generation can learn a lot about monetization from China.

So what does a Chinese Match.com look like? In Li’s own words, it’s very “practical.” China has a long history of matchmaking so just going online, finding someone you like and messaging them isn’t going to appeal to a lot of the population. The ones who are comfortable with doing that will just use social networks. For those who aren’t, there are already an established off-line alternative in some 200,000 very local, fragmented companies that specialize in matchmaking, charging anywhere between 2,000 and 60,000 RMB per six months—depending on the service. Even in comparatively cheap China, they’ve got pretty high customer acquisition costs thanks to all that brick and mortar and heavy placement of classified ads to keep bringing in new singles.

That’s where the Web should come in, but it’s a bit trickier than that. Here’s the rub in China: The entire consumer Internet—along with “old world” industries like consumer packaged goods and entertainment—are all growing and developing at in parallel. In the US, you could argue social networks are the Web 2.0 answer to the Web 1.0 online dating sites. But how do you build a profitable online dating company in a world where a million MySpace and Facebook rip-offs already exist?

Li has struck an interesting middle ground: A Web site that’s free to join and free to search, with revenues provided by a 350-person strong call center of real-life matchmakers. Once you find someone on the site you like you place a call to a matchmaker to be set up on a date. Using the service costs 3,000 RMB (roughly $430 in dollars) for a six-month subscription—about the low-end of a traditional matchmaking service – and at least one person going on the date has to be a paid subscriber. The matchmaker determines whether both people want to go on the dates, or suggests an alternative date from amongst the site’s 22 million registered members (growing by 40,000 per day). The matchmaker then sets up the date, and then follows up afterwards.

The matchmaker isn’t your friend—she is doing a job. If you suggest someone out of your league, they might, ahem, guide your expectations. “We just want you to be realistic,” Li says. And in the event of a rejection, Li’s team asks a detailed questionnaire to determine exactly why one party didn’t want a second date. And then they call the other party to explain – in precise detail – where they went wrong. “At least you know why and there are certain things you can fix next time,” he says. It may sound brutal but it gives the service clear value. Zhenai.com is profitable, generating about $2 million in revenues per month, growing at double-digit rates month-over-month.

It may also sound like labor-powered, innovation-free China, but it’s not. Li has built a specific CRM system from scratch to walk matchmakers through the matching process and he’s hired a psychologist to help train them on what questions to ask, and what to say to the lovelorn. Li himself has a PHD in finance from Cornell, where he also studied evolutionary biology and molecular genetics.

And then there’s the statistics. Not even Max Levchin—the PayPal and Slide founder who has graphed everything down to his past girlfriends’ bra sizes over time— could match Li’s love for charts and stats. All those brutally honest conversations about why dates succeeded or failed have turned into a trove of statistical data that matchmakers turn into pre-date advice.

A random example? 60% of women with long, straight hair get second dates—even when the data is normalized for Chinese women being more likely to have long, straight hair. The worst group? Short curly hair, which has only a 5% second-date percentage. (Note to self: Good thing I’m married.) “We’re not telling them what to do, we’re just giving them information,” Li says matter-of-factly. Men also like black pantyhose and shiny color-less nail polish. (Li blushes a bit when he tells me about the pantyhose.)

Li has also found that men are universally attracted to women with a .7 hip-to-waist ratio—something he believes is genetically hard-coded as a reproductive trait. “I can’t do anything if a woman is fat, but I can tell her to dress so it shows off her waist,” he says dispassionately. It works both ways, by the way. Women prefer dates wear a suit and because women are predisposed to look for “good providers” Li says he can track for every extra 1,000 RMB you make a month, statistically what percentage more attractive you will be to an average woman. “It’s a math fact,” he says. “I can build you a model.”

It bears noting that Li is not some fratty chauvinist pig. He’s a brainy, bespectacled former derivatives trading executive on Wall Street and Hong Kong, and, yes, he is married. He just likes to break things down into numbers and trends in an obsessive attempt to quantify the seemingly qualitative behavioral patterns of it all. And that makes him the exact opposite of any US consumer site trying to blindly “localize” a site for the Chinese market by just changing the language.

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This morning Jason Calacanis made a quip that Ron Conway is such a prolific angel investor that all presenting companies at TC50 were getting $50,000 just for walking on the same stage with him. Conway made a face, so Paul Carr and I grabbed him back stage and asked his thoughts on frequently being called a “Spray and Pray” investor. As evidence that he doesn’t invest in everything, Conway also names the one that got away.

Conway says that things are getting easier for start-ups in the Valley and that most start-ups he knows aren’t having problems getting money. In fact, he says he’s facing some stiff competition to get in deals. That’s good news for entrepreneurs.

(Note Jason Hirschhorn pacing behind us. Apparently Conway was about to slip him a list of his companies MySpace should buy…)

Video is on the jump.

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Here at TechCrunch there’s a daily argument in the office, on Yammer and even on the blog about the supremacy of the iPhone versus the Google-Voice-goodness of Android phones. I chalked it up to the usual get-off-my-lawn-style ranting of Michael Arrington, and assumed the average techie was still like MG Siegler, a total Mac-head who will love the iPhone no matter how bad the reception, how bad the battery life and how many times it breaks and he has to get a new one.

But some reporters– long harassed by Mac fan boys when they’ve dared to criticize the company (read: do their jobs) — are saying a sea change is occurring in Apple fan boy nation. Witness Jon Fortt of Fortune’s recent blog post where he says the Valley owes Microsoft an apology and compares Apple to Napoleon the pig in Animal Farm. He writes:

“I’m sorry, Microsoft. On behalf of Silicon Valley, I’m sorry.

We cursed you, mocked you, labeled you the Evil Empire. Your crime: trying to control the technology world. Sure, we had reason to be upset. During the dawning of the PC era, the Windows operating system made you the most powerful company in tech, and it went to your head.

Your detractors say you intimidated PC makers, crushed Netscape, and tried to turn the web into an extension of the Windows platform. As it turns out, local darling Apple (AAPL) probably would have done the same thing.

Just look at how Apple is behaving today with a fraction of the power you had.”

Now, look at the comments. You have to scroll pretty far down to get the usual how-dare-you-criticize-our-iPhone-lord-and-savior comments. Most of the comments disagreeing with Fortt are pretty well-reasoned arguments that raise good points.

Of course, it’s likely that Fortune moderates its blog comments, so maybe we’re not seeing the whole debate. But on the Sunday morning tech show that both Fortt and I appear on, he argued that indeed the fan boys just weren’t out in the same way they’ve been in the past. Host Scott McGrew argued he too had witnessed a fan boy sea change. [Video below]

I remain dubious, as much as I’d love to believe that sub-human behavior like the anti-Semitic attacks and death threats that Barrons writer Eric Savitz had to endure in March 2008 would never happen again. Savitz had the gall to report Wall Street was worried that iPod and iPhone sales might sag. It was hardly controversial considering the stock was down 35% for the year at the time he wrote it.

So, fan boys: Here’s your chance to agree with me for once. Is Jobs nation still alive and well? For the record, I hope I’m wrong. My husband and I own half a dozen iPods, a Mac desktop and four Mac laptops. We’re clearly fans of Mr. Jobs work. But placing a company above scrutiny is bad for business, bad for the Valley and bad for tech.

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I’m not sure exactly what MOBshop (the company name is Cross-Platform Corp. but will likely change) co-founder Cyriac Roeding is up to, but he’s convinced some very serious people to invest time and money into his idea. And he has put together a killer core founding team.

The company has raised $2.5 million in an initial round of financing from Kleiner Perkins Caufield & Byers and entrepreneur/angel investor Reid Hoffman. Hoffman also joined the board of directors of the company, and Kleiner actually added two board members: Matt Murphy and Aileen Lee. It’s rare for a fund to spend two partners’ time on a single investment. And Hoffman has said he rarely invests in startups any longer, let alone taking the time to sit on the board. Clearly, they think there is something under the hood at the secretive MOBshop.

But just what that something is, we don’t know. Roeding, a German-born entrepreneur and former EVP of CBS Mobile, most recently did a stint as an entrepreneur-in-residence at Kleiner. He will only say that the company will hit the intersection of mobile and physical worlds. That doesn’t really narrow things down much, but Roeding says that it’s still way too early to start talking about the product. They don’t even have a website up yet. Hoffman described the project to me as ” extraordinarily interesting” but wouldn’t go into any further detail at all. He’s not generally one to gush, so I assume he’s genuinely impressed.

Roeding has also put together a strong core team. His co-founder is Jeff Sellinger took over CBS Mobile after Roeding left to join Kleiner. He has also pulled senior people from Loopt (Evan Tana) and Six Apart (Aaron Emigh) to complete the team

One thing the company is being very vocal about is hiring. “Right now we’re looking for a small group of the Valley’s best and brightest developers for the iPhone, other smartphones, and backend systems,” Roeding says. Email resumes to makecontact@mobshop.net.

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