VC flowing to startups

Venture capital is up 20 percent in the 4th quarter in Silicon Valley:

Venture capitalists invested $1.62 billion in Bay Area companies in the fourth quarter — up a strong 20 percent from the $1.35 billion the quarter before, according to the MoneyTree Survey conducted by PricewaterhouseCoopers, Venture Economics and the National Venture Capital Association.

This is obviously a good sign, by itself, for Silicon Valley folks, but what about the rest of the nation? It strikes me that investors really should be warmer toward investing in areas with lower living costs, such as the rain cloud area where I live.

The old model where industries clustered in “centers” alongside their competitors made sense when the industry had a natural geographic tie to the area because of resources (steel mills where the iron ore is, canners where the fruit is, etc) but in the knowledge industry you simply need to be where people want to live. It’s not at all clear to me that biotech will cluster, or that Silicon Valley will remain the center for chips and networks.

The upside for clustering is local talent, but the downsides are losing your trade secrets to somebody’s next door neighbor, and a little too much imitation in product design. For Intellectual Property businesses, these hazards are unacceptable risks, so you don’t see a lot of genuine research labs in the Valley.