- There is nowhere else in the world with as many successful companies by market capitalisation in one place as Silicon Valley.
- The huge concentration of entrepreneurs, technical expertise and capital generates new ideas and businesses every day.
- Investors should think about how things might change in the future and what that means for their current and future investments.
Andre, you spent several months in Silicon Valley[1] for DWS. How did you get on?
I found it absolutely fascinating. And instructive too, of course. I spoke with lots of entrepreneurs and business founders, as well as university scientists and people in the finance sector. And if I came away with one thing, it's this: the region is going to continue to produce many more disruptive inventions and technologies. They mean business!
What were the main insights you got?
First, that the economic power concentrated in this region is simply unparalleled. There's nowhere else like it on the planet. The valley itself is not that big. Around four million people live in San Francisco and the Bay Area, which is about 1.2 percent of the total population of the USA. But the market capitalisation of all the companies based in the region equates to around a third of the total S&P 500[2]. The number of billionaires is similarly high.
What’s behind the region's success, in your view?
I was particularly impressed by the incredible energy that emanates from Silicon Valley. The region has developed a unique ecosystem. You can find everything concentrated there in a densely packed area: entrepreneurs and business founders, cutting-edge research and an unbelievable amount of money available for innovation and developing new technologies. And that, of course, works like a huge magnet for the region. That's why countless brilliant minds from around the world come together there to compete for the best ideas but also to collaborate and inspire each other.
How can you tell whether a company is on the right path?
When you spend time looking around Silicon Valley, one thing that really strikes you is the different cultures companies have. When assessing which companies will succeed in the long term, this is really important. Apple's culture, for example, is completely closed. All the developers there are required to sign agreements saying they won't speak about their work, not even to each other. People work on small tasks and often don't understand the bigger picture.
At the other extreme is Google, i.e. Alphabet. The company conducts all kinds of fundamental research, involves people from all sorts of disciplines, works closely with universities and makes the results available to everyone. Google's founders no longer even bother with the search engine that generates all the money but instead focus on all the start-ups[3] they have. In a rapidly changing world, I don’t believe it’s possible to control everything yourself. That's why I think Google's model is much more promising.
So ultimately, it's innovation that counts?
You could say that. It's important for any investor to consider new developments. We have to learn to assess these ideas properly and to evaluate how they will influence our future behaviour. The answer to the question about business potential then appears almost automatically. This has definitely become more difficult in recent years, simply because the pace of development has increased so rapidly. And that's precisely why it's so important as a fund manager to get an idea of the situation on the ground. That's what we do at DWS anyway.
