The Attack on the Silicon Valley Business Model Continues

The attack on the Silicon Valley business model continues. Reuters finance blogger and sometimes NYT columnist Felix Salmon attempts to debunk the idea that "IPO's create jobs:"

Once upon a time, when IPOs were primarily ways for young, fast-growing companies to raise the capital they needed to continue to grow, there was a strong case to be made that they helped create jobs. Today, however, IPOs are something else entirely. If there were more IPOs, that might be a good thing, but it’s silly to believe that we’d have more jobs that way. IPOs, like leveraged buyouts, are financial tools used by financial professionals to make money. Those financial professionals surely like to think of themselves as job creators. But their real job is to make money, not jobs. And so while there are reasons to bemoan the lack of IPOs in recent years, this idea — that we’d have many more jobs right now if there had only been more IPOs — isn’t one of them.

Once again, we have a commentator who likely has never set foot inside of a Silicon Valley company pronouncing on the merits of the Silicon Valley business model. Salmon entirely misses the point.

Let me stipulate that IPO's are simply one event along the way to the establishment of a successful young company. Say what you will about the actual IPO, there can be no denying that new jobs are created by young Silicon Valley companies coming into existence and growing. In the last several decades, these companies have usually been on the cutting edge of technology and have represented the future of American business. They have been founded by small teams of "heroic" entrepreneurs and engineers and have generally been funded at some point by venture capital. Their workforces are not unionized. At some point, many have gone public.

I have participated in 3 successful IPO's over my career. None of these companies existed in 1985 (to go all the way back to the earliest days; after all, what Mr Salmon seems to forget is that it's not just about an IPO; it takes years, sometimes decades of hard work to establish a successful young company). In its most recent 10-K, the first company states: "As of December 31, 2011, we had a total of 2,554 employees." In its most recent 10-K, the second company states: "As of November 30, 2011, we employed 2,965 persons." In its recent S1, the third company states: "As of January 31, 2012, we had 727 employees." I am currently still employed at the third company and I know that we are hiring as fast as we can. These three companies, all with market capitalizations in the low billions, are just a few of the medium sized companies in Silicon Valley.

So, ignore Felix Salmon's irrelevancies. The fact is that VC-funded, IPO-driven Silicon Valley has been one of the few segments of the economy that has generated a significant number of new, well-paying jobs over the last several decades. Entrepreneurs, funded by venture capital, have created high-tech companies with non-unionized workers who participate in equity. Yes, these companies sometimes go public and generate a profit for the VC's that funded them. That's the whole idea! More importantly, they continue to grow and create additional jobs and encourage the development of even more venture-funded companies, creating even more jobs. This is the beneficial virtuous cycle that in my lifetime has transformed a sleepy farming community into Silicon Valley, one of the great economic engines in the world today.