Social networks play a crucial role in development and growth of start-ups. The thesis will cover the linkage between social institutions and start-ups and the interaction between them. Comparison of how social networks facilitate start-ups in the UK and Silicon Valley will be provided.
To be filled in by the student
Non Confidential
Title:The role of social networks in business development of
start-ups: Comparing UK vs. Silicon ValleyProgram: MIB 7A - London
(2010 - 2012)Academic Year: 2010-2012Dissertation / Project /
Internship Report: International Management Project
2011-2012Student Name: Valiyev NailSchool Tutor / Evaluator Name:
Blass WalterStudent ID: 102167
Summary: Social networks play a crucial role in development and
growth of start-ups. The thesis will cover the linkage between
social institutions and start-ups and the interaction between them.
Comparison of how social networks facilitate start-ups in the UK
and Silicon Valley will be provided. Keywords: (cf. Thesaurus du
Management): AMERICA - UNITED STATES OF AMERICACORPORATE FINANCE -
VENTURE CAPITALEUROPE - UNITED KINGDOMCOMPANY -
ENTREPRENEURSHIP
AbstractThis research has been conducted to illustrate the
different approaches to social networks that are prevalent in the
United Kingdom and in the Silicon Valley. It has been known that
Silicon Valley is one of the best locations for start-up companies.
The research in context has tried to identify the reasons for this.
The unstable economic conditions and the stiff competition make it
almost impossible for entrepreneurs to start new successful
ventures. Social networks provide the relevant solutions to these
problems. From getting the capital required, to headhunting
employees, to legal assistance and ultimately market development-
social networks provide the single answer to all of these. Thus,
effective utilization of the social networks can be the single
difference between success and failure of a start-up. This research
has been conducted as a survey, where participants have been
identified across various start-up companies (both in the UK and
Silicon Valley). The survey has been the easiest tool for the
researcher as sufficient data could be collected within a short
period of time. The researcher has also conducted interviews with
the participants which account for the qualitative data of the
research. The data collected for the research illustrates that the
social networks allows start-ups to look for venture capitalists
and also provides it a platform to look for legal assistance along
with headhunting facilities. The social networks are used much
rigorously in the Silicon Valley as compared to the UK. This forms
a major reason behind the success of the companies in the Silicon
Valley region. The research concludes with the typical
recommendation that the entrepreneurs in the United Kingdom need to
shed their inhibitions and be proactive in the use of social
networks for the launch and development of their businesses. Social
networks are capable of resolving several issues that are faced by
the start-ups. The entrepreneurs need to highlight each and every
issue that is faced by their business and look for social
networking tools that will allow them to communicate with the
required resources in order to eliminate the threats or challenges
and thereby ensuring growth and sustainability.
AcknowledgementI would sincerely like to thank Grenoble Ecole de
Management for providing me the opportunity to conduct the research
on Impact of Social Networks on Start-Up Businesses as my FMP. The
research in the concerned topic has been beneficial for me in
understanding the social networking concept with respect to the
United Kingdom and the Silicon Valley. I would also like to thank
my supervisor, Walter Blass, for providing me with apt guidance and
thus helping me in completing the research. This research would not
have been possible without his supervision and guidance. In a few
words I would describe him as a wonderful person and excellent
supervisor who helped me to understand the topic.I would also like
to thank the various entrepreneurs and organizations that have
participated in the research. The primary data that forms the life
of this research has been possible only because of the co-operation
of the research participants. Due to anonymity requests, I would
not be naming all of the participants but I thank them all. Lastly
I would like to express my gratitude towards my family and my
friends for their constant moral support. I thank my parents,
Tanriverdi Valiyev and Irada Amirova, who contributed and helped me
not only in this period of my life but supported and guided me my
whole life. Also I thank my sister, Naiba Valiyeva, who is a
wonderful person and the best sister. Finally I thank the love of
my life, Shenay Huseynova, who is the most beautiful person and my
soulmate, motivating me every day to pursue my goals and achieve
the best in my life. Thank you all!
Yours Sincerely,_________________Nail Valiyev
Table of ContentsAbstract1Acknowledgement3List of Tables7List of
Figures8Chapter 1: Introduction91.0 Introduction91.1 Purpose of the
Study101.2 Aim of the research101.3 Objectives of the Study101.4
Rationale of the Research111.5 Research Problem111.6 Research
Questions111.7 Structure of the Research121.8 Research Ethics131.9
Start-Up Companies: A Brief Introduction14Chapter 2: Literature
review172.1 Introduction172.2 Silicon Valleys innovative
networks172.3 UK networks212.4 Comparison of UK and Silicon
Valley242.5 Social Networks302.5.1 Social Network Usage
Statistics352.6 Summary38Chapter 3: Methodology393.1
Introduction393.2 Research Objectives393.3 Research process393.4
Research Philosophy403.4.1 Justification of the Research
philosophy413.5 Research Approach413.5.1 Justification of the
choice of deductive approach for the research in question413.6
Research strategy423.6.1 Justification of the Research
Strategy433.7 Research choice433.7.1 Justification of the choice of
Research433.8 Time Horizon443.8.1 Justification of the chosen Time
Horizon443.9 Data collection methods443.9.1 Primary Data443.9.2
Secondary data453.9.3 Research Population463.9.4 Sampling
techniques463.10 Data analysis method463.11 Generalisability473.12
Validity and Reliability473.13 Summary48Chapter 4: Data Collection
and Analysis494.1 Introduction494.2 Qualitative Data494.3
Quantitative Data604.4 Summary72Chapter 5: Conclusion745.1
Introduction745.2 Discussions745.3 Linking with the
objectives755.3.1 Importance of social networking in
entrepreneurial business development755.3.2 Importance of social
networking: UK vs. Silicon Valley765.3.3 Impact of social
networking in start up business785.4 Limitations of the research
process795.5 Conclusion80References81Appendix86
List of TablesTable 1: Answers for Question 1 above61Table 2:
Results of the survey Question 262Table 3: The data collected for
the Question 3 above63Table 4: Data for the Question 4 above65Table
5: The data for the question number 5 above66Table 6: The Data
collected for survey Question 667Table 7: Data for the Question 7
of the survey68Table 8: Data for the Question 8 of the
Survey70Table 9: Data for the Question 9 of the Survey71
List of FiguresFigure 1: Venture Capital Investments29Figure 2:
Economic Functions of Social Agents in Silicon Valley Source:
Ferrary, 2009, p-24532Figure 3: Lean Finance Model Source37Figure
4: US VC Deal flow Source38Figure 5: Research process42Figure 6:
Source of Capital/ Funding in the UK market50Figure 7: Personal
Initiatives vs. Social Networking51Figure 8: Distribution of
Sources in the Social Network Domain (US)51Figure 9: Social
Networks in Business Funding (UK)52Figure 10: distribution of the
sources (Silicon Valley)53Figure 11: Impact of Various Social
Networks on the Start-Ups (UK)54Figure 12: Impact of Various Social
Networks on the Start-Ups (Silicon Valley)55Figure 13: Comparison
of UK & Silicon Valley56Figure 14 Incubators and Accelerators
in Start-Ups57Figure 15: The various roles of the Financers in the
United Kingdom58Figure 16: Age of Entrepreneurs60Figure 17:
Graphical representation of Table 161Figure 18: Graphical
Representation of Table 262Figure 19: Graphical representation of
Table 364Figure 20: Graphical Representation of Table 465Figure 21:
Graphical Representation of Table 566Figure 22: Graphical
Representation of Table 668Figure 23: Graphical Representation of
Table 769Figure 24: Graphical Representation of Table 870Figure 25:
Graphical Representation of Table 972
Chapter 1: Introduction1.0 IntroductionStart-up companies around
the world face a common problem; that of generating the capital
required for the start-up. Social networking through various means
not only helps companies in generating the required start-up
capital, but also helps in headhunting and in projecting the
start-up to the target market. Social networking can be in various
forms like peer groups, research and financial institutes, social
networking sites, etc. This research will illustrate how the
start-up companies are affected by the social networks (Acs 1990,
p. 234). This research has been carried out as a comparative study
where the start-up companies of the Silicon Valley have been
compared against the start-up companies in the United Kingdom. It
has been noticed that in the United Kingdom there is lack of social
networking skills among the entrepreneurs and this has led to
failure of several entrepreneurial ventures in the United Kingdom.
Social networks have proved to be beneficial not only in
establishing a start-up, it has also been influential in the market
development of the start-up companies (Altinay 2005, p. 243).Social
networks not only allow companies to reach out to a wide range of
consumers but also help them to identify potential customers for
their products and services.The regional ecosystems of the United
Kingdom and Silicon Valley are to be considered in comparing the
role of social networks in the business development of start-ups in
these regions. The literature reviewed in this paper illustrates
how the regional ecosystem in the Silicon Valley is much more
effective than that in the United Kingdom. A close network of
Venture Capitalist firms, Universities, Business Angels and other
financial institutions in the Silicon Valley ensures that the
start-up firms in the Silicon Valley have much more probability of
succeeding and even the statistics reveal that Silicon Valley
start-ups are the most successful in the world. This chapter
presents the aims, objectives, and the research questions. The
chapter justifies the research in context and provides the value
addition that this research will have. It introduces the readers to
the central theme of the research and thereby ensures that the
readers are aware about the tone of the entire research paper. This
chapter also lays down the structure of the research so that the
readers are aware about what to expect in each of the later
chapters. In this research the researcher has not only illustrated
the impacts of social networks on start-up businesses but also
provides a comparative study of the use of social networks by
entrepreneurs in the United Kingdom as compared to that in the
Silicon Valley (Brush et al 2005, p. 98).1.1 Purpose of the
StudyThe failure rate of start-up companies is roughly around 90%
(Startup Genome 2012, p. 4). Such high failure rates can be quite
disheartening for the entrepreneurs. Silicon Valley has the best
success rate in the start-up businesses. This research will look
into the social networking skills and techniques that are adopted
at each of the regions. Social networking not only helps in
securing venture capital for the business, it also helps in
resolving issues, targeting the right audience, improving customer
relations and thus improving the growth of the company. This paper
looks into various aspects of social networking and illustrates how
social networking helps to make the start-up companies successful
in the current competitive environment. The social network
consisting of the financial institutes, universities, venture
capitalists, business incubators and accelerators have a major role
in the formation and development of a start-up company. The role of
the regional ecosystem in the business development of the start-ups
has been studied in this research1.2 Aim of the researchThe
research aims at establishing the importance of social networking
in entrepreneurship and in doing so the researcher would conduct a
comparative study of the reach of social network in United Kingdom
and in the United States. Social networks has different reach
across cultural and geographical boundaries and thus the research
would conduct a study of the impact of social networks on the
population of US and UK in understanding the different role of
social network in promoting and developing a startup business in
different countries (Wichura 2006).1.3 Objectives of the StudyThe
research in context has the following objectives To study the
importance of social networks To study the nature of start-ups in
the Silicon Valley and in the United Kingdom To study the impact of
social networks in generating venture capital for the
entrepreneurial ideas To illustrate the various roles of social
networks in the business environment To illustrate the role of
social networks in business development in UK and the Silicon
Valley1.4 Rationale of the ResearchFor an entrepreneur effective
networking and communication is required to ensure the success of
the venture. Starting form arrangement of the capital to
headhunting employees, to projecting the products and services to
the target market, at each stage the entrepreneurs need to network.
The internet boom has made networking much more effective and cost
effective. This research identifies all such measures that are
adopted by the start-up businesses to ensure growth and success in
the market. The paper compares the UK start-ups with the Silicon
Valley start-ups (the most successful start-ups) to illustrate the
areas where the UK start-ups lack. This research thus provides
recommendations for the UK start-ups to improve their success rates
(Manolova and Edelman 2004, p. 45). The regional ecosystem
consisting of the network of Venture capitalist firms, financial
institutions, Universities, Business incubators and accelerators
have a major role in the formation and growth of the start-ups. The
stronger the network the better is the chances for the start-ups.
This research compares the ecosystems of the United Kingdom and
Silicon Valley to establish the role of the regional ecosystem in
ensuring success of the start-ups. 1.5 Research ProblemStart-Up
Businesses are dependent on several institutions which are external
to the business environment. These form the ecosystem of the region
and the business success relies heavily on the effectiveness of the
regional ecosystem. The degree of dependence on the regional
ecosystem has been researched. This research would go on to
establish a comparative study of the regional ecosystem in Silicon
Valley and the United Kingdom. It has been known that start-up
businesses in the United Kingdom are not nearly as successful as
that in the Silicon Valley. This research explores the role of the
regional ecosystem in the start-ups in both the regions (E.
Castilla et al. 2000).1.6 Research QuestionsThe research question
has been fragmented into a number of smaller questions that will
help define the research question in detail. The question that is
central to the research is how dosocial networks help in developing
a startup business? This question is best explained by answering
other sub questions which are given below- What is the impact of
the social networks across United Kingdom and Silicon Valley? What
are the roles of social networking in a start-up business? What are
the competitive advantages of effective social networking? How is
social networking effective for reaching out to effective markets
and for effective market development?
1.7 Structure of the Research
The structure of the research helps the reader to understand the
different steps of the research. The research paper will be
presented in a dissertation report format with five chapters. The
structure of the dissertation report is as follows-
Chapter one Introduction- This chapter being the first chapter
gives a brief overview of the research. The introduction chapter is
important as it describes the overall aims and objectives of the
research. It also consists of the research problem, research
questions and the rationale for the chosen topic which further
helps the reader to have a clear understanding of the research.
Chapter two literature reviews- The second chapter of the
research paper consist of the study and illustration of the earlier
researches and articles about the topic of the research. The
literature review of this research paper would illustrate the
impact of social networks and their effects on entrepreneurial
businesses from earlier research papers and articles.
Chapter Three methodology- Chapter three of the research paper
deals with the methodology used in the research. The methodology
portion illustrates the different methods used during the research
process like the research design, the sample of the research,
research philosophy, research techniques etc. The basis of the
frame work of the research is formed in this chapter which
facilitates the researcher to carry on the research in a smooth and
planned way.
Chapter four data collection and analysis- this is the most
important chapter of the research as in this chapter primary data
will be collected by the researcher using survey methods and the
collected data will be analyzed using statistical tools. The graphs
and charts used in analyzing the data help the readers to have a
clear understanding of the research findings.
Chapter 5 Recommendations and conclusion- this is the final
chapter in the research paper where different research
recommendations are provided by the researcher. The final chapter
also suggests the scope for future research on the research topic.
The final chapter of this research paper will have recommendations
for future research on social networks and its effect on
entrepreneurial business. In the final chapter the researcher has
provided the comparative study and thus recommending about
strategies that need to be adopted by the UK start-ups.
1.8 Research EthicsThe research has been done taking into
consideration research ethics and the data collected has been
presented as it is without being manipulated. During the data
collection method the population had been informed about the
research process and they had been given assurance that the data is
being collected only for academic purpose and would not be used for
any other purpose. The respondents have not been forced to provide
their opinion and their identities have been kept anonymous upon
being requested.
1.9 Start-Up Companies: A Brief IntroductionStartup Genome
described startups as temporary organizations that are designed to
evolve into large companies. There are 6 stages of development for
startups according to Startup Genome - Discovery, Validation,
Efficiency, Scale, Profit Maximization and Renewal. It is usual for
early stage startups to look for market/product fit under uncertain
conditions.
This graph shows 4 stages of development of startups. 1. During
Discovery stage startups are paying attention on if their idea is
solving a problem and whether customers would be interested in the
solution. What happens in this stage founders team is created,
startups join business incubator or accelerator, families and
friends finance the business, products or services prototypes are
being created. Discovery stage usually takes 5 to 7 months.2. In
Validation stage startups usually get early validation that people
are interested in their product through the exchange of money or
attentionThe features of validation stage seed funding, initial
paying customers, user growth, essential hires, first key hires,
changes in strategy and initial idea if necessary. Validation stage
usually takes 3 to 5 months 3. During Efficiency stage startups
improve business model and the efficiency of their customer
acquisition process. The features of efficiency stage customer
acquisition process refined as well as value proposition,
conversion funnel optimized, more professional team is organized
and more funds attracted. Efficiency stage usually takes 5 to 6
months4. And finally during scale stage startups step accelerate
their growth and trying to push their products/services very
aggressively in the market.The main features participating in A
round, massive user growth, initial executive hires, turning into
fully-functioning, professional organization (Startup Genome
2012)According to Startup Genome (2012, p. 4), 90% of startups
fail. 10% of startups who happen to survive meet the risks of
failure along the way. There are several reasons why startups
create billions of dollars of wealth even though many of them fail:
1. Market demand for delivery of incremental increases in value. 2.
The inability of big firms to quickly react to changing demand.
Steven M. Cohen (co-manager of Morgan Lewis) mention about the
various types of risks and in order to be successful, evaluating
them. Some of the risks for startups are market size, technology
development, tough competition, low funding, market penetration.If
startups change a major part of the business it is pivoting.
Pivoting is exchanging current advantages for a different set of
advantages.Many startups in order to succeed pivot at least once.
Most successful startups pivot at least once.Big firms usually
pivot their internal startups (Bennet, 2003).One of the crucial
reasons why startups fail is premature scaling. Many startups tend
to make their business inconsistently. It includes too much capital
at the initial stage and large teams. (Startup Genome, 2012)Startup
Genome made an investigation and it shows that 93% of startups who
develop inconsistently (or prematurely) never break $100k revenue
per month. And those startups scaling consistently grow around 20
times faster than the ones scaling inconsistently (prematurely).
According to Startup Genome (2012), premature scaling is the major
reason of failure.Due to new technologies like cloud hosting,
advanced payment options, open source software, nowadays it takes
less time and money to create a startup company. Paul Graham (2005)
mentions when he started his startup in 1995, he had to pay $5k for
Netscape Commerce Server (software that supported secure http
connections), $3k for a server and $30k to PR Company for promotion
of a firm. Now it is worth nothing. P. Graham (2005) says You can
get the software for free; people throw away computers more
powerful than our first server; and if you make something good you
can generate ten times as much traffic by word of mouth online than
our first PR firm got through the print media. Creation of startups
who went global like Facebook, Mashable, Google, Dropbox, LinkedIn
and Airbnb will cause structural change in the economy in near
future.
P. Graham (2005) mentions in his essays that some think they can
start something like Y combinator to improve start-up ecosystem in
their towns. However it doesnt help much and have no effect. He
says I know because Y Combinator itself had near zero effect on
Boston when we were based there half the year. The people we funded
came from all over the country (indeed, the world) and afterward
they went wherever they could get more fundingwhich generally meant
Silicon Valley
Chapter 2: Literature review2.1 IntroductionIn the literature
review chapter the researcher would conduct a detailed study of the
different articles and literatures available on the research topic.
The researcher would use articles and journals from different
internet sites and would also use the university library for
articles and research materials on social networks and its impact
on entrepreneurial business. 2.2 Silicon Valleys innovative
networksTechnology start-up ecosystems were dominated by Silicon
Valley and some other networks (such as Route 128) for the last 50
years. And quite recently new ecosystems started to originate
globally.Kauffman foundation reports on average between 1977 and
2005, existing firms are net job destroyers, losing around 1
million jobs p.a. However new companies add an average of 3 m. jobs
in the 1st year. Kauffman foundation also points out When it comes
to U.S. job growth, start-up companies arent everything; theyre the
only thing. It is now accepted existing companies both create and
destroy jobs. And basically start-ups are the main reason of net
job growth in America (Hite and Hesterly, 2001, p. 56).Because
start-ups that develop organically are almost solely the drivers of
job growth, job-creation policies aimed at luring larger,
established employers will inevitably fail Tim Kane (Kauffman
Foundation senior fellow in research and policy) mentions in the
study.What is specific about Silicon Valley is its free-spiritual
culture. Venture capitalists, angels and investors do not
underestimate you, as you might be the next entrepreneurial success
project. The environment of Silicon Valley tolerates failure, what
cant be said about Britain (Castilla, 2003) David Weekly, founder
of PB works says if you have real catastrophes on your resume,
thats considered a badge of honour. He also says, SV is the best
and easiest location to launch a start-up (Startup Genome,
2012).Silicon Valley has a robust and interconnected ecosystem with
the best combination and concentration of VCs, highest density of
technical start-ups and skilled engineers, a world-renown
University, lots of VC-backed innovative firms, and a culture of
collaboration to build and create world-changing businesses and
technologies (Castilla et al., 2000).Andreas Klinger, founder of
Lookk comparing European and American culture of start-ups says
Europeans being less risky is mainly due to the market that favours
this behaviour. . Europe is fragmented into countries with their
own markets, cultural behaviours, media and language. This slows
things down to the extent that start-ups have to treat countries
with populations of only 8 million with their own market entry
strategies (Parker and Belghitar, 2006). This fundamental
difference in the system creates market dynamics that favour
behaviour that seeks to limit downsides (e.g. skipping
product/market search aka cloning) And in this situation London
might be a perfect hub for international tech start-ups. London
comprises dozens of industries: finance, media, advertising,
fashion. This creates strong social networks for start-ups where
they could interact with other actors. In perspective new UK
innovative ecosystem for start-ups might be created with strong
financial institutions, world-renowned Universities, various
industries, strong and quality customers and established
businesses.SV start-ups have brought millions of jobs into the
market and established thousands of multibillion businesses over
the last 30 years. Yet there is a lot of market potential for tech
start-ups in Silicon Valley. From the experience of previous
successes and failures in the past which comprises thousands of
start-ups launched in SV, start-up community accumulates knowledge.
Thus, Start-ups are aware what worked and didnt work. Start-up
Genome report (2012) says The ecosystem that has evolved here is so
advanced and unique that over the last 30 years it has been the
single most influential driver of innovation globally. It is fair
to say that the Valley is the "holy land" of technology
entrepreneurship.What is unique about Silicon Valley is its
community. It is very collaborative, supportive and close. Kevin
Ready is a serial entrepreneur reports about his personal
experience in SV and how the community is involved in business and
technology My conversations with start-ups in California almost
always emphasize the fact that you are constantly meeting tech and
investor people in everyday life in Silicon Valley. He gives an
example of his friend who met Vice-President of Cisco at his
daughters soccer game and set up a deal as a result. Further he
says myself have made tech deals literally on the street in San
Francisco. (Kevin Ready, 2012)One of the important connections
between the University and networks of Silicon Valley is its
research centres which provides a forum for start-ups and Silicon
Valley community where they can have a closer contact. The
beneficial side about the programs and centres is its being
decentralised and informal. This environment brings better
collaboration and friendlier atmosphere. Moreover the centres
provide tools by which researchers could commercialize their ideas.
E. Castilla (2000, p. 233) reports the centres create social
networks that ramify into every corner of the regions high-tech
industry. Silicon Valley has extensive labour mobility, which
creates rapidly shifting and permeable firm and institutional
boundaries. Moreover it creates an opportunity to connect
professional and technical people in a dense network (Castilla,
2000).Silicon Valleys experience is unique in the world and it is
impressive the process of emergence of new companies from small
semiconductor conductor in 1957 that gave birth to new
multinationals. Newman (2003) and Barabasi (2005) reported in their
papers about Complex Network Theory (Ferrary and Granovetter,
2009). Complex network theory (CNT) explicates technological,
biological, sociological phenomenon that does not result from
simple interactions between a reduced number of agents in a linear
relation but results from multiple interactions between numerous
and diverse agents characterized by the non-linearity of their
interactions(Ferrary and Granovetter, 2009, p. 158). CNT can help
to understand the relations within social networks of a specific
region and the complexity of agents involved. According to CNT, the
quality of interactions between agents determines the success of
each agent and, finally, the achievement of the entire system.
(Patra and Dodd, 2002, p. 56)In SV specifically, the complexity is
due to the numerous decentralized interactions between a large
diversity of economic agents. Further, these economic agents foster
multiplex ties by holding different social roles (student, citizen,
neighbour, member of associations, employee etc.) and the economic
interactions that generate innovations are embedded in the
non-economic interactions. Agents interact on different social
levels and this influences the economic level. For example, two
agents linked by friendship (social tie) can become business
partners to create a new company (economic tie). This has been the
case for companies such as HP, Apple, Google etc. CNT emphasizes
the robustness (or resilience) of systems rather than their
stability to explain how a system can and cannot cope with external
radical changes and competitive chocks (Dodds, Watts &Sabel,
2003; Newman, 2003; Jen, 2006 cited in Ferrary and Granovetter
2009, pp. 333-335). SV is characterised by high clustering density
in which ethnic ties, university ties, friendship ties, past
professional ties and current professional ties are intertwined to
sustain innovation and entrepreneurship (Saxenian, 1994 cited in E.
Castilla 2000, p-234). If we describe Silicon Valley, it is a
robust network of innovation. It comprises heterogeneous and
multiplex agents that interact at various levels. These agents
include: universities, big firms and laboratories, law and VC
firms, consulting and recruitment agencies and others that
contribute to the creation and development of innovative start-ups
at different levels. These heterogeneous and multiplex agents are
also interdependent. The absence of a node would weaken the
efficiency of others and thus would weaken the robustness of the
entire ecosystem. However some of nodes add more contribution to
the efficiency of the ecosystem than others. VCs are the main actor
of robust innovative network of Silicon Valley (E. Castilla,
2000).Many economies tried to copy Silicon Valley model and
implement it in their countries to increase an entrepreneurial
activity, to create new start-ups, to attract existing businesses
into that region. But as Michael Porter is saying nothing fails
like copying your competitor.Political, financial, investment and
other institutions of SV are not only connected to IT, high-tech
and software start-ups, but also interact with each other, since
institutions interact in a distinct institutional context. This is
one of the major reasons why countless attempts to copy SV in
various contexts are not rewarding. Sociologists in their research
investigate how various institutional arenas mesh with each other,
rather than paying attention on economic, financial, technical or
other aspects of a situation. (E. Castilla, 2000)Saxenian (1994),
Florida and Kenney (1987), Nohria (1992) and other scientists
mentioned in their works a vital role of Venture capitalists in
Silicon Valley. They are not only a financial source for start-ups,
but a channel in developing the regions social and professional
networks. SVs networks of VCs depend on inflows of venture
capitalists, tech businessmen, mobile labour force and supporting
services from other regions. Saxenian (1990 and 1994), Nohria
(1992) and others mention the development of SV is due to its
historical timeline and the unique structure of its social
networks. (E. Castilla, 2003). Jen (2003) differed stability and
robustness in the research. Stability is described as an ecosystems
capability to survive a crisis by reorganizing itself. Silicon
Valleys timeline consists of several stages:1. Silicon Valley was
initially constructed on semiconductor industry in 1950s. Companies
established included AMD, Intel, National Semiconductor and others.
(Castilla, 2000)2. The industry had strong competition from Japan
and Taiwan in 1980s. Silicon Valley would be called a stable
ecosystem, if it maintained the leader of a semiconductor industry
and kept on operating the same way. Silicon Valley redesigned its
value chain and focused on the design of semiconductors and
outsourced everything else to Asian countries. SV ecosystem
attracted and created new industries, mainly in software and
personal computers. The companies originated are Apple, Oracle, and
Sun Microsystems 3. And in 1990s the internet industry is created
in the region. The companies evolved are Ebay, Yahoo, Google, etc.
(Witt, 2004)Silicon Valley showed the robustness for several
reasons it got engaged into new industry being supported by
previous industries and radically redesigning its value chain and
outsourcing. Various scientists point out an important role and
exceptional position of VCs among other nodes in SVs innovative
networks. VCs are not only a source of finance for entrepreneurs,
but also play a vital role in creating the ecosystems social and
professional networks (Saxenian 1994; Florida and Kenney 1987:
Nohria 1992). Both Britain and SV have concentrations of skilled
labour, technology, businessmen and other social institutions, but
in contradistinction to Britain, Silicon Valleys entrepreneurial
efforts and VC capability are more embedded in densely connected
networks (Saxenian, 1990, p. 265). 2.3 UK networksBritain is the
biggest online economy per capita. Boston Consulting Group mentions
in the report that the digital economy is thriving in Britain and
UK spends the most online per capita in the world. However it didnt
create world-renowned firms serving internet customers. UK has got
skills, world-renown Universities, research centres, big financial
institutions, various industries. It all creates an opportunity for
creation and development innovative start-ups. However there are
several problems, Britain is struggling about and trying to improve
(Katz, 1990).1. Absence of a market as huge and homogeneous as SV
tech firms enjoy.2. Shortage of funding for start-ups and
entrepreneurs.3. Lack of start-ups comprising tech expertise,
business awareness and attitude to risk (Economist).The major
shortcoming of VCs and business angels in Britain is its attitude
to risk. In contrast to Silicon Valley, VCs and angels are very
risk averse. This point was confirmed by several entrepreneurs who
I took an interview with in London. One of them is CEO and a
founder of Huddlebuy a successful start-up offering deals for
entrepreneurs and start-ups. I also participated in a networking
event for entrepreneurs and startups. I met Sean Phelan, founder of
Multimap. Back then in 1990s, Multimap was quite successful and the
revenues were going up. However, the company lacked innovativeness
and were afraid of competitors. His story was that he didnt
continue his business but sold it to a multinational. The business
was acquired by Microsoft for around 24million (Mark Sweney and
Jemima Kiss, 2007). In contrast, we could remember the case with
Facebook, when an internet-giant Yahoo wanted to acquire Facebook
and Mark Zuckerberg refused the offer over a billion USD. Again
here we see the attitude to risk within different cultures.
Moreover, Sean Phelan started his business as he graduated from
University and advised the same for other participants who wanted
to start their businesses. In contrast, the most successful
entrepreneurs of America dropped out from colleges (Mark
Zuckerberg, Bill Gates, Steve Jobs). Sean Phelan is now a business
angel and mentor and considering his past, a risk-averse one.George
Osborne (Chancellor of the Exchequer) mentioned in his speech that
the UK is not going to be a rival to Silicon Valley, but aim to
work with companies to increase innovativeness of the region. G.
Osborne said Tech City has grown from 200 firms to 700 in about 18
months. An area which includes Shoreditch and Old Street in London
is often called Tech City or Silicon Roundabout. The area now
includes offices funded by Google (Google Campus, Tech Hub, Seed
Camp and others), Intel, Cisco, Vodafone, Airbnb and others headed
by Tim Berners-Lee, inventor of WWW. The Chancellor concluded It
shows that we can create the right environment to attract start-ups
and established high-technology businesses". The government is
trying its best to create the entrepreneurial and start-up
environment of the country. However Britain is open for start-ups
and attracts many businesses in different industries. (Matt Warman,
2012)There are three main ways for networking in the campus.
Entrepreneurscan collaborate with other such incubators Techhub,
SeedCamp, SpringBoard and Central Working. Alternatively they can
register for free on the website or have an access for basement caf
and networking space to meet other entrepreneurs or organize
meetings with investors and other start-ups. And finally they can
pay an annual or monthly membership for access to a desk (Emma
Barnett, 2012).I have seen what made Silicon Valley great and it
all stems from density of network, EzeVidra, head of campus said.He
adds what start-ups really need is easy access to talent,
investors, advice and partners. And Silicon Roundabout in East
London is just perfect for start-ups as it has more of everything
in one place.Silicon Roundabout attracted around 600 firms and it
is a blueprint for attracting more companies, investments,
technology and innovation. There are also business incubators and
accelerators functioning in the UK and the amount of them are
increasing. The researcher has work experience in one of them which
is Innovation Warehouse. Its business model is quite close to
Google Campus which is providing an office space plus additional
services (mentors, funding and tech meet-ups) for start-ups. The
company was launched slightly more than a year ago and there are
almost no free desks and every week entrepreneurial, investment,
financial and other events are happening which encourage
entrepreneurs to come to the incubator. Prime Minister David
Cameron said his government created the environment to give
incentives (introduction of entrepreneurial visa, tax breaks,
intellectual property protection) for British and overseas
entrepreneurs to come to the UK and establish their businesses.
There is a 5-year program led by Cisco the National Virtual
Incubator (NVI). This is the network which is going to connect
research centres, Universities and science parks over JANET
network. Initial founding partners are Greenwich Council (London),
Ravensbourne and Birmingham Science Park Aston. New actors will be
cooperating in future with videoconferencing facilities by 2016. D.
Cameron said that this kind of projects highlight the focus of the
government on high-tech innovation as a part of economic
development of the country. NVI is going to develop innovative
ecosystem of Britain and create an environment where ideas and
start-ups could be created and developed. (Matt Warman, 2011)P.
Moehring who is an associate at Seedcamp (an early stage mentoring
and investment program for start-ups) says that all parts of value
chain are world class in London. If we look at the process of
creating and developing a start-up, UK and specifically London is
contributing a lot in order for start-ups to pass all the stages.
UK has exquisite universities and research centres which are
innovation engine, serial entrepreneurs and business angels as
mentors, a financing ecosystem from early to late stage, tech
start-ups and various industries, and one of the leading media
multinationals.Large tech firms are creating start-ups. It is
mostly happening because employees leave the company or the company
inspire other firms to start their own businesses. UK often created
big ideas but not able to turn them into large commercial projects.
Britain has got thousands of digital and tech firms, but
unfortunately only few of them might get multinational or global.
There are several reasons why it is happening:1. Small size of the
local market2. The closest market is Europe which has language,
local legislation and other barriers. 3. Entrepreneurs do not have
big ambition for global markets.4. Shortage of venture capital and
support network coming with it.5. Investors are risk averse,
avoiding disruptive technology and start-ups, instead preferring
proven business models. This kills the ambition of potential
entrepreneurs and they complain about investors avoiding risky
ventures. This point was proven by several interviews during my
conversation with various entrepreneurs.(Dave Simonds, 2011;
Richard Titus, 2011)According to Startup Intelligence Cambridge
(2011), reporting that Cambridge enterprises rub by Cambridge
University is one of few funds that help start-ups funding. In
total there is a lack of funding institutions in the UK in order
for them to grow and develop. 2.4 Comparison of UK and Silicon
ValleyAccording to Start-up Genome (2012), tech start-ups are no
longer gathering around SV but spread to Europe and other parts of
the world. It creates more opportunities for entrepreneurs to
create start-ups and seek for funding. Although SV remains the
dominant market and number one attraction for start-ups, some other
places offer different advantages and various demographics. In
London established start-ups of the scaling stage can raise 30%
more money than in the Silicon Valley.Surely, the social networks
of Silicon are more developed and its start-up ecosystem is the
leading in the world. However the difference is getting smaller
every year. For instance, the ecosystem in SV is 4-5 times bigger
than in London, not even talking about other ecosystems. I already
mentioned UK entrepreneurs lack ambition to conquer other markets.
This is caused by specific conditions involving local social
networks and specifically funding institutions (such as business
angels and VCs). London entrepreneurs are 13% less likely to
compete in new markets and 120% less likely to estimate their
market size bigger than $10 billion than Silicon Valley
entrepreneurs (Startup Genome, 2012). Moreover entrepreneurs in
Silicon Valley are more likely to use disruptive technologies and
SV have 30% more entrepreneurs who want to change the world than
London. London start-ups founders are more educated than the ones
in SV. Most of them have Master degrees whereas SV entrepreneurs
are limited to Bachelors. However it doesnt change anything for
entrepreneurs and probably over studying doesnt bring benefits to
start-ups. This point can be proven by various start-up founders
who started their projects earlier while studying undergraduate. In
terms of funding and raising money, London start-ups raise 30% more
money in the creation stage (scaling) than in Silicon Valley.
However, SV entrepreneurs get 2-3 times more money in the
development stage including Discovery, Validation and Efficiency
stages (Morrison, 2004).In a few words, the major features of
Silicon Valley ecosystem are: large throughput, strong funding
networks, networks of mentors and advisors, high risks, the most
advanced and innovative ecosystem. The main features for London
ecosystem are: strong education, project management and e-commerce
focus, lower risks, high investment back for proven business
models, entrepreneurs lack of big ambitions.Pivoting is a very
important part for the start-ups to succeed. If a start-up does not
pivot at least once in the lifetime of a firm, there is a high
probability it will fail. SV start-ups pivot more 33% more often
than London start-ups. What start-ups really lack in Britain is
thought leaders and mentors. There are some influential people, but
we would struggle to name leaders like Paul Graham, Steve Blank or
founders of any successful firm (Larry Page, Mark Zuckerberg etc.)
who are active participants of innovative ecosystem of Silicon
Valley. Here is a list, in ranked order by average throughput, of
what weve found to be the 25 most active start-up ecosystems around
the world. Below you will find a list of the most advanced and
active start-up ecosystems in the world. Social networks among each
ecosystem work better, have denser connections and more innovative.
The list is in ranked order 1. Silicon Valley (San Francisco, Palo
Alto, San Jose, Oakland)2. New York City3. London4. Toronto5. Tel
Aviv6. Los Angeles7. Singapore8. Sao Paulo9. Bangalore10. Moscow11.
Paris12. Santiago13. Seattle14. Madrid15. Chicago16. Vancouver17.
Berlin18. Boston19. Austin20. Mumbai21. Sydney22. Melbourne23.
Warsaw24. Washington D.C.25. Montreal (Startup Genome, 2012)What is
crucial in creating start-up atmosphere is the attitude towards
start-ups and entrepreneurs. In the UK as in most places the
attitude is people treat you as if are unemployed. And in Silicon
Valley people aren't impressed with you straight away only because
you are an entrepreneur and founded a start-up, but they take that
into consideration. Investors, angels, VCs and others are not
sceptical about disruptive start-ups and inexperienced
entrepreneurs at first. They know and they have seen many
inexperienced entrepreneurs with inefficient and unpromising ideas
who became billionaires some time later. P. Graham (2011) mentioned
in his essays why start-ups are successful in Silicon Valley the
antidote is people. It's not the physical infrastructure of Silicon
Valley that makes it work, or the weather, or anything like that.
To make a start-up hub, you need a lot of people interested in
start-ups (Cohen and Fields, 2008, p. 124).The bigger the
community, the greater the chance it will contain the person who
has that one thing you need most. Y combinator helps entrepreneurs
to network and do it on purpose. However the frequency of useful
chance meetings is high and it is a significant matter for
start-ups. The ecosystem of Silicon Valley is so involved into
various networks and the social networks are so dense that the
cases of helpful chance meetings actually contributed to the
success of many firms and many contracts were signed on that
behalf. To accelerate the entrepreneurial and networking process in
SV is a major function of YC. Paul Graham (2011) says about YC
We're a sort of Valley within the Valley, where the density of
people working on start-ups and their willingness to help one
another are both artificially amplified. Both components of social
connections (on purpose and by chance meetings) are driven by the
number of start-ups and entrepreneurs. The start-up community is
very involved into start-up environment in Silicon Valley and
people interested and coming to this region from other parts of the
world is high and increasing (Coleman, 1988). And in order to
create a start-up hub, you both need the quality and quantity of
start-ups. In Silicon Valley both the quality and quantity of
start-ups and networks create the existing environment of the
ecosystem. The business community involvement, the quantity and
quantity of the connected nodes creates an opportunity that you
will have a greater chance you will find a person or people that
you the most.The interactions of VC firms with other nodes (big
firms, universities, research centres) determine a dynamic of
innovation in the region. Silicon Valley is a unique place in this
perspective as its robust and complex ecosystem of innovation is
supported by social networks of interdependent economic agents. VCs
have an accelerator, funding, networking function in this robust
and innovative networks. Many scientific works highlighted that
innovation-based competitiveness comes out not from a single node,
but from a complex interaction where various geographically
localized agents are involved (Powel, et al., 2001). And the UK is
a completely different case. We cant see interdependence and
cross-institutional ties of social networks, which is basically a
reason of failure to emerge start-ups on global scale. Yes, London
is a financial hub of the world, but there is a lack of venture
capital and business angel investments, and therefore there are
almost no start-ups in the UK which can be developed to the level
of a multinational firm. England has financial, technological,
educational, commercial, government incentives and potential to
emerge new start-ups which might become global. But there is a lack
of institutional context between them for start-ups to integrate
into social networks. One of the major institutions and at the same
time underestimated is venture capital firms and their roles in
social networks of start-ups (Granovetter, 2004; Dave Simonds,
2011; Richard Titus, 2011). Lets consider some statistical data.
National Venture Capital Association showed that from 1995 to 2005,
almost $111bn was invested in SV by venture capitalist and thats is
32 % of VC investments made in the US, not even talking about
Europe. So we can see a huge gap in financing start-ups in SV and
basically England, 32 times more invested in Silicon Valley. This
is one of the essential social institutions UK entrepreneurs lack.
(See figure 1)According to Ferrary and Granovetter (2009) Silicon
Valley has a network of: 10 Universities, 87311 public relations
companies 18 big firms with over 100 employees 47 investment banks
329 recruitment companies More than 180 VC companies 3152 legal
companies specializing in company legal and law areas related to
company activity Around forty private or public research centres
1913 chartered accounting firms nearly 700 merchant banks Around
100 newspapers devoted to the high-tech atmosphere of Silicon
ValleyAll these nodes interact with each other during the life
cycle of various start-ups. And all these institutions are
perfectly connected and meshed with each other and each of this
institution contributes to an emergence of the next Google. We
probably can name all these institutions in England; but it is hard
to say whether these institutions function in cross-institutional
context and as a fully-efficient system (Castilla 2000, 2003;
Ferrary and Granovetter 2009).
Figure 1: Venture Capital InvestmentsSource: National Venture
Capital Association and European Capital Association cited in
Ferrary and Granovetter 2009, p. 330
In the UK, investors are afraid of the risks and concerned about
investing in nascent start-ups, which require much money. In
Silicon Valley, investors take it as a part of the game. Lise
Buyer(work at Class V group who is consulting on IPO) says In
Silicon Valley, we are as a species wildly optimistic. But if we
werent, we wouldnt have so many entrepreneurs because no one whos
being rationale would ever found a company. Scott Sweet, senior
managing partner at SV advisory firm highlightsNo matter what you
call it a bubble, a boom or business as usual in a land of optimism
something has been in the air. It may be harebrained or hopelessly
out of touch, but if you dont have a rosy outlook, you dont belong
here(Claire Miller, 2011)This is how SV entrepreneurs and investors
feel about business environment. Comparing to the UK, Britain has
often produced great ideas but failed to turn them into big
commercial ventures. That is in part down to a lack of serious
commercial ambition. Promising businesses, many of them British,
tend to be bought by American outfits that can offer patient
capital, an industry network and access to a big market (Dave
Simonds, 2011). Americas appetite for riskier ventures reflects
past glories as much as native boldness. Successful entrepreneurs
are themselves a source of money, as are pension funds hoping for a
jackpot-winning stake in the next Google.What is happening in the
high-tech sector is the costs are getting so low and companies can
bootstrap or get seed and angel investments and be comfortable with
that for a considerable amount of time before approaching VC funds.
This approach is beneficial for entrepreneurs as they can trade
their equity in a better bargaining.2.5 Social NetworksA social
network is a social structure made up of a set of nodes and the
dyadic ties between these nodes. A social network is useful in the
social sciences to study relationships between individuals, groups,
organizations, or even entire societies. Generally speaking, social
networks are self-organizing, emergent, and complex, such that a
globally coherent pattern appears from the local interaction of the
elements that make up the system. When the number of social
networks is increasing and more diverse networks are appearing,
this creates a positive environment for start-ups (Bennet 2003;
Castilla et al. 2000). Lets say, one start-up applied for a
business accelerator program. It didnt pass even the first stage,
but there are 5-10 or even 100s of accelerator programs where he
could apply and most probably one of them will accept the start-up
into its program. The same might happen with Venture capital firms
or at tech and entrepreneurial meet ups, start-ups founders might
get to know business angels, VC firms representatives and other
investors (Ellison, 2004, p. 148).As start-ups costs are falling,
it has caused a tremendous increase in the number of emerging
firms. And new start-up ecosystems are arising globally to
contribute to the success of start-ups and boost local economy. In
the past when many start-up firms were located in close proximity
to VCs in Silicon Valley, New York and Boston because as Paul
Graham(2011) notedwhen starting a start-up was expensive, you had
to get the permission of investors to do it. What happens now is
start-ups are being started everywhere. At the moment the most
developed ecosystems are - Silicon Valley, London and New York.
While working as an intern at Innovation Warehouse (a business
incubator with characteristics of business accelerator) I met an
entrepreneur from San Francisco, who studied at Yale University and
moved to London to start a business here. He chose London because
of his graduate peers from London School of Economics and the
relevant networks in London. Facebook e.g. was founded in
Massachusetts but moved to Silicon Valley and now located in Menlo
Park, CA. Some questions arise for entrepreneurs: Where to start a
business? What are the benefits and shortcomings of different
start-up ecosystems? How do different social networks function in
different locations? The economic impact of start-ups is increasing
dramatically. New start-up ecosystems are being created globally.
They hope to replicate the success of Silicon Valley in order to
boost regional economy. Sandbox, Singularity University, Seedcamp
(functioning in Europe), Tech Stars and Y combinator are leading
institutions for helping, creating and developing start-up
ecosystems. Social networks work as distinct governance mechanism,
in other words as social glue that connect companies and social
nodes together into a consistent system. Social networks enable to
do this by contributing actors to mobilize capital, find pertinent
and reliable information fast, and link to appropriate outlets. And
considering this decentralized system, close social networks and
labour markets stimulate start-ups and cause the mobilization of
resources.Y combinator is the most powerful and successful business
accelerator in the world. More and more investors and innovative
entrepreneurs are attracted to its location in Mountain View. Y
combinators portfolio includes start-ups such as: Dropbox, reddit,
Scribd, Justin.tv, Airbnb, posterous etc. Many other business
accelerators are now copying or trying to compete with Y combinator
business model. And now the process of funding for entrepreneurs
participating in YC (Y combinator) is even getting easier. Start
Fund (Yuri Milner) and SV Angel are offering 150k to every start-up
in convertible debt. It means that entrepreneurs will not just
receive 15-20k from Y combinator funds, but can also rely on
further investments a few months later. (Michael Arrington,
2011)Castilla et al. (2000) describes social networks as a set of
nodes or actors (persons or organisations) linked by social
relationships or ties of a specified type. The complexity and
density of the networks define the potential to success for
start-ups. There are many concepts to describe the process.
Different definitions like industrial district (Marshall, 1890;
Piore and Sabel, 1984;Becattini, 2002), cluster by M. Porter and
networks of innovation by Saxenian (1994) have been used to
describe geographically localized innovative environments.
Figure 2: Economic Functions of Social Agents in Silicon Valley
Source: Ferrary and Granovetter, 2009, p. 338It is shown in figure
2 the functions of social agents and how social networks interact
and influence on start-ups. The quality and innovation of product
or services is not enough for an entrepreneur to succeed. Another
important side is the embeddedness in complex social networks.
Thus, the more connections an entrepreneur has, the better access
he has to financial and human resources, to prospective clients,
partners, co-founders and experts (Ferrary and Granovetter, 2009).
Those entrepreneurs who have a close proximity to industry
incumbents will benefit from the necessary connections (Brush and
Edelman, 2008, p. 235). Start-ups need access to various resources
from the very beginning. Social networks support an access to the
resources. (Sorenson and Audia 2000; Castilla 2000, 2003; Klepper
2001; Stuart and Sorenson 2003).Social networks play a huge role in
business development of start-ups, no matter where the country is
located. However social networks should be seen through
institutional context and cross-institutional ties. And many
countries cant see that. They just create centralised techno parks
which have poor cross-institutional ties and, and basically work as
research centres by not attracting entrepreneurs. Aldrich et al.
(1989) have noted the denser, or more inter-related, a network, the
faster information and other resources can move through
it.Start-ups need more than just money. Additional prerequisites
are identified networking and coaching. Collinson and Gregson
(2003) mention access to external sources of knowledge through
networks subsidizes the transaction costs that make the learning
curve much steeper Basically there are 4 main types of support
networks that contribute to the launch and development of
start-ups.1. Entrepreneurs need access to financial network to
found and develop their businesses (Roberts 1991, p. 214).
Different types of financial networking are needed along the
life-cycle of the start-up. On the first stages entrepreneurs
funding might be limited to friends and family (Roberts 1991, p.
215) and some public sources (Utterback et al., 1998, p. 256). When
the firm passes the first phase and going into the development
stage access to institutional financers (what includes VCs and
angels) is required(Steier and Greenwood, 2000, p. 165). 2. The 2nd
type of networks start-ups needed is access to human resources
(Hansen et al., 2001, p.126). It is a difficult task for start-ups
to hire the right people for right positions as they do not have a
reputation of big companies and lack financial resources. Thus,
hiring business developers, managers, salesmen, analysts are always
a challenge for start-ups (Murray, 1996, p. 241). 3. Start-ups need
an access to technological resources. It is very important as
various start-ups create products and services based on new
technologies or even sometimes develop radical technologies
themselves. Spin-offs of large universities typically
well-connected research networks where entrepreneurs might start.
(Castilla et al., 2000)4. Organizational networking contributes
start-ups in finding and qualifying experts in a specific sphere
such as legal advice, patenting, negotiation, accounting etc.
Start-ups have to build a network of outsiders that are identified
as critical resource suppliers to access these resources. (Larrson,
1992, p. 157). If a company borrows from a bank and the terms are
similar, it does not matter what bank it gets the money from. In
seeking venture capital investment, however, a company is hungry
not just for cash but also for the venture firms reputation and
access to a network of relationships with customers, suppliers,
investments bankers and other important constituents in the
universe that the entrepreneur cares about, David Hsu (Wharton
management professor) mentions (Knowledge at Wharton, 2008).In the
recent years social networks have been greatly assisted by the web
technologies. Institutions like the Venture Capitalist firms and
law agencies have online presence which makes it easier for
start-up companies to access these entities. As illustrated in the
earlier sections these institutes almost dictate the success of the
start-up companies. The presence of such institutions and the
higher number of institutions within eco-system of the Silicon
Valley ensures the success of the start-ups in the region. The web
technologies in the current day scenario enhance the communication.
Besides providing the user with information and news it also
enables them to take part in the communication and interact with
members around the globe. Communication through social networks is
much advanced as compared to other media of communication like
Television and newspaper as it allows everybody to interact and
share their views thus spreading awareness on a larger scale
(Bennet, 2003).Social networking sites form a handy tool for social
networking. In the modern day business scenario almost any business
is having its online presence. The social networks provide the
easiest platforms for the organizations to reach out to potential
customers. Thus business development is taken care of using the
social networks in an effective manner. The social networks allow
the start-ups to share their content with others. In recent times
many such social networking sites have emerged where people
interact with their peers and at the same time upload and share
their content (Bhagwati, 2004, p. 147). With the increasing number
of internet users around the globe the number of people using
social networking sites have also multiplied in the recent years.
Thus social networking sites are used by many organizations,
institutions and political parties as well to communicate with the
masses and getting their insights (Brewster, 2004).Social
networking has been increasingly used by small and big companies to
market their products and create awareness about their products and
services among the masses that too at a very low investment (Peter,
2007). Customer feedback is a very important part of any industry
and provides a backbone to any company that can access customer
feedback. Social networking sites help in getting the insights of
customers and potential customers thus enabling the company to
improve their products and add innovation to their products.
Customer feedbacks are important for continuous development and
improvement of services and products thus social networks can be
considered a two way traffic which besides promoting and marketing
the products also helps a business to have access to the feedbacks
of the customers.2.5.1 Social Network Usage StatisticsAccording to
a survey conducted in 2011 one in every nine people in the world
are present in the largest social networking site, face book and
people spend around 700 billion minutes per month on face book with
each members share being around 15 hours and 33 minutes per month.
Some 250 million people around the world log into face book using
their mobile devices and there are more than 2.5 million sites that
are integrated with face book (Racker, 2009, p. 256).2.6 Venture
capital firms and business angelsPaul Graham (2011), who is a
founder of a very successful business accelerator called Y
combinator, described how start-up funding used to look like. There
used to be 2 absolutely different types of investors: business
angels and venture capitalists. Angels are rich individuals who
invest their own money and VCs are employees of funds that invest
money of other individuals. It appears to be a new type of
investors in the market super angels. VCs also started making a lot
of angel-style investments. There is not a specific scientifically
approved name for these types of VCs, but they are usually called
Mini-VCs or Micro-VCs. Thus, the previous line between angels and
VCs shifted and became more blurred. Previously, Angels usually
financed 20k to 50k a piece and VCs investments would usually start
from 1 million USD and more. And the gap which existed between the
investments of VCs and Angels made life very inconvenient for
start-ups. Start-ups who participated in Demo Day wanted the
investments of up to 400k. Angels couldnt afford this amount of
money and VCs are not attracted in investments of this scale. And
new investors were needed to fill the gap and thus super angels and
Mini VCs appeared in the market. Will it be? As of now, few of the
start-ups that take money from super-angels are ruling out taking
VC money. They're just postponing it. But that's still a problem
for VCs. Some of the start-ups that postpone raising VC money may
do so well on the angel money they raise that they never bother to
raise more. And those who do raise VC rounds will be able to get
higher valuations when they do. If the best start-ups get 10x
higher valuations when they raise series A rounds, that would cut
VCs' returns from winners at least tenfold. However, the VCs have a
weapon they can use against the super-angels, and they have started
to use it. VCs have started making angel-sized investments too. The
term "angel round" doesn't mean that all the investors in it are
angels; it just describes the structure of the round. Increasingly
the participants include VCs making investments of a hundred
thousand or two.We are in the golden age of seed financing. Venture
capital funds, seed funds, super angels, angel groups, incubators,
and friends and family are all playing the seed financing game and
investing early in start-ups in an attempt to land the next
Facebook. Venture investors with the largest and quality networks
come out with the best returns. Yael Hochberg, Alexander
Ljungqvist, and Yang Lu (2007) confirmed this point in their
research. The researchers found out that better networked VC firms
experience better fund performance. The measurement was the amount
of companies in their portfolios who exited via acquisition or IPO
(Erick Schonfeld, 2009). The more co-investors a venture capital
company has, the better its network. And as a result, the more
developed and advanced its networks are, the better its financial
returns. There is a relationship between the size of VCs network
(and the returns) and its access to skills, clients, exits with IPO
and acquisition (Erick Schonfeld, 2009).
Figure 3: Lean Finance Model Source: Erick Schonfeld The Lean
Finance Model Of Venture Capital, 2011As one Venture Capitalist is
saying we are in the era of cheap. Lean start-up requires less
money to create their products and services. D. Davidson who is a
partner at VC is saying that The whole concept is keeping the
company as lean as possible until the company validates its market.
After that you can shovel the capital in. As the products and
services are cheaper to launch and create, there is less need in
big amount of money in seed and founding stages (Schonfeld,
2011).Almost half of the first institutional capital invested in
start-ups is now coming from super angels. In the table you will
see how VC deal flow is decreased at seed stage. It is a dramatic
decrease and change in deal flow of actors. VCs are substituted by
super angels in the first stages of investments.Often theres no
need to go past an angel round of funding until its time to decide
between selling and doing a big marketing push. Anyways VCs dont
win because even if they get in at that late stage the valuations
are much higher or returns plummet.
Figure 4: US VC Deal flow Source: Erick Schonfeld The Lean
Finance Model Of Venture Capital, 20112.6 SummaryThis chapter
provided the relevant theories and literature that are essential
for understanding the nature of the start-ups in the United Kingdom
and in the Silicon Valley. This chapter also illustrated the
concept of social networks and established the various social
networks that are in use within the United Kingdom and in the
Silicon Valley. The chapter has also illustrated major differences
between the two regions. The concepts of social networking sites
have been discussed in this chapter; the latest technologies in
social networking provide huge penetration to the start-ups at
nominal costs.
Chapter 3: Methodology3.1 IntroductionThe methodology chapter
would discuss in detail the different methods used in completing
the research process. A research process consists of various steps
like selecting the research philosophy, research approach, research
method, strategies, choices, time horizons etc. These steps are
important for the completion of a research method in an effective
way (Bacher, 2010). Hence the methodology chapter would introduce
the readers to the different methods and techniques that were
available to the researcher and the methods that were chosen by the
researcher for completing the research. The availability of the
different research methods and the justification of the methods
chosen by the researcher for his research work have also been
provided in this chapter. Hence this chapter gives a procedural
approach to the research the success of which is highly dependent
on the choice of correct methods (Mouncey, 1994).3.2 Research
ObjectivesResearch objectives are very important for the researcher
to keep focus on the central theme of the research and the research
questions. The research objectives help in selecting the different
methods used during the research process. The objectives of the
research are as follows- To study the importance of social networks
To study the nature of start-ups in the Silicon Valley and in the
United Kingdom To study the impact of social networks in generating
venture capital for the entrepreneurial ideas To illustrate the
various roles of social networks in the business environment To
illustrate the role of social networks in business development in
UK and the Silicon Valley3.3 Research processThe research process
resembles an onion and the different layers of the onion provides
for the different methods used in the research process step by
step. Each of the layers of the onion as shown in the diagram below
describes the different methods available for a research process
and the methods that were chosen by the researcher for conducting
the research in question in an effective way. The research being an
academic research and thus having time and budget constraints chose
the methods wisely so as to carry the research in the most
effective way possible. The research onion (diagram below) consists
of six layers that describe the different steps used in a research
(Gopal, 200, p-225). The first layer is the research philosophy
which would describe the chosen philosophy for the research
process. The second layer is the research approach which
illustrates whether the research is being done using a deductive or
inductive approach. The third layer consists of the research
strategy which helps in understanding whether the research is an
experimental or non-experimental research. The fourth layer of the
research process is the research choice which describes the type of
data collection during the research. The fifth layer describes the
time horizon or the time schedule of the research. The sixth and
the final layer is the most important part of the research process
as it describes the method of data collection and analysis. This is
the ultimate layer and is also very crucial for the successful
completion of a research (Hawkins, 2006, p-189).
Figure 5: Research process, Trochim, 2006, p. 583.4 Research
PhilosophyEvery research needs to have an underlying philosophy
which gives the research a logical base. The research philosophy
chosen for this research process is the post positivism approach.
The reason for choosing a post positivist research philosophy is
that it uses triangulation method and thus uses multiple
observations and multiple data. Multiple sets of data and
observation would be helpful in arriving at a solution and
eliminate different fallacies of observation (Douglas, 1998, p.
65).
3.4.1 Justification of the Research philosophyThe research is
being conducted using a post positivist philosophy as the
positivist research philosophy holds that things that are
measurable and observable by scientific standards only form a part
of knowledge. But according to the post positivist philosophy
knowledge beyond scientific measures and observations is possible
as there is some kind of similarity between scientific reasoning
and common sense reasoning (Handlechner, 2006). As both scientists
and people in everyday life follow measures make sure that their
observations and reasoning are accurate and consistent. But at the
same time post positivist philosophy holds that observations and
reasoning are not free from errors and thus considers the use of
multiple sets of data and observation for eliminating the errors
and coming to a conclusion that is more reliable of not flawless.
Hence this research would be conducted on the importance of social
networking and its role in entrepreneurial business development
which cannot be measured by scientific measurements and
observations, the use of post positivist research philosophy would
enable the researcher to use multiple sets of data and observation
and thus come to a conclusion more reliable and free of errors
(Singh, 2001).
3.5 Research ApproachThere are two approaches to a research,
inductive or deductive. The inductive research approach starts from
observations and thus is widely known as the bottom up approach.
Patterns are formed during observations and these help in
formulating a tentative hypothesis or a statement (Bacher, 2010).
These observations later on help in forming a theory. It is just
the opposite of the deductive approach where the hypothesis is
formed from the theory and then observations are made to support or
negate the hypothesis and thus confirm or negate the theory.
Inductive approach starts from a general observation and with the
research process moves towards a specific solution where as in
deduction the research moves from a specific theory to a general
observation (Banerjee, 2006).
3.5.1 Justification of the choice of deductive approach for the
research in questionDeductive approach was chosen for this research
as it is a top down approach and thus moves from specific to
general observation which would be helpful for this research to
establish the importance of social networks in entrepreneurial
business development. The research hypothesis is based on a theory
that the social networking plays a positive role in developing an
entrepreneurial business and the researcher through his various
observations and collected data would confirm the hypothesis and
form a new theory based on the research process (Bacher, 2010). The
research findings would be generalized which would be helpful in
understanding the role of the social networking in the development
of a start up business.
Figure 2: Research Approaches Source: Trochim (2006), p-1283.6
Research strategyResearch strategies are basically of two types
experimental and non experimental strategies. Experimental research
strategy includes manipulation of the research participants for
observations where asnon experimental research does not manipulate
the research participants for observation under any circumstances.
Experiments are mainly used during scientific researches and are
more time consuming and complex in comparison to non scientific
research. The participants used in non experimental research
process are human participants and thus observational procedures
like surveys and field researches are mainly used in non
experimental research process (Hague, 2000).
3.6.1 Justification of the Research StrategyThe research in
concern would include human participants thus it can be termed as a
non-experimental research where the participants would not be
manipulated like in an experimental research. For understanding the
impact of social networking in the development of a start-up
business it would require the researcher to survey different
entrepreneurs who have build-up social and business networks for
developing and upgrading their business (Darlington, et al, 1990).
The survey research would be conducted with the help of
questionnaires and interviews which would help the researcher to
collect the data necessary for confirming the hypothesis and
forming a new theory. The research being an academic research would
not include a huge population thus the survey method would be an
appropriate method to collect data from a small population with the
use of questionnaires and structured interviews with company
executives (Hawkins, 2006).
3.7 Research ChoiceThe research choice in a research process
explains the choice of data to be collected and used in the
research process for the success of the research. Basically there
are three types of research choices which are mono method, mixed
method and multi method. The researcher chooses a mono method when
he needs to collect one type of data either quantitative data or
qualitative data. Multi method is used when a researcher collects
the same data qualitatively as well as quantitatively as per the
nature and demand of the research. Mixed method illustrates
collection of both qualitative and quantitative data but it differs
from the multi method as the same data does not need to be
collected quantitatively as well as qualitatively (Dawson,
2002).3.7.1 Justification of the choice of ResearchIn this research
process the researcher would need to collect both qualitative data
and quantitative data separately and hence would use mixed method.
For conducting a research on the importance of social networks in
entrepreneurial business development the researcher would need to
collect both qualitative and quantitative data from different
startup companies. Qualitative data would help the researcher to
illustrate the importance of social networks in entrepreneurial
business development whereas quantitative data would enable the
researcher to calculate the rate of success of entrepreneurs
possible due to social networks (Douglas, 1998).
3.8 Time HorizonThe time horizon of a research illustrates the
time schedule of the research. Each and every research has a time
schedule or a time horizon for the completion of the research.
There are two types of time horizons which could be followed by a
researcher as per the nature and demand of the research. These are
cross sectional time horizon and longitudinal tie horizon (Hawkins,
2006).Cross sectional time horizon is used for academic researches
which are less time consuming and does not involve a vast
population. On the other hand ethnographical research which is
conducted using huge population and done over a longer period of
time use longitudinal time horizon.
3.8.1 Justification of the chosen Time HorizonFor this
particular research the researcher would use cross sectional time
horizon as this being an academic research there are time and
budget constraints and thus would also use a small population for
understanding the role of social networks in entrepreneurship. 3.9
Data Collection MethodsThe data collection method illustrates the
data collection techniques used by the researcher to collect
primary data for his research process. For being an academic
research there were time and budget constraints for the researcher
as a result of which the researcher had to collect limited sets of
data for conducting the research on the role of social networks in
start-up business development (Hague, 2000). The researcher also
had to keep in mind that the data collected needs to be valid and
reliable for the success of the research. The nature of data
collection has been illustrated below-3.9.1 Primary DataPrimary
data is the data that is collected with the help of field
researches and survey methods. In this research process the
researcher would use survey methods to collect data on the role of
social networking in the development of startup companies. For
conducting a survey for the research the researcher has identified
a population from which he would choose respondents using simple
random sampling for choosing the research respondents (Morrison,
1990).The researcher would select 25 entrepreneurs and send them
closed end questionnaires for collecting quantitative data for the
research. The researcher would also conduct interviews with some of
the entrepreneurs and owners of startup companies to understand how
they benefitted from social networks in the initial stages of their
entrepreneurship. Since the researcher has to collect data from
entrepreneurs in both UK and the Silicon Valley the researcher
would have to make phone calls to the entrepreneurs who are located
in the US and send them questionnaires through mails (Kothari,
1985).
a) Qualitative and quantitative dataFor collecting qualitative
data the researcher choose to conduct interviews with different
entrepreneurs to understand the role of social networks in
developing their business. These interviews would be mostly
conducted over the phone as the researcher would have to interview
entrepreneurs from both US and the UK. These interviews would help
him to illustrate in a descriptive manner the role and importance
of social networking in entrepreneurial business development. On
the other hand quantitative data would be collected with the help
of closed end questionnaires that would help in illustrating the
different types of social networking strategies used by the
entrepreneurs in US and the UK for developing their business and
would also be helpful in calculating the success percentage of
startup companies possible due to social networks (Kumar,
2005).3.9.2 Secondary dataSecondary data refers to the data
collected by the researcher from earlier research works on the same
subject and from different articles and journals collected online
and from university library. The researcher searched for the
secondary data using key words like social networks, entrepreneurs,
role of social networks in startup business etc. The search engine
produced various secondary data related to the topic of research
from where the researcher choose the best data after reading the
abstract and later on analyzed and produced the data in the
literature review chapter (Mouncey, 1994).
3.9.3 Research PopulationFor the success of any research it is
important to have a suitable research population from which the
researcher will get valid and reliable data. For conducting a
research on the role of social network in startup business it would
be necessary to involve start up business owners and entrepreneurs
to collect quantitative as well as qualitative data from them
regarding the importance of networking in entrepreneurial business
development. Since there are numerous entrepreneurs in both UK and
US the researcher would have to select a few of them for collecting
data from them. Keeping in mind the budget and the time constraints
the researcher would involve not more than 25 entrepreneurs as
research samples for his research process (Philominathan,
1998).3.9.4 Sampling techniquesThe researcher would use simple
random sampling to choose from a huge population of entrepreneurs
in UK and the United States. Simple random sampling would help in
choosing the research respondents wisely as everybody in the
population would get an equal chance of being selected and thus the
reliability and validity of the research would be confirmed
(Patton, 2002, p-95). Being an academic research the research
process would not require a huge population but reliability and
validity of the respondents would be confirmed for the success of
the research. Survey method approach enabled the study to follow
quantitative data analysis and this method was easiest path to
reach to substantial quantity of customers. Here 21
people/respondents had been taken as sample size. Among all the
respondents, applying data validity and reliability, this sample
size was ingrained. Probability sampling matched to the criteria of
survey method. Sample source location was Silicon Valley itself in
London. Author established use of 3 Skype responds and 4 - email
responds to collect data. Author also has got 3 interview
recordings and 6 other non-recorded personal interviews.5 data
collected from Google links. From SV author has got 2 Skype, 1
Google doc and 3 e-mails rest collected from London area. Emails
were sent to individuals of different companies to get the
questionnaire answered. Skype came with the same reason of
implementation. As the quantity of information was high,
reliability and validity procedures were set up to select more
relevant and significant data. Standardization error of data was
thus minimized. As online survey or online interview seeks less
time to psychologically influence the minds of the
respondents/interviewees, the questionnaire was prepared to answer
all questions within 10-15 minutes. The sampling method might have
used focus group method to get stratified sampling but to support
the cross sectional time horizon, it was disapproved by the
researcher himself. During the sampling, data confidentiality was
maintained.Researcher implemented data validity and reliability and
among the vast information, 21 respondents were fixed as ultimate
refined sample size. The sample size went further segregation.
Here, 15 samples were extracted from London area because the
researcher presently resides there and therefore, it was easy. 6
sample sizes were dismantled from the whole sample and Silicon
Valley was the source in this regards. So, that 21 sample size was
used as a whole of 100% while assessing the data analysis. That
meant every fragment of data percentage was ingrained upon 21
sample size.Interviews were taken mostly personally during the work
period at Innovation Warehouse.3.10 Data analysis methodThe data
analysis method is the most important method and illustrates the
techniques of data analysis used in the research. The analysis of
the collected data would help the researcher to confirm the
hypothesis and thus find the result of the research and formulate a
theory. The data analysis for this research has been illustrated in
the following chapter. The data analysis chapter would include both
the analysis of qualitative and quantitative data collected by the
researcher during the research through interviews and
questionnaires (Vishwa Prakashan 1990).
The qualitative data would be analyzed using indexing which
would give the qualitative data a quantitative nature and would
help the readers to understand the findings. On the other hand
quantitative data would be analyzed with the help of graphs and
charts to help readers understand the role of social networking in
entrepreneurial business development (Rubenstein, 1986).3.11
GeneralizabilityBeing a deductive approach the research has the aim
of coming to a conclusion that has generalizability. Deductive
approach moves from specific to generalizability and thus the
research should focus on coming to a conclusion that is true for
all the entrepreneurs operating in the UK and the US. Social
networks are useful in almost all the fields in todays world but
since this research is being conducted taking into consideration
the entrepreneurs in the UK and the US the
