Silicon Valley's `Capital City'

0 Comments | Insight on the News, March 15, 1999 | by Gayle M.B. Hanson

Once a sleepy college town, Palo Alto, Calif., with its booming high-tech economy, world-class university and top-rated public-school system, has become a little piece of heaven.

Tony Bennett never sang "I left my heart in Palo Alto" but, considering its current role as the jewel in the crown of Silicon Valley, he might want to consider going back into the recording studio. These days the once-sleepy university town is rapidly developing a reputation as the "Beverly Hills by the Bay" enjoying as it does a booming economy, a world-class university and restaurants so good the 60,000 lucky locals seldom bother driving the 40 miles into San Francisco anymore.

If the digital revolution has brought an economic boom to the U.S. economy, in no place has the change been as dramatic, or the fruits of its success been more apparent, than in Palo Alto and its adjoining suburbs of Menlo Park and Atherton. If the area once was a stronghold of Volkswagen-driving academics from Stanford University, who would pop on down to Bell's Books to buy the latest literary effort by a colleague, these days the professors are just as likely to be driving late model Lexuses and motoring up to Sand Hill Road where the venture capitalists swarm like bees to honey.

Cambridge, Mass., once reigned as the intellectual capital of America, with its twin peaks of academic summitry in Harvard and the Massachusetts Institute of Technology, or MIT. Now there are more MIT graduates in Northern California than in any other place in the country. And as for Harvard, its law school is in a dead heat with Stanford's and its MBAs all seem to be headed for the Peninsula these days.

"I think that what you have here is a great climate for adventure" says DuBose Montgomery, managing partner at Menlo Ventures, one of the Valley's premiere venture-capital firms, and both an MIT and Harvard Business School graduate. "There is definitely a feeling that if you want to start something you want to do it here. You have two great universities in UC-Berkeley and Stanford, and you have a great climate. Those things tend to be magnets for smart, aggressive people who have new ideas and far-ranging thinking."

The Sand Hill Road location of Menlo Ventures is to venture capital what Wall Street is to the stock market. In the almost quarter-century since the fledgling firm took up residency in Menlo Park it has invested more than $600 million in companies that now are worth more than $100 billion.

These days Montgomery and his colleagues review between 150 and 200 proposals for funding a month, each entrepreneur hoping that he or she will be the next Marc Andreessen of Netscape or Jerry Wang of Yahoo!

"The ideas come in waves" says Montgomery. "Every decade or so there is just a sea change in technology. Certainly in the 1980s it was the personal computer; these days it is the Internet."

If the sea changes still come every decade, there is no question but that savvy entrepreneurs have been surfing Palo Alto's big intellectual waves since railroad baron Leland Stanford founded the university, which he named for his deceased son, more than a century ago.

In the settling of California there may be no man more important than Stanford. Elected governor in 1859, he stumped the state for Abraham Lincoln and helped hold the frontier state for the Union during the War Between the States that followed. He secured his place in history when on May 10, 1869, he wielded a silver sledgehammer to tap a spike of California gold into a laurel railroad tie to finish the transcontinental railroad. He then returned to his Palo Alto ranch where he raised prize-winning trotters. In 1884, however, tragedy struck when his son, Leland Jr., died of typhoid fever a few days short of his 16th birthday. It is said that on the morning after his only son's death Stanford awoke from troubled sleep, turned to his wife and said, "The children of California shall be our children" That is how Stanford University was born.

From its inception, the new university broke the rules. While the Stanfords visited Cornell, Yale, Harvard and MIT before beginning their school, the university they created broke the mold for higher education. It was first and foremost coeducational at a time when most universities were not. It was nondenominational, and it was decidedly practical in its mission to turn out both "cultured and useful citizens."

The fact that the Stanfords owned both the town and the gowns of Palo Alto and its environs helped in the establishment of a homogeneous relationship between the two which exists even today. If the cities of Cambridge, Mass., and New Haven, Conn., have long had a rocky relationship with academic tenants at Harvard, MIT and Yale, such tensions are not in play in the all-elite communities of Palo Alto and Menlo Park even as the post-World War II economic boom and its development changed the community. Relationships among the academic and entrepreneurial elites remain collegial.

As chief financial officer for SRI International, Tom Furst oversees one of the great economic engines in Silicon Valley. Since its founding in 1946 as the Stanford Research Institute, SRI has been at the epicenter of worldwide technological development. Its 66-acre Menlo Park campus has been the site of such technological innovations as the computer mouse, magnetic ink, stealth technology and global positioning. In addition, it also did the first feasibility studies for Disneyland.