Sebastian Mallaby: belief

Transcript context

…Even after the pandemic, it’s striking to me how much venture capital remains concentrated in the Bay Area. The major deals are mostly done there. What’s your mental model for that? I think the lesson of Silicon Valley is that agglomeration effects and clustering effects are actually even bigger than economics as traditionally explained. In other words, economics . . . Just reading when I was writing my book about economic geography and that whole literature, the traditional story about why a cluster is a productive thing is that you get better matching between the skills of workers and the needs of companies when you have a very deep labor market. So, if you’re talking about coding, and a company wants to hire a particular database engineer in a particular database software, in Silicon Valley, there will be the precise type of engineer that you want. Whereas if you’re in a less deep pool of labor, you won’t find that. The same argument goes for suppliers. If you want to have a supplier that provides a particular kind of bespoke semiconductor, you’re more likely to find that supplier locally and be able to go visit them if you’re in Silicon Valley than elsewhere. That would be why the start-ups are clustered. Why are the venture capital deals clustered? Furthermore, in a funny way, they’re anti-clustered. They’re not all in New York, which is our major financial center by a long ways. San Francisco is not that. It’s a mix of anti-clustering and then some extreme clustering for this set of deals that have some particular features.…

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