Who Created Silicon Valley?
A professor at Stanford University who teaches entrepreneurship recently gave a lecture in the Terman Engineering Center. He asked his students who created Silicon Valley. "The Internet" was the first response. Another group answered that old guy Marc Andreessen. The professor narrowed his question to his engineering students out of frustration. "Oh, you mean Steve Jobs, right?" they replied.
The creation of Silicon Valley dates back to World War II. By 1940, the Germans had conquered continental Europe. Britain stands alone. A German invasion of the Soviet Union began in June 1941 after the Germans turned against their Soviet allies. As of December 1941, the Japanese had attacked Pearl Harbor, and Germany had declared war on the United States. The Soviet Union is fighting the Germans on land. Allies could only affect Germany's strategic warfighting capabilities by mounting a bombing campaign. The only way the British and Americans could help the Soviets, who were engaged in massive land battles in the east, was to weaken the Germans ability to wage war. The allied plan was to drop bombs on petroleum infrastructure, aircraft manufacturing infrastructure, chemical infrastructure, and transportation infrastructure. Nearly 40,000 allied planes were lost or damaged during WW2. The number of jets in the United States today is only about 13 thousand. During the Western Front air war, about 160,000 allied airmen died. The Germans had built an integrated electronic air defense system to detect allied planes. Thus, they could strategically control weapons and destroy American and British bombers before they reached their targets or if they couldn't before they returned home. It is estimated that up to 20% of the bombers on a mission would not return. When the allied forces began using air-to-ground bombing radar, the Germans developed a radar receiver to track allied planes broadcasting radar signals. In a sense, the allied bombers became a beacon for the German defense system. The entire war played out in a cat-and-mouse air-to-ground radar game.
The allied forces realized that the German air defense system created too high of a casualty rate, and they needed to learn what they didn't know about the Germans' radars. They needed to shut it down. To reduce Allied losses to the enemy, they established one of the most secret laboratories in the United States in 1942 and 1943. Harvard Radio Research Lab was founded to research signals intelligence and electronic warfare to reduce allied losses to fighters.
A Stanford engineering professor named Fred Terman became director of the Harvard Radio Research Lab. The lab was involved in developing radar countermeasures consisting of active jammers and passive reflectors. Terman's laboratory was tasked with finding out which jammers would be needed and in what quantities and locations so that they could be manufactured far enough in advance to arrive at their destinations via the standard military supply channels. As a result of research and technology coming out of the lab, the Allies eventually won the air war over Europe.
Turman returned to Stanford in 1945, where he was appointed dean of the school of engineering. In the years following the war, he merged Stanford's interests with private businesses. Additionally, Terman realized that university research in defense R&D could be a tremendous opportunity for Stanford University. Terman recruited former Harvard Radio Research Lab members to join the Stanford faculty. His work with the government after the war served several practical purposes for Terman's university. After World War II, strictly military research was expected to decline to some extent, which it did, but not entirely. Before the war, such research had a reputation for producing interesting but ultimately impractical results. In the war, academic and government scientists had demonstrated how they could collaborate to create practical, tangible effects on time. Under Terman's leadership, Stanford receives funding for microwave research from the Office of Naval Research after the war. The valley became the microwave valley. Stanford's engineering department had become the MIT of the West under Turman's by 1950.
Fred Terman is considered one of the early fathers of Silicon Valley. The most notable contribution he made was as an inspirational mentor to HP founders William Hewlett and David Packard. Hewlett and Packard had a list of about 25 potential customers for their first product, an audio oscillator, thanks to Terman, who kept track of his former students. Walt Disney Studios' chief sound engineer, J.N.A. "Bud" Hawkins, purchased eight oscillators for $71.50 each in 1938.
Turman did everything in his power to convince William Shockley to move to Palo Alto when he heard he was starting a new business and pioneering the semiconductor industry. The first transistor was invented by William Shockley, paving the way for future semiconductor devices and today's semiconductor-based technology. Terman helped hire some of Shockley's first employees. Electrical engineering students could construct semiconductor devices in a lab created by Terman and Shockley. On some vacant land, Stanford set up an industrial park to help its graduates find jobs. Stanford Research Park became one of the world's most successful research parks after HP, GE, and Kodak moved in.
Based on government changes, Silicon Valley's venture capital landscape radically changed between 1978 and 1979. Taxes on capital gains on stocks go from essentially 50% to 28%. Pension funds are also allowed to invest up to 10% of their pension funds in venture capital. Silicon Valley's second engine of entrepreneurship took off in 1979. As a result, Turman, Stanford, and the government are responsible for the entrepreneurial culture in Silicon Valley.
