Where ventures have everything to gain

If Netscape's founder had gone along to a British venture capitalist, the conversation would have been short. "What are you selling?" "Nothing - we're giving away software called browsers." "What are your revenue projections?" "We haven't a clue." "Thank you very much."

Fortunately for Jim Clark, Marc Andreessen and the others who founded Netscape, Silicon Valley venture capitalists are rather different. There, companies with only a faint hope of success have found backing. Most have failed, some have succeeded and a few have made up for any number of failures: whatever happens to Netscape now, it has made a fortune for its original financiers.

Venture capital is at the heart of the strange Californian world that has bred hundreds of high-tech companies. But that is only one element - the strength of Silicon Valley (and of Route 128 outside Boston) lies in the concentration of all the resources a high-tech company needs.

Sean Phelan, a former stockbroking analyst who is trying to raise money in London for his Internet-based business Multimap, says the Valley does for high-tech ventures what the City of London does for finance. "You have a huge pool of resources to call on," he says. "Everyone understands the venture way of doing things, which means you can finance and staff a venture all in a few square miles."

But there is one big difference: in the Valley, people are prepared to give help in the hope, but with no promise, of future return. "An entrepreneur from Stanford University can walk into an office and talk to people who will provide help either free or maybe for a piece of the action," says Rob Johnson, an American former businessman and now lecturer in entrepreneurship at the London Business School. "In Britain only people with good connections can get free advice - in California, a nobody can get it." This culture arises, he says, from the buzz that surrounds the Valley. "It's the spirit that makes people want to be part of something."

Everything about the Valley makes it easy to start. Venture capitalists in Europe like to be pretty sure that they are backing a good bet. "If they don't see a clear profit in the short to medium term, they won't do it," Mr Phelan says. "That's because they come from an accountancy background."

In California, he points out, investors "are competing for the best ideas and the best products. They see their job as helping you build a business. As well as providing funding, they give you the credibility to recruit the best people so you can hit the ground running."

They are also often the glue that brings people together. John Doerr, a celebrated venture capitalist who owns 10 per cent of Netscape, describes himself as a "recruiter".

Californian financiers are prepared to take a Darwinian view of business: invest in a lot and let the fittest survive. "It's not unusual in a venture capital portfolio to see only one or two that make it to success," Mr Johnson says. "For every Netscape there are many companies that tried to do the same and failed."

It would not, he adds, be helpful if every start-up did flourish: "In the late Seventies the hot investment was in companies that made hard disk drives - it was calculated that if they had all been successful, their revenues would have been bigger than the GDP of the United States." The same, Mr Johnson suspects, is now true of Internet companies.

There are parallels with the City of London's "star" system. High-fliers move around regularly, and bring their best people with them. "The guy who's spearheading the Microsoft browser used to work on the Mac," Mr Phelan points out. "The people who started General Magic had the original idea for the Apple Newton." Many of these people have made so much money that they have become an important source of capital themselves. Microsoft alone has created 1,200 millionaires.

Perhaps the most intriguing aspect of the Valley is the abundance of "serial entrepreneurs". There are people whose careers will fluctuate as violently as the Netscape share price - and will be respected as a result. "In the UK going bankrupt is the kiss of death," Mr Phelan says. "In the US it's a coming of age."