Silicon Valley and the California Gold Rush, who made more — the Gold Miners or the Shovel makers?


California_Clipper_500.jpg (500×311)Silicon Valley has become the gold magnet for individuals and companies just like the California Gold Rush of the mid-1800’s.  Instead of gold, the new monetary incentives mean being hired by a company with a decent salary base and ISOs, which can be acquired or, best yet, be an IPO candidate.  And the Gold Rush analogy is certainly a propos, only a small fraction of the 49ers found the yellow metal.  The rest returned home penniless.  The consistent Gold Rush winners were the companies that sold the shovels and their clothing. As I observed, Silicon Valley is populated by the 21st Century version of shovels.

Some shovels are the various incubators and accelerators.  Many have programs and panels to educate the newly formed companies in formation, markets, investments, and many other subjects that would have an impact on their growth and development  Of course, the benefits derived from such panels can only be measured by the quality of advice.

In an evening where I attended three such sessions, a leading speaker recommended that the startups take advantage of federal government contracts at a San Francisco incubator.   From his comments, it seemed to be that the speaker had a vague understanding of how a company can win (or in the Federal jargon, “capture”) those government contractors which have offices in and around Washington, D.C.?

The government contractors employ former government employees in the sector because they have established strong, prior relationships with the governmental divisions. The federal revolving doors still exist. I would say that over 90% of government bids won by government contractors are all staffed by former government employees.

Another characteristic to government contracts is the security clearance requirements. The Snowden incident shed some light on this requisite.  One software CEO mentioned to me that he wanted to market the technology to NSA. I mentioned that the strategy is easier said than done.

Security clearances are pre-requisites for virtually all government contracts.  Whether one approaches the CIA or the NSA, each requires a totally different security clearance.  The security clearance is contracted out to a third party. The average cost is about $15,000, and the duration for the investigation takes about 12 months.  The New York Times reported that there were over 2 million issued clearances.

Then there is the RFP. Prior to responding to the RFP, the company must be registered with GSA.  Without proper registration, the company cannot entertain any contracts with the Federal government. Assuming that the GSA form has been completed and every “I” doted and “t” crossed, there remains the completion to government RFPs.  Virtually all government contractors employ staff whose only purpose is to respond to RFPs. The wording has to be exacting.

One private sector company CEO commented that the company decided to pursue government contracts, it took over a year to get a government contract, and, after all of that effort, the thin margins were disappointing.  Imagine how the process would endure for a high security clearance contract.  With federal budget restraints, there will be greater challenges.

So, for the Silicon Valley based startup to consider the merits of government contracts, the incubator’s advice can be misleading.   And that so-called gold may not be found beyond those hills in and around San Francisco.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP,, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy.; For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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