Why is Silicon Valley better at innovating than most of the world? Why are the number of successful startups so high there? Where is the next Mecca of tech-startup success going to emerge?

This post is about where and why innovation happens, and where it’s going next.

It Started in a Coffee Shop

In the 18th century, coffeehouses had an enormous impact on Enlightenment culture.

As Steven Johnson says in his book Where Good Ideas Come From, “It’s no accident that the Age of Reason accompanies the rise of caffeinated beverages.”

The coffeehouse became the hub for information sharing.

Suddenly, commoners could interact with the royals, meet, mingle and share ideas.

In his book London Coffee Houses, Bryant Lillywhite explains it this way:

“The London coffee-houses provided a gathering place where, for a penny admission charge, any man who was reasonably dressed could smoke his long, clay pipe, sip a dish of coffee, read the newsletters of the day, or enter into conversation with other patrons.

“At the period when journalism was in its infancy and the postal system was unorganized and irregular, the coffeehouse provided a centre of communication for news and information . . . Naturally, this dissemination of news led to the dissemination of ideas, and the coffee-house served as a forum for their discussion.”

Beyond the Coffee Shop

Today, researchers have recognized that the coffee-shop phenomenon is actually just a mirror of what occurs when people move from sparse rural areas to jam-packed cities.

As people begin living atop one another, so too do their ideas. And, as Matt Ridley aptly describes, innovation happens when these crowded ideas “have sex.”

Geoffrey West, a physicist from Santa Fe Institute, found that when a city’s population doubles, there is a 15 percent increase in income, wealth and innovation. (He measured innovation by counting the number of new patents.)

Why Silicon Valley Is Getting It Right

My friend Philip Rosedale, the creator of Second Life and now CEO of High Fidelity, spent some time investigating why the Bay Area in particular has become such a hub for technology and innovation.

As Rosedale explains, “I think the magic of Silicon Valley is not in fostering risk-taking, but instead in making it safe to work on risky things…There are two things happening in Silicon Valley that are qualitatively different than anywhere else.”

Those things are:

  1. The sheer density of tech “founders per capita” is 10 times greater than the norm for other cities (see figure below).
  2. There is a far greater level of information sharing between entrepreneurs.
San Francisco has about twice the density of the next-highest city (Boston), and about five times the density of New York.
Image: San Francisco has about twice the density of the next-highest city (Boston), and about five times the density of New York.

Rosedale goes on, “You can’t walk down the street without (almost literally) running into someone else who is starting a tech company. While tech ventures are individually risky, a sufficiently large number of them close to each other makes the experience of working in startups safe for any one individual.”

“I like to visualize this as a series of lily pads in a pond, occasionally submerging as their funding runs out,” he explains. “If you are a frog, and there are enough other lily pads nearby, you’ll do just fine.”

“Beyond simply having a lot of people near you to work with, I believe that the openness and willingness to share inherent to Silicon Valley is a big driver in this effect.”

Beyond the Next Coffee House

For entrepreneurial technology innovation to occur, you need two things: a densely packed population of tech-savvy entrepreneurs and a culture of freely sharing and building on ideas.

Rosedale, who is working on the key technologies to intimately and powerfully connect people using virtual worlds, points out, “If we create a virtual world, we can expect a sudden disruption as the biggest ‘city’ of the tech future goes 100 percent online.”

Just as the coffeehouse is a pale comparison to today’s high-density city, so too will today’s city be a pale comparison to the coming high fidelity, virtual online innovation communities.

Imagine a near-term future where any entrepreneur, anywhere on the planet, independent of the language they speak (think instant translation), can grab their VR headset (e.g., Oculus, Hololens, Magic Leap) and immerse themselves in an extremely high-resolution and low-latency VR world filled with like-minded, creative, insightful and experienced entrepreneurs.

But this hyperconnected world is not happening in isolation from other changes.

As I’ve noted in previous posts, the number of people connected to the Internet is exploding, going from 1.8 billion in 2010 to 2.8 billion today, and as many as 5 billion by 2020.

The opportunities for collaborative thinking are growing exponentially, and since progress is cumulative, the resulting innovations are going to grow exponentially as well.

Ultimately, these virtual worlds will create massive, global virtual coffeehouses for entrepreneurs to meet, to innovate, to create businesses and solve problems.

It’s for this reason (among many others) that I believe we are living during the most exciting time ever.

The tools we are developing will bring about an age of abundance, and we will be able to meet the needs of every man, woman and child on Earth.

Image Credit: Impact Hub/Flickr

Dr. Peter Diamandis is the Chairman and CEO of the X PRIZE Foundation, which leads the world in designing and launching large incentive prizes to drive radical breakthroughs for the benefit of humanity. Best known for the $10 million Ansari X PRIZE for private spaceflight, the Foundation is now launching prizes in Exploration, Life Sciences, Energy, and Education. Diamandis is also the co-Fou...

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