Response to the Second Half of "Geography of the Internet Industry"

The second half of the book goes to details how venture capital contribute to the clustering of the Internet industry and why.

Besides providing money, venture capitalists also bring nonmonetary inputs to entrepreneurs: (1) providing advice and mentoring on how to grow the company; (2) setting specific goals and metrics for companies to meet and holding managers accountable; and (3) introducing enterpreneurs and helping them establish relationships with sources for later financing, customers and suppliers, as well as a host of service providers such as executive recruiters and lawyers. (p88-91)

For venture capitalist to be effective in the activities above, geographic proximity is important. "The abilityof venture capitalists to assist successful Internet firms was dependent upon largely regional systems of personal contacts and networks (know-who) through which difficult-to-acquire knowledge about technology, companies, strategies, and markets (know-how) was created and quickly exchanged. Although in principle this process need not take place in spatial proximity, in practice proximity is often a central factor because of the largely tacit nature of the knowledge used." (p94)

The book has illustrated the important role venture capitalists play in the fate of Internet companies. Bad advice or lack of guidance from venture capitalist can jeoperdize the future of Internet start-ups. Consider the example of Friendster who started the craze about social network sites but failed to remain in the lead. Their story appeared in yesterday's New York Times.