I lived and worked in Silicon Valley (SV) from 1996 to 2001, where I was part of a startup that eventually became part of Extreme Networks. I was responsible for a key product, the WAN and VPN blades, which were integrated into the Switch Router. We managed to sell the company, spin off a division, and even take it public—a rare double success. Although I wasn’t a co-founder, I took on the role of product management after completing courses in data networking at UCSC Extension and earning a professional certificate. Since then, I’ve maintained strong ties to the area and have many friends who are either early retirees, having made substantial money through stock options, or still actively engaged in their latest startups, some as co-founders, others as high-ranking executives.
But this post isn’t about me or my journey from Germany to the U.S.; it’s about Silicon Valley itself, an area still widely misunderstood—something anyone who has lived or worked there can attest to.
I once read an article by a journalist from a German media outlet who spent a year in Silicon Valley to write about the area. The article featured a successful European entrepreneur, computer scientist, and investor in SV. The journalist, confident in his newfound understanding of SV, described this successful individual as a rather shy figure standing in the corner during a cocktail party at the journalist’s rented house. When I read that, it became clear to me that this journalist, like many others from Europe, didn't truly grasp what Silicon Valley is all about. In fact, understanding SV requires more than just a year of observation—it demands years of living, working, and truly integrating into the ecosystem, especially within tech startups.
Let’s start with one of the most misunderstood concepts: Technology Waves.
A technology wave is a new trend in technology that emerges from a mix of evangelists and pioneers and gains momentum through marketing communications to attract the interest of investors, customers, and the industry at large, including the media. Some well-known examples of such waves include client-server architecture, cloud computing, open-source software, and the latest buzz around generative AI (GenAI) and large language models (LLMs).
During my time in SV, I experienced two major waves: optical networking and Gigabit Ethernet routers/switches. Let’s focus on the latter as a concrete example of how these waves work—and how they continue to operate today.
When we entered the Gigabit Ethernet router/switch wave, we were late to the game. There were already about 10 other startups, each securing tens of millions in venture capital (VC) investments. The race was on, and it was clear that only 1-2, maybe 3 if lucky, would survive. The others would either be acquired by incumbents (back then, this included Cisco, Nortel, Nokia, Alcatel, Ericsson, Cabletron, and a few others) or go out of business. The ultimate winners in this race were Extreme Networks and Foundry Networks (now part of Brocade Networks).
In total, the venture capital scene invested around $10 billion into this wave and its startups. Two of these investments turned into successes, each leading to an IPO. Three or four others were acquired, and the rest went out of business. The two main winners completed their IPOs while still operating at a loss, buoyed by a rapidly growing market and double-digit growth rates.
What lesson can you learn?
A tech wave is a concept that investors use to justify a hot investment area. It’s usually a race where, over a specific period (a window of opportunity), 1-2 winners emerge while the others are either acquired or go out of business. Of course, there will be winners and losers among investors too. But as the example above shows, a tech wave presents great opportunities, with the potential for 1-2 out of 10 investments to yield returns as high as 100x, and sometimes even more.
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