The recipe however is hard to reverse engineer, and numerous botched attempts have created so-called ‘white elephants’, artificially created innovation hubs that never take off but dangerously sap resources, such as talent and funds from other areas.

So, what are the ingredients that we know have made the Silicon Valley the centre for economic excellence that it is today? Well, traditional explanations trace its success as far back as the entrepreneurial spirit of the Gold Rush pioneers and the grit required to face continual cycles of boom-and-bust caused by uniquely hostile environmental circumstances such as fires and earthquakes.

An early specialisation in semiconductors clearly played a big part in defining what the area excels in today. Businesses that initially invested and innovated in hardware later were well placed to branch out into software and move on to cloud computing and AI.

Silicon Valley’s cultural foundations are equally complex. The Bay Area’s identity was shaped by the counterculture and hippie movements of the 1960s, whose values imbued later communities with a sense of freedom and willingness to challenge the status quo. This ethos encouraged unconventional thinking and bold risk-taking.

Immigration also contributes to a more entrepreneurial mindset and shaped the academic landscape, bringing a continuous influx of expertise that strengthened local universities. Here, world-class research blend with a distinctly entrepreneurial academic culture, supported by shared labs, cross-disciplinary programs, and close collaboration between scholars, engineers, and industry. At the same time, government and regulatory conditions were certainly favourable but are not the sole or leading differentiator. California’s policy choices, such as banning employee non-compete agreements, for example fostered talent mobility and helped create fertile ground for founders and innovators but were not the (sole) catalyst for Silicon Valley’s success. Rather, what is unique about the history of Silicon Valley’s development are its talent and culture of investment and giving back.

Without a concentration of technical talent, managerial experience, and serial founders, willing to share their knowledge and reinvest their wealth it is difficult for any area to achieve Silicon Valley success. On the one hand the influx of immigration, foreign expertise and academia as well as academic entrepreneurship, on the other a healthy capital markets community all contribute to making Silicon Valley possible.

Strong M&A activity and accessible IPO markets mean that successful companies can reinject capital back into the area, creating the ‘flywheel effect’. These markets also allow venture capital firms to raise their own funds from a broad base of institutional investors including family offices, corporate venture arms, pension funds, and other long-term capital sources. Typically used by young, high-risk startups, venture capital has supported the early days of some of today’s corporate giants; up to a fifth of current public US companies received venture capital financing according to estimates. Entrepreneurs in Silicon Valley are typically not just offered financing but also mentorship from seasoned founders, strategic guidance, network access, and other support.

Trying to engineer a similar economic success into different geographies is a key objective for policy makers, but it is critical that the risk of artificially constructing these types of clusters is taken into account too. While not all government intervention is negative (simpler incorporation procedures, less bureaucracy, fewer set up requirement, and flexible employment laws are always welcome!), capital and talent are the key ingredients to economic hub success. With top talent, investment, government support and a thriving academia-business relationship, new hubs can develop and thrive.