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As promised, here is the follow up to my post that covered the issue of whether or not you need to be in the Valley to really make a run at starting an internet company (thanks for all the comments guys). As I mentioned in the post I don’t believe that you have to be in the Valley to make things happen but it is undeniable that there is more funding in the Valley and a lot of great companies, even some of the biggest and best of all time, have been started there. That said, it seems that the question we really need to ask is:

How did the Valley become the Valley?

Once we nail that down we can start to look at the situations in other cities across the country, and the world, and start to move things forward.

In talking with a wise man a few months ago I think I have learned how the Valley came to be.

It seems that some of the big VCs today (who were small upstarts back when) took a look around the Valley and saw a lot of top talent slaving away inside big companies. They found it strange that none of these really smart folks would spin out and start their own companies. Then they realized why this was the case.

They had yet to see anyone else spin out of a big company and be successful.

After the VCs figured this out they knew what they had to do. They had to rip these smart people out of the big companies kicking and screaming, set them up with office space and cash and then get them to build the next big thing.

After doing this successfully for a number of years others began to see that starting a business was a viable things and the Valley was born.

That’s not the end of the story though. If all that happened were that certain folks started companies, built them up, sold them and then either retired or started another company the Valley wouldn’t have continued to grow. What needed to happen was the lieutenants from the original crop of startups needed to head off on their own and start their own companies and so on and so forth.

The effects of the people second in line eventually starting their own things and then their lieutenants starting their own things created an entrepreneurial culture that caught fire. Even people outside of the company building ecosystem then started thinking to themselves – “Hey, I know that guy and he’s no smarter than me. I can do this too.” – and then started to start new companies.

So it looks like what we need to do is encourage the lieutenants of companies like FeedBurner, IAC, Monster.com, AOL, Orbitz, Tacoda, etc. to start something on their own and keep it in their respective cities. Of course the local VC scenes need to take some risk to back these new entrepreneurs but if the risk is taken it seems like we can create big successes outside the Valley and, as can be seen in the Valley, success breeds success.

Of course this is an oversimplification and a lot of work needs to be done on the funding infrastructure in places like Chicago and D.C. and even places like NYC and Boston (although to a lesser extent since there are a lot of firms around those cities). Work also needs to be done on entrepreneurial education and there need to be things (that’s a technical term) around that encourage entrepreneurship as well. That is all buildable though. It will just take time.

Let’s start encouraging and helping some of the lieutenants from successful startups to start thinking about, and starting, their own things. Once that starts to happen, and if we can keep in rolling, we can start to build Valleys in other locations.