The Economist has a cover story this week called Peak Valley.

The article suggests that Silicon Valley’s lead as a hub for innovation has peaked and other regions are rising. It ends with the concern that innovation more broadly has peaked.

I somewhat agree with “the rise of elsewhere” narrative and disagree that innovation has peaked.

Our experience at USV has been that we can and do find high impact startups to invest in outside of Silicon Valley but that we find just as many in Silicon Valley.

In our first four funds spanning the vintage years of 2004-2014, we have had twelve very high impact startup investments. Seven of them were from outside of Silicon Valley and five were from Silicon Valley. The seven outside of Silicon Valley came from NYC (four), Pittsburgh, London, and Austin. Each of the funds we raised and invested during that period have had at least one high impact investment in Silicon Valley and at least one outside of Silicon Valley.

But our data set is small. We made investments in a total of sixty to seventy startup companies in that period. And we don’t invest in Asia, South Asia, Africa, The Middle East, and Latin America so we don’t touch large swaths of the area outside of Silicon Valley. And we are based in NYC so we have a home-court advantage there.

My point is that it has always been possible to build a high impact startup outside of Silicon Valley and invest in it too. But if we were to stop looking for investments in Silicon Valley, our opportunity set would be significantly reduced.

What is true is that Silicon Valley has gotten extremely expensive to operate in. We see that across many dimensions. Valuations of startups in Silicon Valley are significantly higher than outside of Silicon Valley. Cash compensation for employees is significantly higher in Silicon Valley than outside of Silicon Valley. Equity compensation for employees is significantly higher in Silicon Valley than outside of Silicon Valley. And the cost of living for employees in Silicon Valley is much higher than outside of Silicon Valley.

All of that means that capital (both human capital and invested capital) needs to achieve a much higher return on input in Silicon Valley than outside of Silicon Valley, all things being equal. I am not sure all things are equal though and that is really the rub.

Silicon Valley has always had one important advantage over other regions when it comes to the tech sector. There is a much higher density of talent, capital, employment opportunity, and basic research in Silicon Valley versus other locations. When I say density, I mean physical density. If you walked a mile, how many tech companies would you pass along the way? That metric in Silicon Valley has always been higher than elsewhere and still is. So even though the return on capital (human and invested) has significant headwinds in today’s Silicon Valley, it is still a lot easier to deploy that capital there. And I think that will continue to be the case for a long time to come.

The Economist piece ends with the observation that some macro dynamics (large incumbents capturing the lion share of the economics in tech and bad governmental policy toward tech) are making innovation harder. While both observations are correct, I do not think we are seeing any downturn in global innovation. What is happening outside of the US, particularly in Asia, is amazing and there are many new sectors that are just emerging now that will drive innovation in new and exciting directions. Things always look darkest right before the dawn and I believe we are seeing the dawn of a number of important new sectors. And I think Silicon Valley is on to all of them and will make a play in all of them. But so will many other regions around the world.