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Silicon Valley and Finland 57There was still a need for a specific kind of capital, capital ready to takehigh risks in the expectation of high pay-offs. The first round of financingcame from the US Defense Department, in the 1950s and 1960s. Sputnik in1957 motivated the US government to fund technological development so thatit would remain the world’s leading superpower. For example, the mainmarket for Fairchild, begun with venture capital, was the military, which wasin the process of digitalizing its systems. It was originally the tough militaryavionics requirements for reliability that forced Fairchild to develop the newrevolutionary planar process that protected the transistors and the integratedcircuit (Lécuyer, 2000). The military remained the main market for the integratedcircuits industry in the 1960s, and semiconductor manufacturers likeIntel still sold a fifth of their production to military contractors in the late1990s.In addition to providing a safe market for high-tech production, the militaryalso directly funded university research and development. For this purpose,the Department of Defense founded the Advanced Research Projects Agency(ARPA) in 1958. Michael Dertouzos of the Massachusetts Institute ofTechnology (MIT) has estimated that between a third and a half of allcomputer science and technology innovations have been at least partly fundedby ARPA. The most famous example is, of course, the ARPAnet which laterbecame the Internet, in which MIT, Stanford, UCLA, UC Santa Barbara, andBerkeley all had an important role. If we look at the five top companies intable 2.2, they have all had key ARPA-funded projects. Sun is an especiallygood example of the dynamics. Sun was created to commercialize two technologiesfunded by ARPA: one was the workstation developed by AndyBechtolsheim at Stanford, and the other was the BSD Unix operating systemdeveloped by Bill Joy at Berkeley. For the first year, 80 percent of Sun’smarket was ARPA-related and, in 2001, Sun still announced a $1billion dealwith the US Air Force. Stanford-related institutes are still among the leadingrecipients of this money: for example, the funding of SRI is three-quartersmilitary.Of course, it should be stressed that most people in Silicon Valley are notmotivated by military goals but by an interest in technological innovation,mainly with civilian applications. And the Silicon Valley model has been runpredominantly with private finance since the 1970s. Venture capital companieshave emerged from the industry itself, with inside knowledge of the processesof innovation, and they have also moved to the area, given the importance ofclosely following the work of the innovators they are betting on (Zook, 2004).But in the original development of private funding, the government’s push hada critical role and it has not totally disappeared in the early twenty-firstcentury. In fact, the public contribution to private research and developmentprojects, at least until 1999, was higher than in Finland, for example