Peter Principle

VentureBeat recently held a roundtable discussion on the economic downturn, and its effect on Silicon Valley.

“There’s something going on here other than subprime mortgages,” said venture capitalist John Doerr,  [...] “We’ve not only got a debt crisis but a crisis of confidence . . . With the current level of uncertainty, it’s really hard to forecast what’s going to happen going forward,”

Angel investor Ron Conway thinks it could be at least two years before “the storm” ends, in which case any company with fewer than 6 months worth of cash, needs to either sell out, get a bridge loan, or “prepare for an orderly shutdown.”

The NYT writes that the recession has finally caught up with Silicon Valley: Economy Has Become a Drag on Silicon Valley.

During the first three months of the year, only five companies backed by venture capital investors went public on Wall Street, the National Venture Capital Association said last week. That is down from 31 in the fourth quarter of last year, and is roughly the same level as at the nadir of the dot-com bust.

But having assiduously clawed its way back from the dot-com bust, the Valley is again facing some tough conditions. At the area’s blue chip companies, stock performance has turned grim as growth has slowed. Google’s stock has fallen around 31 percent this year; Apple is down 21 percent. The Nasdaq composite, an index with a major technology focus, is down 11.4 percent this year.

Fortune magazine compares the Web 1.0 and Web 2.0 bubbles. And wonders if Silicon Valley is headed for another bust: Storm clouds over the valley. Again

Signs of weakness extend beyond the company level. Employment dropped by more than 33,000 jobs in the five-county Bay Area in January, as measured by the California state government.

Commercial real estate, a rare bright spot in much of the country, is showing strains as well. After years of gains, occupancy for offices, R&D facilities, and industrial tenants declined by 1.5 million square feet in Silicon Valley in the fourth quarter, according to CB Richard Ellis.

VC Jim Breyer is not optimistic.

“Silicon Valley is often very delusional,” he continues. “So one of the challenges is to step back and say, ‘If there is a recession, why won’t advertising spending be cut dramatically? And if advertising spending is cut dramatically, why doesn’t that deeply affect our consumer Internet companies?’ It’s always my view that it does. We don’t expect there to be as much of an impact, perhaps, on great companies in the Valley such as Google. But we expect there to be a significant effect.”