Silicon Valley Barely Touched by Financial Crisis — So Far
The market for initial public offerings has been nearly closed for venture-backed companies this year, with only two public offerings of venture-backed technology companies so far. The financial crisis will not help that situation.
Santa Clara County foreclosures rise nearly fivefold; home values plunge
Nearly five times as many homeowners in Santa Clara County lost their properties to foreclosure last month than in July 2007, signaling there’s not end in sight to the local mortgage crisis. Even many county residents not threatened by foreclosure saw their home values plummet in the second quarter, according to a report released Tuesday.
In a separate report Tuesday, real estate information Web site Zillow.com said home values in the San Jose metropolitan area declined 12 percent in the second quarter compared with a year earlier.
The performance of home values varies widely, reflecting what some real estate experts call it the Apple effect. Homes located near the campus of the maker of iPhones and Macintosh computers —as well as other A-list tech companies — have seen their values rise as others in the Bay Area have dropped.
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.”
Middle Class Workers Feeling the Valley’s Squeeze
A report from Working Partnerships USA says that the median household income in Silicon Valley fell from $83,370 in 2000 to $74,293 in 2005, a drop of 10%. The poverty rate in the Valley also grew from 6.5% to 8.3%.
The Valley had 156,700 fewer jobs in Jan. 2007 than it did Jan. 2001, a 15.4 percent drop. The cost of living also increased substantially, as a family’s average cost for job-based health insurance doubled, the price of electricity grew 15 percent and the average cost for child care in Santa Clara County grew by 40 percent.
MIT LCS Professor Anant Agarwal started Tilera, located in Massachusetts and just down the street in Silicon Valley, to develop “programmable ASICs and associated compilers”. They seem to still be in stealth mode, since their web site is content-free. But Private Equity Week says they’ve raised a tidy sum in Series B funding: Multiprocessor startup reportedly raises $20 million.
Tilera (Santa Clara, Calif.) was founded by Anant Agarwal, professor of engineering and computer science at the Massachusetts Institute of Technology. Agarwal serves as chief technology officer at Tilera. The company is run by Bessemer operating partner Devesh Garg, who serves as chief executive officer.
The New York Times has another article on why it’s so hard to duplicate Silicon Valley:
When It Comes to Innovation, Geography Is Destiny
“Face-to-face is still very important for exchange of ideas, and nowhere is this exchange more valuable than in Silicon Valley,†says Paul M. Romer, a professor in the Graduate School of Business at Stanford who is known for studying the economics of ideas.
In short, “geography matters,†Professor Romer said. Give birth to an information-technology idea in Silicon Valley and the chances of success seem vastly higher than when it is done in another ZIP code.
About one-quarter of all venture investment in the United States goes to Silicon Valley enterprises.
A new report, just released by the Joint Venture Silicon Valley Network, says that for the first time since 2001, Silicon Valley employment increased in 2006. The valley added 33,000 new jobs in 2006, for a 3% increase.
There was particular growth in creative and software industries, but declines in hardware and corporate offices. [...] The creative industry includes jobs like lawyers, accountants, engineers and those in advertising.
Wait a minute. Lawyers are creative?
The report also confirmed the mad rush of venture funding to the alternative energy business.
Venture capital funding to clean technology firms increased 266 percent last year, investing about $300 million by the third quarter alone.
Meanwhile, Silicon Valley snared 27 percent of the total venture capital funding in the country, Henton said.
“We’re back to where we were in 1998 in venture capital (funding), he said. “Silicon Valley is reinventing itself and you see it in a number of these venture capital dollars.”
Household income also increased in 2005, for the first time since 2001, by 6.5% to $76,300. However, even in the current slower housing market, rental prices increased. And still only a quarter of first-time home buyers can afford to buy the average home in Silicon Valley, down from 44% in 2003.
Some good news this week about the Silicon Valley economy. A new report says that jobs are returning to Silicon Valley.
Employers in Santa Clara and San Benito counties added 15,800 jobs across a variety of sectors during the past 12 months, boosting the valley’s payroll employment by 1.8 percent between December 2005 and December 2006, according to a report released Friday by the state Economic Development Department.
The valley hasn’t experienced year-over-year job growth of this magnitude since April 2001, when the region gained 21,200 jobs — a 2.05 percent increase — over the previous 12 months, experts said. After that, local employment plummeted with year-over-year job losses each month until October 2004.
A recent NY Times article interviews millionaires in Silicon Valley complaining about how they “almost made it”. These poor saps now listlessly manage their investments, sit on company boards, and window-shop for sports cars. All the while glaring jealously at their buddies who became … billionaires.
In Web World, Rich Now Envy the Superrich
Envy may be a sin in some books, but it is a powerful driving force in Silicon Valley, where technical achievements are admired but financial payoffs are the ultimate form of recognition. And now that the YouTube purchase has amplified talk of a second dot-com boom, many high-tech entrepreneurs — successful and not so successful — are examining their lives as measured against upstarts who have made it bigger.
Some find inspiration in others’ success, while some spend tremendous amounts of psychic energy worrying about how rich their friends are.
In the midst of all that hand-wringing, I find my old school buddy PZ, now at Harvard!
Envy can even affect relationships among siblings. When he was growing up in Winchester, Mass., Peter Pezaris told friends and family that he planned to become a millionaire by the age of 30 and a billionaire by 40.
“I remember thinking, ‘Yeah, sure, right,’ †said Mr. Pezaris’s older brother, John, a computational neuroscientist at Harvard.
True to his word, in 1999, Peter Pezaris sold his two-year-old business, Commissioner.com, to CBS SportsLine for $46 million, three days after his 30th birthday. (The proceeds were shared among five partners; his brother was not among them.)
Peter Pezaris, 37, who is now based in Boca Raton, Fla., said he still believed that he had “plenty of time†to become a billionaire by age 40 with his new start-up, Multiply.com, a social networking site.
This time his brother is paying closer attention. John Pezaris had helped informally with the first business; now he programs for Multiply in his spare time and has a formal stake.
“I wanted to codify something for his second one,†said John Pezaris, who is 43. “So we came to an arrangement.â€