San Francisco: Housing prices in Silicon Valley remain defiantly high. New BMWs and Saabs cruise the Highway 101 corridor. But for the first time there are signs that the economic downturn is taking its toll on the country’s cradle of technology and innovation.
Job growth has slowed, startup companies are hiring and spending more cautiously, and early-stage investors who nurture the start-ups with money and expertise are growing more frugal.
Most of the investors, entrepreneurs and innovators who build companies in the Valley do so with the hope of taking them public or selling them—the rainmaking opportunities that people here call exits. But with gloom pervading the financial markets and the business climate, the exits are hard to find.
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.
There was also a sharp fall-off in the acquisition of start-up companies by bigger corporations. Microsoft Corp. is making noise with its effort to take over Yahoo Inc., but elsewhere things are quieting down. There were only 56 acquisitions in the first three months of the year, down from 83 in the fourth quarter.
With those options increasingly off the table, investors must spend money and time nurturing—or altogether salvaging—existing companies rather than building new ones.
“We are holding expenses very tight,” said Jim Breyer, managing partner at Accel Partners, a venture capital firm. The firm is an investor in Model N, a software company that recently withdrew its registration to go public because of the inhospitable market conditions. Breyer said the company would wait until the fall, at the earliest, to try again.
“It’s anybody’s guess how long the downturn will last,” Breyer said.
If it lasts through this year, he said, “it will be far more than an inconvenience for all companies.” The dried-up market for public offerings and acquisitions is affecting not just the atmosphere of innovation but also the lifestyle of its participants.
“Less cash coming into the Valley means less cash to purchase homes, and go out to nice dinners, spend on consumer products and go on vacations,” said Hans Swildens, founder and principal of Industry Ventures, an investment firm that buys stakes in start-up companies that need infusions of cash.
“The general sentiment in Silicon Valley is that we’re not yet there, but the reality is that we are,” Swildens said. “It’s already started.”
|
