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2010 February 02 Tuesday
Silicon Valley Never Regained 2000 Peak

Silicon Valley peaked in 2000.

Santa Clara County and neighboring communities had 544,387 high-tech jobs in 2000. By 2004, that number had dropped more than 25 percent to 403,994. Silicon Valley bounced back over the next four years, bringing the number of high-tech jobs in 2008 to 435,958. That number, though, was still more than 19 percent below the total in 2000.

The average annual tech wage in year 2000 dollars was $120,064. That dropped 15.8 percent to $101,057 in 2004, then climbed back only slightly to $103,850 in 2008, down 13.5 percent from 2000.

The Valley has a lot of energy start-ups. But even if some of them take off I expect their photovoltaics plants and battery plants will get built elsewhere and most of the engineers for those companies will eventually work at other locations where labor costs, housing costs, and taxes are lower.

Jobs are being moved out of the Valley in order to lower costs.

Amar Mann, a regional economist for the B.L.S. who is based in San Francisco, said that in 2008 — even before the recession hit bottom — there were 108,000, or 19.9 percent, fewer high-tech jobs in the Bay Area than in 2000, when the bubble reached its peak. During that same period, inflation-adjusted average incomes fell by 13.5 percent in the Valley, while high-tech workers elsewhere in the country enjoyed a 1.3 percent gain.

In the course of his research, Mr. Mann said, he encountered a recurring theme: High-tech companies, looking to cut costs, moved out of the region. That said, he added, the outflow of companies and jobs is difficult to quantify.

The very communications technology revolution that Silicon Valley did so much to foster has enabled shipment of jobs and tasks abroad. Software developers and engineers can collaborate on the same problem across time zones. Technical support personnel do not need to be in the same location as product developers. Email, virtual private networks, and internet web sites enable information to flow outside of small geographical areas. The Valley has a harder time maintaining any sort of sustained advantage in knowledge and ability.

Given the high costs of coastal California the US needs another place with sustainably lower costs to become the entrepreneurial and venture capital center.

By Randall Parker    2010 February 02 10:00 PM Entry Permalink | Comments (12)
2009 May 28 Thursday
Less Need For Venture Capital Money For Web Startups

Economies are in serious trouble. Many of us fear for our jobs. Others are already unemployed with grim prospects. Some economists warn of a period of extended economic stagnation. All not good. But on the bright side cloud computing has so lowered the hardware cost side of web computing that most web startup companies no longer need venture capital.

Enthusiasm for Web startups has, however, clearly changed since the height of the Web 2.0 boom. This is due partly to tighter economic constraints, but also to plummeting costs of starting Web businesses as cloud-computing infrastructure has spread. Since less capital is required to start a company, there is less need to turn to outside investors.

"I think most [Web] startup companies should not take venture-capital money," said Jeff Fagnan, a partner at Atlas Venture, during a panel discussion. He cited, in particular, companies building lightweight Web applications or software for portable devices like the iPhone. In some cases, Fagnan said, venture capital may damage a startup by creating conditions that push the company to aim too high from the outset.

So this is a great time to do a web-based startup if you have a good idea and the talent to implement it. If the economy stagnates and yet you can bring in big bucks your buying power will be high and you'll be immune to the danger of unemployment.

By Randall Parker    2009 May 28 10:34 PM Entry Permalink | Comments (0)
2006 October 07 Saturday
Venture Capitalists Face Shortage Of Good Prospects

Venture capitalists have too much money for the number of prospective investments they can find.

“The traditional venture model seems to us to be broken,” Steve Dow, a general partner at Sevin Rosen Funds, said in an interview.

Sevin Rosen, a 25-year-old firm that is among the most respected in the industry, was in the process of closing its 10th fund and had received commitments from investors for $250 million to $300 million, Mr. Dow said. But in a letter sent to those investors yesterday, Sevin Rosen said it had decided to abort that process.

“We have decided to take the radical step of returning the commitments you have given us for Fund X,” the firm wrote.

Explaining its decision, Sevin Rosen, which has offices in Dallas and Silicon Valley, said that too much money had flooded the venture business and too many companies were being given financing in every conceivable sector.

What is bad news for the VCs is good news for the rest of us. Companies that have great ideas have an easier time getting money. More good business models get funded. We benefit from a larger and better selection of goods and services.

The article reports the firm also complains about a weak Initial Public Offering (IPO) market. Weak? I suspect the market has become more efficient. The Vulture Capitalists brought too many worthless turkeys to market back in the 1990s and now the prospective buyers know to look hard when VCs make extravagant claims about the future prospects of their investments.

To succeed in venture capitalism is going to require more technical and business talent when analysing prospective investments. I expect the efficiency of venture capitalists to improve as a result of the heigthened competition they face. That'll reduce waste. Seems like good news for the economy as a whole.

By Randall Parker    2006 October 07 12:33 PM Entry Permalink | Comments (2)
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