Silicon Insider: Signs of Life in the Valley
May 15, 2003 -- It certainly isn't the weather.
This has been the worst Silicon Valley spring in recent memory. It's an El Niño year, which comes along about once every decade, just rare enough for us to forget the particulars. We always remember the winter storms — the fallen trees, the demolished fences, the landslides and floods — but we tend to forget the miserable springs.
Typically, in the Bay Area, we see the last rain in March, watch the hills turn brown in May and spend early October in terror of wildfires. The welcome rain reappears in late October just in time to soak Halloween costumes.
This is the meteorological rhythm of our lives.
Then El Niño comes around and turns everything upside down. It is now May and as I write this it is still raining. The hills are still green. Which means that everybody has a cold or sinus infection or a nasty hacking cough, except when the sun comes out and everybody explodes with hay fever. Meanwhile, there have been so many rain-outs over at the local baseball diamond that my two boys are going to be spending Saturdays in June playing quadruple-header make-up games.
Did I mention that everybody around here is suffering from low-grade depression? It's so bad that we're actually stopping at stop signs and allowing other people to merge on the freeway.
All of this would suggest that the economic gloom that has filled this Valley for the last two years is heavier and bleaker than ever. After all, it's been one whammy after another: the dot-com bust, the stock market crash, 9/11, the wars in Afghanistan and Iraq. Then, just as everything finally started looking better, here comes SARS: a few days ago an airliner suspected of carrying an infected passenger was quarantined at the end of runway at San Jose International.
All the more reason to shuffle back to bed with a bottle of Jack Daniels and not come out until after the All-Star Break.
And yet, despite every reason to be despondent, the last month has suddenly brought unexpected first glimpses of good times just ahead.
Signs of Life
Nothing earth-shattering, mind you. No Macintosh introduction or Netscape IPO; that is, the kind of stunning announcement that sends the ground spinning with the realization that the next revolution is underway. Rather, it has been a series of small, discrete events that together suggest that the underlying forces driving Silicon Valley and the tech world that have been bottled up for the last six months by the constraints of larger geopolitical events, can no longer be denied. They are beginning to bust out.
Some anecdotal examples from recent days:
1. I've been involved with two little start-up companies for the last couple years (since I'm not in the promotion business I'll leave their names out). Both companies have enormous upside potential, and in any other era would now be well-funded superstars.
Instead, like all entrepreneurial ventures of the last two years, they have barely struggled by on a few dollars and lot of sweat equity. The same venture capitalists who not long ago threw Brinks trucks at two-line business plans written on soggy cocktail napkins now won't even return these companies' calls. But they've soldiered on, learning healthy lessons in austerity and financial discipline.
Now, in the last two weeks, one of the companies has just closed a major round of capital investment and turned down a huge buyout offer from one of the world's largest corporations. The other has landed one of the biggest contracts of its kind in the country and is about to close its own round of financing.
After years of struggle, both companies now find themselves again on a roll. If everything holds true, within six months they will burst onto the world scene.
2. I attended a local meeting of an "angel" investment group. These are essentially ad hoc associations of people who grew wealthy founding or running Valley tech companies, and who have now decided to re-invest their gains in new start-up companies, typically at the low-cost, high-risk initial "seed" round.
Literally and metaphorically, angels have been thin on the ground in Silicon Valley the last couple of years as portfolios and personal fortunes have withered to a tiny fraction of their Boom bloat. Even the most enlightened, aggressive Angels have had to back away from the sexiest startup investments during the last year.
But, at this meeting I attended, like the birds of spring, the Angels were back, hungry for deals and term sheets. And the war-weary entrepreneurs had come out of their holes to greet them.
3. Barry Diller gets it. I opened the Wall Street Journal a couple of days ago and there's Diller, one of the shrewdest buccaneers in the media world gleefully describing how he's snatching up e-commerce companies as fast as he can write checks.
Why? Because he's figured out something very important: the shake-out of dot.coms is just about over. There'll be a few more fatalities — mostly well-run companies with bad business plans that have managed to limp along the last year — but the new reality is those e-commerce companies that are still around are vastly undervalued. Just like chip companies in 1974 and personal computer makers in 1982, those that have survived are now poised to rule their world.
Diller's not alone. That explains the sudden leap in dot.com stock prices in the last few weeks. Even mighty eBay, which never did slump, is now selling at twice the price. The run-up has begun, and the shrewd (and rich) operators are making their move.
4. And if you think that's a fluke, take a look at the recent earning announcements from Cisco and other industry titans. The enterprise software folks are still hurting, but suddenly everybody else is beating their quarterly earnings predictions. Even HP is turning a profit.. This kind of across-the-board uptick has always been the first sign of a new boom period.
5. If you don't believe that, consider a conversation I had yesterday with a senior executive at a semiconductor manufacturing equipment vendor, one of the world's leading tech bellwethers. He was almost giddy. "Lemme tell you," he said, "next quarter — just based on orders we already have — looks great. And the one after that looks even better."
6. Last week the Exploratorium in San Francisco held an awards dinner for, among others, an old friend: eBay co-founder Pierre Omidyar.
For the last two years these events have been pretty depressing. The chat is always prefaced with "Well, if we can just get through this…", the fund-raising is always below expectations, and the crowd more dutiful than driven.
But not last week. The dinner raised over a million dollars for that worthy museum, grins were on every table-hopping face, and there was even the sound of laughter. There was buzz — something I hadn't felt at a Silicon Valley event since 2001.
I looked in one direction and saw Gordon Moore laughing at a joke, in another to see Pierre with his arm around an old eBay buddy, and in a third direction Elon Musk of PayPal surrounded by a group listening intently to his description of his new space rocket company. The Valley's old generation, new generation and next generation, all rested and ready to play.
Suddenly it was exciting once again to live in Silicon Valley.
Of course, one — or even five — robins don't make a spring. As I type this, another rain front is rolling over the Valley. But one of my neighbors is pitching a new company idea to some VCs tomorrow morning, and my sister is working extra hours at her software company; my e-mail is filling up with ideas for stories and new companies, and even my tech writer friends are starting to find work.
Summer must be just around the corner.
Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com.