Silicon Valley lawyer Mark Stevens paused only a moment to check Google’s finance site during a client meeting as US lawmakers shot down the $700 billion bank-rescue package. Then he got back to work.
Stevens, busy helping an Internet startup finish a round of fundraising, took only a short break to watch “with fascination” the events in Washington. Unlike the dot-com crash of 2000, this meltdown isn’t playing out in technology companies’ domain — yet.
“In the last recession, Silicon Valley was ground zero when the Internet bubble burst,”' said Stevens, a partner at Fenwick & West in Mountain View, California. “In this one, it looks like somebody else is taking the brunt of it.”
Executives drafting business plans and raising money are proceeding carefully as they see tightening credit markets curb corporate spending, acquisitions and initial public offerings.
“The mood over the past week or so has been one of concern and caution,” said Andy Rappaport, a partner at venture firm August Capital in Menlo Park, California, who has spent 25 years founding and investing in startups. “There is a sense that there is still time to act.”
Companies in Silicon Valley, stretching about 50 miles from San Francisco to San Jose, are taking steps to protect themselves. They're paring workforces and tightening spending, said entrepreneur Nickhil Jakatdar, who has worked at four startups. Firms that want to sell themselves or go public immediately also have fewer options, he said.
‘Spending Squeeze’: “It will hit Silicon Valley eventually,” said Promod Haque, a managing partner at Norwest Venture Partners in Palo Alto, California. ''We're advising our portfolio companies to be extremely cautious. Just be careful. You'll see a spending squeeze.''
The number of Silicon Valley jobs was down 8,200 in August from this year's high point. Unemployment hadn't rebounded to its highs of this decade after more than 100,000 jobs were lost from 2000 to 2002, and the region doesn't face Wall Street's risk of losing finance jobs. As many as 40,000 of those jobs may be lost in New York, the state's comptroller, Thomas DiNapoli, said this week.
Silicon Valley typically has about 23,000 startups operating, and that hasn't declined, said Russell Hancock, head of Joint Venture: Silicon Valley Network, an industry group in San Jose. Fears about the bailout's failure remain abstract for now, he said.
“Something's not right, and we think it's going to bite us — we're just not sure how,” he said. “On the other hand, Silicon Valley has a way of just chugging along. We're not as affected by national trends.”
Conservative Wave: Companies that rely on online advertising and startups trying to build mini-applications that work with other Web sites may feel the pinch, said Jay Adelson, chief executive officer of Digg Inc, an Internet news site.
“A lot of conservatism has flooded into the Valley,” he said. “We're expecting to get hit and we were expecting to get hit even at the beginning of this year. We're prepared for it.”
Mitchell Kertzman, an investor at venture firm Hummer Winblad Venture Partners, got word of the failed bailout proposal on his BlackBerry during a meeting with partners. Colleagues reacted with surprise but not fear, he said.
