Another Silicon Valley Dot.com Bust Coming?

Facebook going public is probably the longest awaited event in the history of Silicon Valley, which has a notoriously short attention span. Accustomed to startups becoming overnight successes, we valley folks expect Facebook to trigger an IPO (initial public offering) boom and more investments. But some observers worry this is just a new technology bubble that will lead to another crash.

Is it? Will Silicon Valley crash again? I don’t think so for several reasons:

1. Global Markets: During the 1990s, Internet startups were primarily targeting the 100 million or so U.S. and European PC users. This time, the markets being targeted by Silicon Valley startups are much larger and still largely untapped. There are a billion PC users and over 5 billion mobile users worldwide, who are technically savvy and buying online, so the total user base is sixty times larger and growing faster. Thus, ventures can scale faster and bigger than before. Even Facebook could attract billions of new users overseas.

2. Profitability: Facebook, Google, Zynga, SalesForce and other social media leaders have sustainable business models because they are profitable, unlike the 1990s dot.com ventures. Their key issues are scaling fast enough for global markets and developing new revenue sources, not figuring out profitable business models and raising VC funding. Many small social media companies also have sustainable revenue models.

3. Mobile Commerce: Unlike the Internet, mobile users are used to paying for services online and have yet to buy products in volume. However, mobile apps are changing that dynamic and will increase retail sales of all types of products. Mobile banking, Q codes and other innovations will accelerate the pace of mobile commerce.

4. Global Investors: In the past, Silicon Valley venture capitalists (VCs) dominated technology investments, but now angels, corporate funds and VCs from China, Brazil, Russia, and other cash-rich markets are entering Silicon Valley and other tech regions, which is creating competition for Silicon Valley VCs. Even if Silicon Valley VCs invest less, Silicon Valley ventures can raise money and go public offshore. Right now, China is the fastest-growing VC market.

5. Corporate Venture Funds: Google Ventures is funding and launching startups in Silicon Valley and could easily replicate this model worldwide since it has over $40 billion in cash. Microsoft, Facebook, Apple, Cisco, and other Silicon Valley corporations could also expand their venture funds to stay abreast of fast-moving technology markets since they are collectively sitting on over $100 billion in cash and looking for new places to invest. The valuation of the top 100 Silicon Valley corporations tops $1.5 trillion, or 10% of the size of the entire U.S. economy.

6. VC Moderation: Unlike the late 1990s, Silicon Valley VCs are much more cautious about over-investing and valuations, with many older funds shutting down due to their dot.com excesses, so the days of big, speculative investments is over.

7. Super Angels: In the place of older, conservative VC funds, new “super-angels” who cashed out of eBay, Amazon, Google, and soon Facebook are becoming the seed investors for the current round of startups. They are investing smaller amounts of money into Internet, software and related fields, and providing more hands-on guidance since they know the industry well. So the valley is shifting from older, bigger VC funds to super angels.

Will investing slow? It already is in over-subscribed areas like social media and mobile apps, but Big Data, energy efficiency, and other emerging fields are attracting new investor dollars. Probably over 80% of Silicon Valley startups fail, but investors know this and diversify their risk by investing in a variety of startups and fields. They know Silicon Valley is the “valley of failure,” which is a barrier to entry for companies, governments, and other regions that try to clone Silicon Valley.

In fact, the ability to rebound from failure is probably Silicon Valley’s biggest competitive edge. Most people fear and avoid failure; Silicon Valley embraces and works around it. In the valley, there’s a saying: “Fail often and fail fast.” You’re unlikely to hear that in most places around the world.

Sheridan Tatsuno is principal of Dreamscape Global (www.dreamscapeglobal.com), founder of Silicon Valley Global Network (http://svgnetwork.com and on Facebook), and author of the upcoming e-book, “In the Valley of Digital Dreams,” which features his amazing interview with Michael Dell (http://www.lifestylentrepreneur.org/2010/09/23/an-amazing-conversation-with-michael-dell-from-%E2%80%9Cin-the-valley-of-digital-dreams%E2%80%9D/

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