Just one word. Are you listening? Silicon.

“I want to say one word to you. Just one word. Are you listening? Silicon.”  That’s what Benjamin would have heard thirty years later. Forget about the “new economy.” Don’t worry about who’s going to win the processor wars or who will dominate the Internet and the World Wide Web. It doesn’t matter who wins as long as it drives infrastructure. The Silicon machine tool industry seemed like a pretty good place to be in 1995.  And for the most part it was, until the dot.com bubble burst and Sarbanes-Oxley came along.

The economic ecosystem of Sand Hill, Stanford, Cal and their corporate offspring made Silicon Valley a near perfect habitat for technology companies in 1995. Either you or someone you knew had “gone public” or was about to. The number of venture deals was about to increase four fold and total investments twelve fold between 1995 and 2000. Silicon Valley was (is) the center of the entrepreneurial world.  Even so, venture capital is tiny when compared with GDP or even TARP or the stimulus package. For example, the total initial investment in Google was $1.1 million in 1998. Google is worth about $100 billion today, five times the total venture capital investments of 1998. Between 1995 and 2000, the total invested in venture capital deals was $214 billion.

By the time 2000 rolled around, most of us in the semiconductor industry were bracing for a downturn. The chip makers were placing unprecedented and ridiculously large capacity orders relative to any unreasonably optimistic growth forecast for infrastructure and consumer goods. No big deal for an industry that’s used to being on Mr. Toad’s Wild Ride all the time. What we did not expect was the disappearance of the IPO as an exit option for venture backed businesses and that Enron, Tyco, Worldcom and others would help put the Sarbanes-Oxley stake in its heart.

 From the perspective of a start-up in 2000, the world as we knew and wanted it had just changed dramatically. Venture capital “dried up.” It really didn’t dry up, more was still being invested than in 1995, it just seemed that way. One investor summed up their sentiment as one of “deep pockets and short arms.” Cram-down rounds became the norm, if you could raise one, as valuations tumbled and investors scrambled to triage their portfolios. To make matters worse, the IPO bar had been raised by the market in terms of quality and size of deal placing that financing option out of reach for many for whom it might have been an option during the bubble. In addition, the added cost of compliance with Sarbanes-Oxley has caused companies to rethink the cost of access to the public market. One of the lasting effects of the dot.com bubble burst is that the classic Silicon Valley start-up-to-IPO dream became a lot tougher and less desirable to achieve starting in 2001. 

 

Venture Backed IPO's