Survival and Growth of Silicon Valley High-Tech Businesses Born in 2000. (Silicon Valley Businesses Born in 2000)

By Luo, Tian; Mann, Amar | Monthly Labor Review, September 2011 | Go to article overview

Survival and Growth of Silicon Valley High-Tech Businesses Born in 2000. (Silicon Valley Businesses Born in 2000)


Luo, Tian, Mann, Amar, Monthly Labor Review


High-tech businesses born in 2000 in the Silicon Valley had below-average survival and employment growth rates from 2000 to 2009, except for the year 2000, during which surviving firms of the cohort experienced significant growth that carried over for 8years;year-specific and industry-mix effects, however, weaken the latter conclusion

During the late 1990s and 2000, a flurry of investment in Internet and technology companies gave rise to the "dot-com bubble." This financial bubble reached its peak on March 10, 2000, when the NASDAQ (formerly the National Association of Securities Dealers Automated Quotations) attained a level of 5,132, about 4 times higher than it had been 3 years earlier. As the gap between the valuation and the performance of many companies became apparent, Internet stocks tumbled. The nasdaq. reached its low point on October 9, 2002, when it fell to 1,114, roughly one-fifth the level at its peak. "Ground zero" during this period of boom and bust was Silicon Valley, an area centered in and around San Jose, California. The area was home to many of the Internet-based companies that came to typify the dot-com frenzy of the era.

Regarded as the global center of technological innovation, (1) Silicon Valley received prodigious amounts of venture capital investment in the late 1990s and 2000, giving rise to thousands of new businesses in the area. Venture capital investments reached their highest level in 2000, when $32.3 billion was pumped into Silicon Valley. (2) (See chart 1.)

This article examines the cohort of Silicon Valley high-tech businesses born amid the 2000 investment frenzy, during which the dot-com bubble reached its apex. The article tracks the 2000 high-tech cohort through the end of 2009, a period encompassing not only the final runup of the dot-com boom, but also the massive high-tech downturn that followed the dot-com bust, as well as the recession that began in December 2007. First, the 2000 cohort's characteristics are profiled, including the number of businesses and jobs created, categorized by high-tech industry and startup size. Then, the performance of the 2000 high-tech cohort, measured in terms of survival rates and employment growth, is compared with the performance of a typical high-tech cohort. To allow for a fair comparison of the two cohorts, factors influencing the success or failure of high-tech startups, such as year-specific and industry-mix effects, are examined. In other words, the article addresses how the relative success or failure of the cohort was influenced by factors such as the larger business cycle and the life cycle of prominent industries in the cohort. Finally, the 2000 high-tech cohort's employment growth rates are examined by detailed industry to show which industries were most or least successful over the next decade.

Silicon Valley has a reputation for radical technological innovation and has been said to embody the concept of "creative destruction," according to which companies relentlessly reinvent themselves and startups and entrepreneurs challenge established businesses. This competition and constant churning has yielded an evolving landscape of high-tech companies in the Silicon Valley, which remains among the largest and most influential high-tech centers in the world. The analysis presented here will provide measures of the turnover experienced by high-tech startups in the Valley and of factors that influence the survival and growth of new companies, while also assessing the fitness of the 2000 high-tech cohort.

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Data

The data presented in this article are based on a microdata extract from the Bureau of Labor Statistics (BLS, the Bureau) Quarterly Census of Employment and Wages (QCEW) program, which has information on roughly 9.1 million U.S. business establishments in the public and private sector. These data are compiled on a quarterly basis for State unemployment insurance tax purposes and are edited and submitted to the Bureau. …

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