New Song: Down in the Valley: Technology: At Stake in the Current Downturn Is Silicon Valley's Standing as the Cradle of Innovation

Newsweek, April 16, 2001 | Go to article overview

New Song: Down in the Valley: Technology: At Stake in the Current Downturn Is Silicon Valley's Standing as the Cradle of Innovation


Two years ago Jeff Bonforte was giving ultimatums. Fund my company by tomorrow, the 26-year-old told the partners at Silicon Valley-based venture firm Draper Fisher Jurvetson, or I'll get my money elsewhere. He got the firm's money then--and he's getting his comeuppance now. "I don't think venture capitalists even want to be seen talking to me, at least in public," says Bonforte, chairman of I-drive.com, an online data-storage company that for the moment is surviving by recasting itself as a wireless firm. "God forbid another VC would see us and say, 'Look, he's talking to a young, twentysomething entrepreneur. Didn't learn his lesson'."

This is the new Silicon Valley, where the man-child CEO has fallen from favor and the masters of Sand Hill Road are reeling with self-doubt. The area's M.B.A.s have once again been relegated to the shadows of its Ph.D.s. A year ago, says Robert Sutton, a Stanford professor with appointments in both the business and the engineering schools, M.B.A.s were telling him, "You're Old Economy and you don't know s---." Now they're coming by his office seeking his counsel.

Credit Suisse First Boston's Frank Quattrone, the boys at Benchmark Capital, Yahoo's Tim Koogle: the people who one year ago topped any list of high fliers are now the same names on people's lips when asked whose personal stock has fallen the hardest. Business has gotten so rough that picking out who's up is difficult. The hottest VC firm in the Valley may be the venture arm of Nokia, the Finnish wireless company. Of all the giant tech companies operating in Silicon Valley, it's the Redmond, Wash.-based Microsoft that's at the center; the area's only burst of optimism in recent months was on March 26, with the official opening of the company's new Silicon Valley Technology Center.

The Valley has seen steep downturns before, yet even old hands accustomed to the area's boom-and-bust cycle recognize that this time things are different. "This is about as steep and dramatic a decline in the economy of the Valley as I've ever seen," says Sanford Robertson, a local eminence grise who was one of the first bankers to specialize in high tech. Robertson points to the hard times that have hit even Cisco Systems, the networking company, which he describes as "more of a religion than a stock."

At stake is the Valley's future as the cradle of technological innovation. The excitement over the Internet is gone, and either no hot new ideas have emerged or the financiers are feeling too battered to embrace them. During a recent interview, Ben Dubin, a general partner at venture-capital firm Asset Management Co., was interrupted by a call pitching a new wireless firm. He passed, though he believed it was a good idea. "There are a lot of babies that will be thrown out with this murky bath water," Dubin says.

Every time the Valley has been through a downturn--think defense contracting, semiconductors and personal computers--the area has somehow come back stronger. …

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