In Silicon Valley, times are very good indeed.
Young people, who in previous decades would be graduating from college and making decisions about where to start their careers, are actually saying “No” to deals that would make them and their descendants wealthy beyond belief because they are confident they can wait for something even better.
Saying “no” in the current environment. In the current environment, risk is being discounted tremendously. A prime example is Snapchat, the two-year-old company that has said “No” to a multi-billion dollar deal from Facebook, as well as an even bigger one from Google.
If all business activity is driven by fear or greed, then in Silicon Valley, the current cycle is definitely on the greed side, according to Josh Green, a venture capitalist who is also chairman of the National Venture Capital Association. Opinions differ as to what stage the Valley is currently in, but the general feeling is it has been in a boom cycle for some time. This scenario tends to make people nervous, since they anticipate the coming bust cycle.
Since the recession, venture money invested in 2012 fell from the previous year, and dropped again in the first half of 2013. There have been plenty of predictions about the death of venture capital.
A changing business climate. It takes a less money now to start a business than it did in 1999. When an app captures the public’s attention, it does so in a matter of months, which means the business climate has definitely changed since that time.
Funding in the third quarter has increased by 17 percent since last year, leading some to conclude that now is the best time to be a venture capitalist. Since everyone wants to be part of the action, Benchmark is putting together a new investment fund. It could easily raise $1 billion from its limited partners. Instead, it will limit the amount to its usual level of $425 million.
Venture capital is all about taking risks. Whether Snapchat is merely a flash in the pan will remain to be seen.