Economy has become a drag on Silicon Valley

SAN FRANCISCO, USA: Housing prices in Silicon Valley remain defiantly high. New BMWs and Saabs cruise Highway 101. But for the first time there are signs that the current economic downturn is taking its toll on the country's cradle of technology and innovation.

Job growth has slowed, start-up companies are hiring and spending more cautiously, and early-stage investors who nurture the start-ups with money and expertise are growing more frugal.

Most of the investors, entrepreneurs, and innovators who build companies in the Valley do so with the hope of taking them public or selling them--the rainmaking opportunities that people here call exits. But with gloom pervading the financial markets and the business climate, the exits are hard to find.

During the first three months of the year, only five companies backed by venture capital investors went public on Wall Street, the National Venture Capital Association said last week. That is down from 31 in the fourth quarter of last year, and is roughly the same level as at the nadir of the dot-com bust.

There was also a sharp falloff in the acquisition of start-up companies by bigger corporations. Microsoft is making noise with its effort to take over Yahoo, but elsewhere things are quieting down. There were only 56 acquisitions in the first three months of the year, down from 83 in the fourth quarter. 

With those options increasingly off the table, investors must spend money and time nurturing--or altogether salvaging--existing companies rather than building new ones. 

Source: NYT