YOU ARE HERE: LAT HomeCollections

What recession? It's boom time again in Silicon Valley

Investors pile into Internet IPOs and start-ups, making overnight millionaires. House prices and salaries soar. Another dot-com bubble? Maybe, but with differences.

July 17, 2011|By Jessica Guynn, Los Angeles Times
  • Russian billionaire investor Yuri Milner purchased this 25,500-square-foot mansion in Los Altos Hills earlier this year for $100 million, one of the highest prices ever paid for a single-family home in the U.S.
Russian billionaire investor Yuri Milner purchased this 25,500-square-foot… (Paul Sakuma, Associated…)

Reporting from Palo Alto — As she unloaded groceries in the driveway of her Palo Alto home, Lisen Stromberg was approached by a real estate broker who asked whether she'd be willing to sell her five-bedroom house to a senior Facebook executive.

"There is a house down the street selling for $6.3 million. I'll sell you mine for an even $6 million," she replied.

Her tongue-in-cheek asking price was about twice what her house is worth, but the broker didn't miss a beat and said he would speak with his client.

"When I told my husband, he laughed and said: 'Here we go again,'" Stromberg said.

The rest of the country may be struggling to recover from a crippling recession, but it's boom time in Silicon Valley, and the hot housing market is just one sign of that.

Traffic chokes the 47-mile stretch of Highway 101 from San Francisco to San Jose. Dueling billboards on the side of the highway compete for engineers who, with bidding wars for their skills, have seen their pay and stock options soar.

New Prius hybrids purr into employee parking lots, and a Tesla roadster and even a Lamborghini have already been spotted at LinkedIn Corp., which went public in May, turning nearly every pre-IPO employee into a paper millionaire.

Office rents have shot up as much as 35% in some prime locations. Hotel occupancy rates have topped 80%, sending room rates higher. Business is brisk at the Menlo Park branch of upscale grocery chain Draeger's, which takes pride in stocking its shelves with the kind of duck foie gras and other delicacies found at Harrods in London or Fauchon in Paris. Hot start-ups such as Dropbox in San Francisco, which helps its 25 million users store and share photos, videos and documents, are negotiating funding rounds that would make them worth billions. Even the rooftop parties popular during the last major tech boom are making a comeback.

The rush of innovation in Silicon Valley has triggered another tidal wave of financial speculation. Investors are piling into technology initial public offerings and drooling over the prospect of an IPO from Facebook Inc. as early as next year at a valuation that could top $100 billion.

It's not just the return of the big Internet IPO after a long drought. Technology giants such as Google Inc. and Microsoft Corp. are buying young upstarts in a resurgence of top-dollar acquisitions that shower riches on entrepreneurs and their investors.

Venture capitalists poured more than $2.3 billion into Bay Area start-ups in the first quarter alone, a 53% increase from a year ago. Private equity firms, investment banks and mutual funds also have leaped into the mix, hunting for growth investments in a sluggish market. And tech workers and investors are selling shares in Facebook and other private companies to professional investors at ever higher prices, driving up valuations and creating more disposable income.

Some say all of this feverish speculation in Silicon Valley — as much known for its busts as its booms — is giving them déjà vu of the dot-com collapse a decade ago when Internet highfliers crashed as quickly as they soared in value.

Take Twitter Inc., which in December raised $200 million in a round of funding that valued the company at $3.7 billion. It's now raising $400 million in a round of funding that values the company at $8 billion, which some analysts estimate is an astounding 40 times sales.

Others dismiss talk of another technology bubble. They argue that more than 2 billion people are now plugged into the Internet through high-speed connections, creating vast opportunities for companies that are lining up millions of users and growing sales, even respectable profits. This boom, they say, is being driven not by greedy investors pumping up shares of dot-coms to irrational levels on public markets, but by private investors who are battling for stakes in hot start-ups like Facebook that could turn out to be the next Google. But the question remains: Are investors also recklessly inflating the values of less promising ventures?

"There is frothy behavior, but I don't think it's necessarily totally irrational," said David Rusenko, chief executive of, a San Francisco company that helps people build websites. "These are all wealthy private individuals who understand the gambles they are making. It's not like in the dot-com days when grandma was placing bets on IPOs."

The conventional wisdom is that the tech boom could last into 2013. Even though it has been limited to hot tech sectors such as social media and mobile devices and software, it's a rare bright spot for California, which still suffers from stubbornly high unemployment and foreclosures. Unemployment in Santa Clara County — home of Silicon Valley — stands at 9.7%, well below the state average of 11.4%.

Los Angeles Times Articles