Silicon Valley: “Bubble” or “No-bubble” – that is …

The barometer of Google Trend clearly shows the fast inflated scale of the Silicon Valley’s euphoria …


Some of the Silicon Valley prophets began to clarify it in some more details:


Sequoia’s Moritz joins warning chorus over Silicon Valley valuations. Early investor in Apple and Google doesn’t like what he’s seeing. One of the most successful investors in Silicon Valley has added his voice to a swelling chorus concerned about a bubble in tech stocks, prophesying death for “a considerable number” of those ‘unicorn’ private companies that are currently grabbing headlines with sky-high valuations. Read more:

There will undoubtedly be some sort of setback in Silicon Valley, one of the technology industry’s shrewdest investors has warned. A considerable number of “unicorns” — young, private technology companies worth $1 billion or more — are doomed to fail in the coming months, Sir Michael Moritz, the chairman of Sequoia Capital, told The Times. Read more:

Bill Gurley is one of the best and most prominent venture capitalists in the U.S. right now… So when he blogs about the “b word” (bubble) and follows it up with a media tour, no wonder serious people pay attention… Mr. Gurley claimed that large fund managers are recklessly plowing billions of dollars into next-generation growth companies like Uber and Airbnb in the wild-west private market, rather than the regulated public market. He describes a mania of investors “desperately afraid of missing out” as they ante-up in the “high-stakes, late-stage game.” Read more:

Marc Andreessen, the cofounder of Andreessen Horowitz, is one of the most powerful Silicon Valley venture capitalists… And despite warnings from investors like Benchmark partner Bill Gurley … about the tech bubble and excessive Silicon Valley optimism, Marc Andreessen says he isn’t concerned about another tech bubble mirroring that of the late 1990s… Andreessen says the burst tech bubble of 2000 was an isolated incident… “The argument in favor of concern is cyclical. The counterargument is that stuff works now,” he says. “In 2000, you had fifty million people on the Internet, and the number of smartphones was zero. Today, you have three billion Internet users and two billion smartphones.
Read more:



Can big companies success or failure be considered as an indicator of anything in tech trends?



And what about all other?




As it can be seen from the above chart, the eCommerce growths – as an integrated measurement of the main impact of Internet startups (so called “dotcoms”) on the US economy – stayed positive since the 1999 without any signs of any bubbles at all.

The fact that a significant part of “dotcoms” were the first victims of one of the next US cyclical economy recessions – that was called the 2000 “tech crisis”- doesn’t mean that the recession of 2000 was caused by “dotcoms”.

In other words, there weren’t any reasons to think that crisis of 2000 was cause by Internet startups. After all it means that any attempts to forecast probability of one of the US next cyclical recessions by comparison the “dotcoms” status of 2000 and 2015 is totally baseless.

Meanwhile the basic concept of “dotcom bubble” as original source of “tech crisis” of 2000 is still predominantly basic foundation for almost all analytical approaches of 2015. See for instance the section “Tech Bubble (2000)” of Forbes article The Coming Financial Bubble: Why It May Be The Worst Of All:

    The tech bubble, a.k.a. the dot-com bubble, was a period of time when the price of technology stocks soared, despite the fact that many companies were operating in the red. Driven largely by money from venture capitalists, many new technology companies emerged, offering their services for free. The expectation was that these start-up companies would be able to charge a fee in the future, which ironically, was fine with investors.

Mike Patton, author of the above quote article, is right: “many companies were operating in the red“, e.g. the Google, that continued to stay “in red” even a couple of years after the 2000. Its investors – unlike a lot of others – was not scared by the cyclical recession of 2000 and continued to support the startup of their choice. Unfortunately a great part of other “googles” weren’t so lucky in their relationships with VSs and were perished at the first stage of so called “tech crisis” of 2000.

Can the recent wave of “dotcoms” appear among the first victims of the nearest recession? They can and … that’s it. Nothing else – except of this trivial conclusion – can be “predicted” at this time. As Mark Andresseen twitted about it, “When the market turns, and it will turn, …many high burn rate co’s will VAPORIZE“.

What can be a real reason of the expected “market turn” can be discussed. For instance, “Icahn warns markets ‘extremely overheated,’ especially in junk bonds“…, though the recent scale of dotcom funding definitely can’t be one of them:

Chart via: @skupor , @timmullaney: “Good news! There’s no tech bubble. Now for the bad news…

“How do we create our own Silicon Valley?”


How is it that Israel—a country of 7.1 million people, only sixty years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources—produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the United Kingdom?[5]

    The “Economist” notes that Israel now has more high-tech start-ups and a larger venture capital industry per capita than any other country in the world. The success of Israel’s high-tech sector over the past two decades has attracted recent attention from business journalists and The Economist describes Start-up Nation as the most notable of a “growing pile” of books on the subject.[6]

    In their attempt to explain Israel’s success in this area, Senor and Singer discard “the argument from ethnic or religious exceptionalism, dismissing ‘unitary Jewishness’ or even individual talent as major reasons for Israel’s high-tech success” and analyze two major factors that, in the authors’ opinion, contribute most to Israel’s economic growth. Those factors are mandatory military service and immigration.[5]

    The authors argue that a major factor for Israel’s economic growth can be found in the culture of the Israel Defense Forces, in which service is mandatory for most young Israelis. The authors believe that IDF service provides potential entrepreneurs with the opportunities to develop a wide array of skills and contacts. They also believe that IDF service provides experience exerting responsibility in a relatively un-hierarchical environment where creativity and intelligence are highly valued.[7] IDF soldiers “have minimal guidance from the top, and are expected to improvise, even if this means breaking some rules. If you’re a junior officer, you call your higher-ups by their first names, and if you see them doing something wrong, you say so.”[2] Neither ranks nor ages matter much “when taxi drivers can command millionaires and 23-year-olds can train their uncles,” and “Israeli forces regularly vote to oust their unit leaders.”[8]

    The book also dwells at length on immigration and its role in Israel’s economic growth: “Immigrants are not averse to start from scratch. They are by definition risk-takers. A nation of immigrants is a nation of entrepreneurs. From survivors of the Holocaust to Soviet refuseniks through the Ethiopian Jews, the State of Israel never ceased to be a land of immigration: 9 out of 10 Jewish Israelis today are immigrants or descendants of immigrants the first or second generation. This specific demographic, causing fragmentation of community that still continues in the country, is nevertheless a great incentive to try their luck, to take risks because immigrants have nothing to lose [9]


Read more: “Start-up Nation“. Retrieved June14,2015

See also:
Israel Has Emerged as an R&D Alternative to Silicon Valley Entrepreneur. October 02, 2014
From Startup Nation To Scale-Up Nation, Israel Reached New Heights In 2014

“There’s a duopoly: Israel and Silicon Valley…”

Can Europe Create Its Own Silicon Valley?

The short answer is ‘no way‘ …

Petra Moser, assistant professor of economics at Stanford and its Europe Center, who was born in Germany… “They’re trying to recreate Silicon Valley … so far with little success … The institutional and cultural differences are still too great.”

It looks like Larry Downes, who published an article in Harvard Business Review “How Europe Can Create Its Own Silicon Valley” supposed that Silicon Valley can be duplicated and it’ll be as easy as 1-2-3. As he wrote about it, “Having lived and worked in Northern California since the beginning of the Internet revolution, I’ve been asked that same question regularly, both at home and abroad. My answer may surprise you: pass the right laws“. Read more:

Happened we too “having lived and worked in Northern California since the beginning of the Internet revolution, I’ve been asked that same question regularly, both at home and abroad. My answer may surprise you:” (1) create a country with US like economical & political climate; (2) create the social and legal conditions that were set up in 19th century California since the beginning of Gold Rush, and then (3) create something like Stanford University with someone like Professor Frederick Terman who organized special kind of innovative spirit based Department of Electrical Engineering. (4) When / if all of the above will attract to the Valley people like Nobel laureate and co-inventor of the transistor William Shockley to invest their energy in the further developing of the University industrial park, it’ll be a good time – not earlier – to read the above quoted Harvard Business Review’s article. Read more: From the Gold Mines of El Dorado to the “Golden” Startups of Silicon Valley

See also:

  • “How do we create our own Silicon Valley?”
  • Tolerance for “Bad Behavior” is a Key Social Ingredient of the Silicon Valley.