Silicon Valley plugs along despite financial crisis
Silicon Valley has remained relatively unscathed by the financial crisis gripping the nation, according to a top financial executive in the region, reports the New York Times
There is no visible impact of any significance in the technology community or the community of venture-backed companies in the United States, Ken Wilcox, the chief executive of SVB Financial Group, the parent company of Silicon Valley Bank, said in a recent interview.
The credit squeeze has not affected lending, Mr. Wilcox said. Silicon Valley Bank clients include venture firms in need of bridge loans, venture-backed start-ups and the bigger companies that acquire them.
"There is adequate capital in the world," he said. "Right now, it's probably scared to death and sitting on the sidelines for a bit, but the world has capital coming out its ears."
The financial crisis has had less of an impact in the technology capital in part because venture-backed companies are rarely dependent on the financial services or housing industries, he said. There have been a few select instances in which the housing crisis has touched the tech sector, such as Internet advertising companies that got much of their business from mortgage brokers.
Some software companies that sell their products to financial services companies are feeling the pain, he said, either because customers are buying less or, in the worst cases, going out of business. Still, "even amidst the turmoil, financial services companies are still buying the software," he said.
Venture firms have continued to raise large funds, including a $930 million fund
raised by Sequoia Capital earlier in September. Even those limited partners whose net worth has been dinged by the roller coaster in the stock market will likely write the checks they promised when venture firms come calling, Mr. Wilcox said, because the penalty for not responding to a capital call at most firms is wiping out everything an investor has already put into the fund.
Of course, there are potential risks. The market for initial public offerings has been nearly closed for venture-backed companies this year, with only two public offerings of venture-backed technology companies so far. The financial crisis will not help that situation.
If the I.P.O. drought continues, "Sooner or later, L.P.s will say, 'Holy cow, this isn't working properly, we're not getting out of this what we wanted to,'" Mr. Wilcox said. "They will be less enthusiastic and put less money in."
For now, though, despite the difficult weeks and year, investors are sticking with venture funds. Mr. Wilcox attributed their persistence to the fact that venture funds are long-term investments and to "good, old-fashioned hope."
Still, those in Silicon Valley, for whom the memory of the dot-com collapse is all too fresh, should not forget how rapidly that crisis spread from Silicon Valley to Wall Street. As Mr. Wilcox put it: "If this lasts long enough, there is not a soul on Earth that won't be affected."