The biggest concern I had as the Bear Stearns mess unfolded last week, was that we hadn't seen anything yet.
Financial analysts and journalists have said for months that this crisis could be the worst of the last several decades, worse than the Asian economic flu of 1997 and Longterm Capital Management meltdown of 1998, worse than the Black Monday of 1987, worse than the stagflation of the 1970s. But the turn of events last week and the continued rally yesterday did hint that such an outcome may have been avoided. It also looks like the final Bear Stearns price may end up closer to a still-crazy-but-at-least-not-highway-robbery $11.00 a share, or a $1.5B market value of equity.
So what does this mean for the Valley?
The IPO market is still turbulent to impervious, with only Titanic's (pardon the analogy) like Visa and other rule-breakers able set to sail.
But the woes of cigar-chomping bankers, first-time home-owners, and Washington D.C. fiscal policy wonks make little impression on a committed technology entrepreneur. His or her price expectations while coding up new programs in Silicon Valley seem unaffected at this point by the volatility in far-off Wall Street. And since it's still too early for the average entrepreneur to think this economic crisis has anything to do with him, many startups continue to believe they can raise money at last year's prices. Nothing about their business model has changed, they think, and if anything has, it's been in the form of progress, so why should expectations weaken?
If Bebo's are still getting acquired for $850M, then there's a reason RockYou's and Slide's are still getting funded at $400 and $500 million.
But I think startups' fortunes must rise and fall with those of the rest of the market, even if delayed by six months or a year. Sober LPs must eventually start asking their VCs on Sand Hill about the valuations they're seeing in the context of the current market environment.
I think it will hold true that very few in the valley of technology are utterly immune from global economic viruses, even ones borne of something as un-technological as mortgages.
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