Silicon Valley Money Supply Dries Up

By Michael Liedtke, AP Business Writer

http://www.washingtonpost.com/wp-srv/aponline/20010327/aponline190424_000.htm

Tuesday, March 27, 2001; 7:04 p.m. EST

SAN FRANCISCO –– In another sign of the technology industry's jarring about-face, the amount of money flowing into Silicon Valley companies from the public markets is quickly evaporating, according to new data provided to The Associated Press.

Silicon Valley firms received $2.7 billion from the sale of stock and other securities through March 15, down from $14.1 billion during the first three months of last year. The first quarter also figures to be down sharply from the final three months of last year, when Silicon Valley companies raised $6.5 billion from the public markets.

The report, compiled by financial publishing company Bowne & Co. from Thomson Financial Securities data, provides a snapshot of how much faster the Silicon Valley is slowing than the rest of the nation – and even other parts of California.

Nationally, companies raised $361 billion from the public markets through March 15, down from $407 billion during the first three months of last year and up from $213 billion in last year's final quarter.

In Southern California, companies raised slightly more cash from the public markets than they did last year – $4.8 billion through March 15, the report said.

To a degree, the severity of this year's plunge in Silicon Valley investment reflects a mania that peaked in early 2000. Until last year, the Silicon Valley had never raised more than $1.9 billion from the public markets during the first quarter, according to the report.

The Silicon Valley's current cash drought extends beyond the public markets. The venture capitalists that showered cash on start-ups during the last few years also are tightening the spigot.

"It's really dry out there," Jim Dorrian, a general partner at Crosspoint Venture Partners, said Tuesday. "We are teaching the CEOs at all our companies how to be thrifty right now."

In the final three months of last year, venture capitalist investment in Northern California fell 19 percent from the previous year to $6.9 billion, according to Venture Economics, an industry research firm. Statistics for the first quarter aren't available, but virtually all venture capitalists expect the numbers to reflect a steep decline.

The decrease in money pouring into Silicon Valley companies is bound to have a ripple effect on households and businesses throughout the region, economists said.

That's because companies that receive cash from the public markets redistribute the money by hiring more workers, buying new equipment and investing in new offices.

"This (data) sort of cements it for me. You are going to get a serious downturn in the Silicon Valley economy," said Tom Lieser, a senior economist for the UCLA Business Forecasting Project.

An investment slowdown such as the one emerging in Silicon Valley frequently has a viral effect. As more businesses conclude their customers won't have as much money to spend this year, they table their own expansion plans and hold off on raising more cash from investors.

"We probably won't see this economy bounce back any time soon," predicted Gary Schlossberg, a senior economist with Wells Fargo Capital Markets. The biggest difference between last year's activity and this year's is the stock market's appetite for the initial public offerings of tech companies.

Through March 15, just three Silicon Valley companies – Align Technologies, Riverstone Networks and Loudcloud – had completed IPOs, raising a total of $387 million. In the first quarter of last year, 16 Silicon Valley companies raised a total of $2.5 billion from IPOs, the report said.

With the stock market in a stingy mood, more Silicon Valley companies borrowed money from the public markets. Securitized debt raised in the Silicon Valley totaled $1.85 billion through March 15, up more than threefold from $502 million in last year's first quarter.

http://www.bowne.com

© Copyright 2001 The Associated Press

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