"Everybody"
knows Silicon Valley needs more jobs to really be considered in a recovery. "Everybody" also "knows" start-ups will
lead an employment recovery. Start-ups grow faster and need a higher concentration of engineering talent to
get off the ground. "Everybody" is waiting for next phase of start-ups to start growing-- and hiring.
For insight into start-up activity, we like to study VC figures and 3Q04
VC funding statistics were just released. And what do you know, these statistics are being touted as evidence of a
Silicon Valley recovery:
(For purposed of this discussion, let's just ignore 2004's run rate is more then 85%
below Y2K figures.)
Another source, VentureOne(**), shows 3Q04 US VC investments were actually down -15.8% from 2Q04 and down slightly year-over-year. Even so, $15B
in new VC investments YTD04 would be more than 2002 and 2003 combined. Not exactly chopped liver.
Building
on a table started April, 2004, here are quarterly figures for total US VC technology investments, breaking out Silicon Valley Technology and Silicon
Valley Total investment:
Contrary to earlier assertions, Silicon Valley and Silicon Valley tech companies do not appear to be losing share in US VC funding. If anything, Silicon
Valley technology companies are gaining share in US VC funding.
Yay team! Happy days are here
again!! The Silicon Valley economy can't help but come back with all this VC money pouring in. Start
ups will inevitably start to ratchet up local employment. If we can just hang on, the jobs will start popping up!!!
But wait a minute... Unfortunately, there are a few flaws in this argument. When
Silicon Valley firms received billions of dollars in new VC funds in the late-90's and into 2000 and 2001, they ran out
and hired talent locally.
Job statistics for Santa Clara county over those years are:
Overlooking the down years immediately after the bubble, where are all the new jobs today? With
a VC funding rate +14.5% above the 1998 rate, Silicon Valley still down -94,100 jobs?!? We have nearly 100,000
fewer jobs than before the boom??
The most obvious reason is a 2004 VC dollar and a 1998 VC dollar are not spent
the same way. It seems inescapable that 2004 VC dollars are increasingly funding new jobs overseas.
As
stunning as the jobs numbers were at first glance, closer inspection discovers even worse news.
1) Several VC's are on record saying the reported numbers under-represent their actual
spending. They claim more companies are being funded but are opting to stay in "stealth mode." (So as
not to alert the competition to what they are doing.) These companies receive new VC money but are not included
in the stats. VC's would have us believe this is a new phenomenon even though I clearly remember numerous sales calls
on start ups during the boom where engineers refused to explain any details of what were working or their business
model. (Yet they still imagined semiconductor companies would allocate scarce parts to their requests.) (Memo
to VCs: If an idea can be copied this easily, it won't stay unique in the marketplace for long.)
1A) The same VC bragging how smart his start-ups were for staying in stealth mode also explained
these companies "already know who they want." He projects a typical start-up's first 100 employees are all hired without
advertising or recruiting. Maybe it's just me who is clueless but I don't think this tenet of strategy is
well understood by those hoping to find and catch on with start up.
2) Using January 1998, 2001 and 2004 total jobs in Santa Clara county, compared to
current:
1998 2001 2004 Oct'04 Since'98 Educational Services 23,500
25,100 26,600 27,600 +3,200 Health Services 59,000 62,000
65,900 66,000 +7,000 County Government 14,400 15,900 16,700 16,300
+1,900 City Government 13,000 13,900 14,400 14,800 +1,800
(The same data shows financial services and real estate net out to almost zero growth since 1998.
If people laid off from Silicon Valley manufacturing, engineering and marketing jobs are fleeing to real estate
and mortgages, they are waiting until after they move out of Silicon Valley...)
Normalizing for the boom, private industry is down -108,000 jobs since January,
1998. This reduced private employee base is currently funding an extra 14,000 jobs not subject to
the discipline of profit and loss statements. (October, 2004 alone had a net of +5,200 of these jobs.) Said
another way, employment in fields which are tax-payer funded and/or subsidized has risen from 12% of jobs in the county to
nearly 15%.
Conclusion: VC funding levels are up and will exceed 1998 levels. Even so, private
industry jobs are down roughly -108,000 over the same time period. I don't think "everybody" has thought through the
implications of these numbers...
* * * *
Within the next week or so, VC statistics will be added to the "SV Stats" web page.
