Is This The Start of Another Bubble?

While the economic recovery is still lagging, one sector has been building steam quickly: Silicon Valley venture capital firms. In a recent Wall Street Journal article, “In Silicon Valley, Investors Are Jockeying Like It’s 1999,” Monica Langley discusses the recent trend of deep-pocketed backers vying to back tech startups. In 2010, venture capital investments rose for the first time in three years, to $21.8 billion from a 12-year low of $18.3 billion in 2009, according to the National Venture Capital Association. During the first quarter of 2011 alone, US venture capital funds raised more than $7 billion, a 76 percent increase over the first quarter of 2010.
Demand for tech-company private shares and late-stage investments is also surging. With the secondary market so strong, tech investors are increasingly holding onto their stakes longer instead of prodding company founders to go to market in an initial public offering. Big Wall Street banks are jumping into the game, such as Goldman Sachs’ recent funding deal with Facebook, setting the private firm’s valuation at $50 billion.
To some investors, the mood is reminiscent of 1995 and the start of a technology bubble. But others believe today’s boom is more sustainable. Proponents argue that entrepreneurs are more savvy, and the Silicon Valley investors getting involved can offer more than just money – they can offer advice. But is that enough to prevent the burst of another tech bubble? The jury is still out.