In Silicon Valley, Partying Like It’s 1999 Again

PALO ALTO, Calif. â€" These are fabulous times in Silicon Valley.

Bill Gurley's Benchmark is the venture capital darling of the moment. Ten of its companies have gone public in two years, with another half-dozen on the way.

 Mere youths, who in another era would just be graduating from college or perhaps wondering what to make of their lives, are turning down deals that would make them and their great-grandchildren wealthy beyond imagining. They are confident that even better deals await.

“Man, it feels more and more like 1999 every day,” tweeted Bill Gurley, one of the valley’s leading venture capitalists. “Risk is being discounted tremendously.”

That was in May, shortly after his firm, Benchmark, led a $13.5 million investment in Snapchat, the disappearing-photo site that has millions of adolescent users but no revenue. Snapchat, all of two years old, just turned down a multibillion-dollar deal from Facebook and, perhaps, an even bigger deal from Google. On paper, that would mean a fortyfold return on Benchmark’s investment in less than a year.

Benchmark is the venture capital darling of the moment, a backer not only of Snapchat but the photo-sharing app Instagram (sold for $1 billion to Facebook), the ride-sharing site Uber (valued at $3.5 billion) and Twitter ($22 billion), among many others. Ten of its companies have gone public in the last two years, with another half-dozen on the way. Benchmark seems to have a golden touch.

That is generating a huge amount of attention and an undercurrent of concern. In Silicon Valley, it may not be 1999 yet, but that fateful year â€" a moment when no one thought there was any risk to the wildest idea â€" can be seen on the horizon, drifting closer.

No one here would really mind another 1999, of course. As a legendary Silicon Valley bumper sticker has it, “Please God, just one more bubble.” But booms are inevitably followed by busts.

“All business activity is driven by either fear or greed, and in Silicon Valley we’re in a cycle where greed may be on the rise,” said Josh Green, a venture capitalist who is chairman of the National Venture Capital Association.

For Benchmark, that means walking a narrow line between hyping the future â€" second nature to everyone in Silicon Valley â€" and overhyping it.

Opinions differ here about exactly what stage of exuberance the valley is in. “Everyone feels like the valley has been in a boom cycle for quite some time,” said Jeremy Stoppelman, the chief executive of Yelp. “That makes people nervous.”

John Backus, a founding partner with New Atlantic Ventures, believes it’s more like 1996: Things are just ramping up.

The numbers back him up. In 2000, just as the dot-com party was ending, a record number of venture capitalists invested a record amount of money in a record number of deals. Entrepreneurs received over $100 billion, a tenfold rise in dollars deployed in just four years.

Much the money disappeared. So, eventually, did many of the entrepreneurs and most of the venture capitalists.

Recovery was fitful. Even as the stock market soared since the recession, the number of venture deals done and money invested fell in 2012 from 2011, and then fell again in the first half of this year. Predictions of the death of venture capital have been plentiful.

For one thing, it takes a lot less money to start a company now than it did in 1999. When apps like Instagram and Snapchat catch on, they do so in a matter of months. V.C.’s are no longer quite as essential, and they know it. Just last week, Tim Draper, a third-generation venture capitalist with Draper Fisher Jurvetson, said he was quitting to devote his time to his academy for young entrepreneurs.

But there are signs of life. Funding in the third quarter suddenly popped, up 17 percent from 2012. “I think this is the best time we’ve seen since 1999 to be a venture capitalist,” Mr. Backus said. He expects the returns on venture capital, which have been miserable since the bust, to greatly improve this year.

“Everyone talks about the mega-win â€" who was in Facebook, Twitter, Pinterest,” he said. “But the bread and butter of venture firms is not those multibillion exits but the $200 million deals, and there are a lot of those.” As an example he pointed to GlobalLogic, which operates design and engineering centers. It was acquired in October in a deal that returned $75 million on New Atlantic’s $5 million investment.

Better returns would influence pension firms and other big investors to give more money to the V.C.’s, which would in term ramp up the number of deals.

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