Events | Previous Events
Five-Year Anniversary
August 21, 2002 Event
Silicon Valley 2002: Another Boom-Bust Cycle or Simply Out of Options?
Back in the summer of 1997, when Round Zero was founded, Silicon Valley
was at the eve of one of the largest growth spurts in the history of all
business, much less technology. Five years later, millions of VC
dollars, thousands of startups, and hundreds of IPOs have given way to a
very different reality. Companies have closed down, investors have gone
bust, and most tragically, jobs have been lost. More than ever before,
the future is uncertain. Yet some believe we are simply in the midst of
a typical technology cycle of boom and bust. They argue that things are
down, but not out - that time will heal all wounds. Others fear that the
ramifications of this gold rush's unchecked greed will prove too
difficult to overcome. Each new revelation of corporate malfeasance
enrages the American public even more, pressuring the government to
regulate what was once the freest market in the world. While history has
shown Silicon Valley's resilience to economic carnage, this time around
the rules of the game may have forever changed.
The Valley is no stranger to boom and bust. Each cycle has been
triggered by new technology - integrated circuits, PCs, the Internet -
and ended by external shocks, such as cuts in defense spending or market
crashes. Each time, a bust created the foundation for the next boom. Yet
this time, the foundation may have been cracked, rather than created.
For many, dot-com has become a euphemism for dot-con. In an environment
where some buffed the numbers, the price of doing the right thing was
high and the payoff small. Companies that kept to the straight and
narrow risked seeing their all-important share price doomed to
mediocrity. The resulting corruption may be the straw that breaks the
camel's back. No one is arguing against integrity, and increased
transparency is a good thing. But will entrepreneurs be less effective
in an environment where government regulation and corporate
responsibility reward caution over risk? As the invisible hand gives way
to Uncle Sam's hand, will creativity give way to predictability?
Perhaps most intriguing is the fate of stock options in this brave new
world. Long one of the Valley's best weapons for attracting and
rewarding talent, there is a serious push to expense options the same
way as other compensation measures. The government contends that
expensing options simply puts tech businesses on a level playing field
and ends the charade of inflated financial results Yet tech leaders
believe this movement is a politically motivated sham that threatens to
grind innovation to a halt. They worry that new regulation will hurt
hard-working employees, not the proverbial fat cats. At the same time,
their companies will be slammed with enormous tax hikes. There is
legitimate need for reform, but there's nothing inherently corrupt about
awarding options. In fact, employee ownership may be the most effective
way to align interests and incentivize performance. It is hard to even
imagine Silicon Valley without the allure of stock options. We may not
have a choice, as yesterday's sins may well define tomorrow's
livelihood.
Another Ride on the Roller Coaster
