I just finished an interview with Bill Davidow on the subject of his new book “Overconnected: The Promise and Threat of the Internet.” I’ll post the interview later.
I took the opportunity of asking Mr Davidow about the state of Silicon Valley and questions such as “are we in a bubble?”
Mr Davidow is 75 years old and he is the founder of one of Silicon Valley’s oldest and most respected VC firms, Mohr Davidow Ventures, which specializes in early-stage investments.
Mr Davidow disagrees with many Silicon Valley watchers that see a bubble emerging and that we may be repeating the mistakes of the dotcom boom.
“When I look at companies such as Facebook, Zynga etc, I see high valuations but at least these companies have business models with proven revenues. Whether they can keep up their growth rate is another question. But these are not the same type of companies that we had in the dotcom boom where investments were made in companies that had no revenues. It feels very different to 2000.”
He says that much of the VC industry has moved into mezzanine funding and so the rise of the Angels fills the gap in early stage investing — which is Mohr Davidows’ expertise.
He says that investing in early stage companies requires a lot more discipline these days and that you have to walk away from some deals. With a lot more money coming into early stage companies this raises valuations and risk.
Mr Davidow said that since 2000 and the excesses of the dotcom boom, he has stepped back from his involvement in the VC industry to spend more time on philanthropy and family. He still makes a few private investments — in a social gaming company, in a radical new hearing aid, and in a green agricultural venture. He sits on the board of one company and he still comes into the office.
He is still bullish on Silicon Valley.
“One of my friends many years ago complained that there were few good investments to be made and that all the ‘elephants’ had been shot. But then came Oracle, Yahoo, Google, Facebook … we keep finding new elephants.”
He says that Silicon Valley has one of the most diverse economies he has ever seen and that this diversity will protect it.
“But history shows that at some point your luck runs out.”
