Tech Bubble Déjà Vu

While much of the U.S. housing market is reeling, Silicon Valley is experiencing the beginnings of a real estate boom fueled by the financial fervor of the new generation of dotcoms. Billions of dollars of fresh venture capital is being invested in new business plans while more and more sites go public, each day bringing more wealth to the people behind the successful tech companies. But many can’t help but ask—haven’t we seen this before?

In 2000, tech titans were living large. Silicon Valley was overcome with the exuberance of the young entrepreneurs who had made it big at the head or on the coattails of companies like Netscape and Yahoo. Then the bubble popped, and it all came crashing down—bringing the NASDAQ with it.

The hype around current companies and proliferation of investors is reminiscent of the years before the bubble burst. The recession of 2008 left a shadow over Silicon Valley that is just beginning to clear, and companies are emerging with a cautious hope of renewed wealth on a much greater scale.

However, some say that caution may be just the thing that will prevent another 2000 crash. The venture investment total for 2010 was $23 billion, while 2000 saw $99 billion. Furthermore, today’s dotcoms have better business plans than their predecessors and rely on more sources for their valuation and potential profitability.

Still, signs of financial security—or the perception of it—are starting to show in Silicon Valley. In the past six months the median home price in Palo Alto has risen 24% to $1.2 million and the number of homes on the market is one-third the number of last year.

Is this spending and renewed confidence based on fiction? “The valuations are very high and discount too much risk. Too much late-stage money is flowing in—and much of it from other dotcoms, which have their own investment money coming in, so it’s circular,” one VC told CNN.

But for the time being, companies seem to be erring on the side of caution, so it may be some time before we are truly in danger of another crisis.

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