The Bubble Redux

June 10, 2014 at 9:40 pm Leave a comment

Lots of print now from very smart people about “the Bubble” (with a capital “B”) in the San Francisco Bay Area.

But if you define “Bubble” as strong economic activity and rising prices then there is no question to anyone living here that we are absolutely in an economic bubble, and like 1999-2000 it’s fueled by the tech sector. Since the 2008 recession we have experienced:

• An explosion in the number of tech start-ups and associated financings.
• A multitude of new sources of funding: incubators/accelerators, entrepreneur “universities”, angels, super angels, corporate venture funds, family offices.
• A material increase in the population of wealthy residents due to successful IPOs and M&A transactions for several local tech sector employers.
• Many well-heeled foreign investors and real estate buyers coming to the area to live, work, invest, buy. They obviously see something special here.
• Continued passion for the Bay Area as a place to live: great weather, premier universities, and more to do within a couple of hours ride than any city in the U.S.
• Aggregate demand seriously outpacing supply in critical areas: technical talent, commercial and residential real estate, and rental housing.
• Packed restaurants, ball games, theaters, etc.
• SF becoming the most expensive U.S. city for______________. Fill in whatever noun you want, and it will likely be true.

So why are we arguing about “the Bubble”? Face it, it’s here. The only question worth discussing is: what’s next and what are the likely near term (i.e. 5 year) economic scenarios? Not surprisingly, there are three:

1. Continued upward movement greater than the anemic overall U.S. GDP growth, irrespective of the rest of the economy. The Bay Area and tech sector continues to be hot.
2. Softening of demand and prices likely due to rising interest rates based on a change in the Federal Reserve’s monetary policy. Interest rates can’t stay at near zero forever.
3. Crash or significant drop, i.e. the “Bubble” pops. Typically caused by some external event.

My recommendation is: hope for #1, plan for #2, and pray that #3 doesn’t occur. Good news is there should be no tech-driven overall market collapse like 2000 because no matter what you think of Twitter or LinkedIn, they are not Webvan or So enjoy the ride and have a great 2014! Remember: you could be in Detroit.

J. Weston (Wes) Rose is Senior Vice president of The Brenner Group, one of Silicon Valley’s premier professional services firms. Wes has enjoyed an extensive career as a C-level operating executive with multiple venture capital backed technology companies and now runs the firm’s interim management and restructuring practices, and corporate marketing.
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Entry filed under: Financial Advisory, Interim Management, Restructurings, Shareholder Services, Valuations.

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