Silicon Valley Ready to Make a Comeback?

There are few throughout the global economy who have been able to escape the impact of the recession. Amidst the branch closings, market losses, cutbacks and reorganizations, one bright light is shining on the horizon – the revival of Silicon Valley. For angels seeking new investment opportunities, excitement just might be brewing.

Hot Deals Emerging

BBC News’ Maggie Shiels reported that Silicon Valley is showing strong signs of life, citing such acquisitions as, “Mint.com by Intuit for [USD]$170m (£102m), Adobe buying Omniture for [USD]$1.8bn (£1.08bn), the sale of Skype to a private equity syndicate for [USD]$2bn (£1.2bn) and the purchase of SpringSource by VMware for [USD]$420m (£254m).”

While this activity in the industry is certainly showing positive signs of life, unemployment in the Valley is maintaining near its comfortable 11.9%. Still, U.S. Federal Reserve chairman, Ben Bernanke told a Washington think-tank that the recession is likely over. The combination of this promise and emerging opportunities are overshadowing the still-present challenges in the area, grabbing the attention of investors.

Valley Leaving California in the Dust?

This change in the landscape for Silicon Valley is in contrast to what is happening throughout the rest of the state of California. The state’s economic research team estimates California is likely to remain stuck in the recessionary sludge throughout 2010. Technology appears to be promising for growth, but not enough to carry the state to rapid recovery.

Such an outlook shouldn’t deter angel investors, however, as some of the most successful startups, such as Microsoft, Google and Cisco, emerged during a down economy. According to David Kralik who recently launched his own company at TechCrunch in San Francisco, the recession is a great opportunity for startups.

What’s Behind the Growth?

One of the key drivers for the re-emergence of Silicon Valley is valuations are more realistic and entrepreneurs are hungrier for sound partnerships with angels and venture capitalists (VCs) who may be asking for tighter terms than in the past. Even better, a number of VCs are considering deals that in the past may have been too small to fit their portfolios, providing additional choices for entrepreneurs.

Now that VCs are increasingly considering deals that were previously reserved for angels, what is the outlook for such investors in Silicon Valley? In truth, angels are responsible for much of the recent activity in this area, or at least the activity that kept the pulse. Such presence has better positioned angel investors to embrace the future, while securing their place – and importance – in this market.

Sound Takeaways

For those angels who may still be watching the activity in Silicon Valley without taking the plunge, consider these takeaways from the Y Combinator’s AngelConf Conference and reiterated by Venture Beat that apply in any market:

• Don’t worry if the idea seems crazy
• The lifeblood of angel investors is deal flow
• Don’t be afraid to throw a little dynamite into the status quo
• The Rule of 12 – statistical diversity only comes from investing in 12 companies
• One-third of your portfolio companies will go out of business
• If your goal is making money, get out now.