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In Silicon Valley, the Mood Slumps Into Rational Non-Exuberance

SAN FRANCISCO, Oct. 23 - There is a shadow over Silicon Valley that many investors believe is an omen that the economic winter may continue for two or three more years.


"Because genomics went public in 2000 [and did] not offer expected returns, investors pulled away from genomics and punished everybody in biotech by pulling out," Camille Samuels Pearson, managing director at Versant Ventures, told a conference of investors and hopeful entrepreneurs. "It's a really scary time out there."


Many of her colleagues, who also spoke at the Lifescience Portfolio investing conference held here this week, hold a similar view.


Comparing today's investing climate with the "zero-gravity markets" of two years ago, venture capitalists talked about the "hangover period" and of the private-equity skid from exuberance to skepticism. The return to Earth has led company valuations to reach levels of rationality that just weren't seen two years ago, explained Michael Brinkman, managing director of CIBC World Markets.


Indeed, not only is today's investment environment "a much more realistic world than it was a few years ago ... [it] will likely continue in the future," predicted Gordon Binder, managing director of Coastview Capital.


Not all corners of the industry share this funk. Some investors at the meeting said specialty pharmaceutical companies are in the investor limelight in ways that no other type of life-science company can currently claim.


All the same, it's a dim limelight relative to past excitement. "No one thing has bubbled up to catch everyone's attention like it did with genomics," said Corey Goodman, CEO of Renovis.


But investors also kept their eyes on the long view: Historically, they say, markets have opened and closed in three to four year cycles. "Capitalism is cyclical," said Binder. "Right now it's pretty cold, but the cycle will repeat itself. I believe right now is a great time to put venture capital to work" so that two to three years from now companies will be ready for an opening in the IPO market.


To highlight what some in Silicon Valley believe is a misplaced emphasis on short-term profit seeking at the expense of building a company more slowly, Binder pointed to the not-so-spectacular origins of one biotech in particular.


"Amgen went public at 18 and the stock went for four," he said. "After two years, it went from four to six. People have short memories."

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