VMWare and the Next Silicon Valley Wealth Cycle

When Google conducted an IPO in August of 2004, it was the first multibillion-dollar offering for a Silicon Valley company after the deep recession of 2001-03.  Google achieved a market capitalization of over $20 billion on the first day, and several hundred employees became millionaires.  The infusion of new money into Silicon Valley was a major factor in shaking off the final stages of the preceding bust.  Today, Google's market cap stands at over $160 billion. 

Now, almost exactly 3 years later, another company called VMWare (VMW) has had an IPO, achieving a market capitalization of $23 billion, bringing overnight riches to many employees.  Amazingly, VMWare was acquired by EMC for just $635 Million in December of 2003.  That means the valuation of the company has risen about about 36X in just over 3.5 years, in a sector of technology that very few people are familiar with. 

VMWare's business is entirely different from Google's, but its effect on Silicon Valley will be similar.  An infusion of billions of dollars of cash into the ecosystem causes tremors in the tectonic plates of the Valley.  The event refills venture capitalist coffers which, in turn, fertilizes the Valley to grow thick with another wave of startups.  The cycle thus begins anew. 

Without fail, major liquidity events like this have occurred after intervals no longer than 4 years, even if there is a steep downturn in between (as in 2001-03).  There have been other, smaller IPOs in recent months, such as Cavium Networks (CAVM), Aruba Networks (ARUN), and Infinera (INFN), each weighing in at between $1.1 and $1.5 Billion.  The next cycle has begun in earnest.  Let's see where it takes us.