The Valley's Wall Street disconnect
Wall Street is melting down. But from sampling the thoughts of tech bloggers on Techmeme, an automated news aggregator, you'd think that the biggest story today was a redesign of WSJ.com. One couldn't ask for a clearer sign of the Valley's superficial obsession with user interfaces and online advertising. With Lehman Brothers going bankrupt, Bank of America negotiating to buy Merrill, and AIG desperately selling off assets, who, exactly, will be having their employer pay so they can read the headlines on WSJ.com, let alone advertising there? Yet the problem goes far deeper than one website's newly glossy surface.The disconnect has been long in the making. The economy is a constant topic of discussion in the Valley — but the question is always, "Why aren't we feeling it yet?" That's because the bicoastal economy has split apart. After the '90s bubble burst, investment banks slashed their presence here, and have not returned in force. With no IPOs and few large acquisitions, Wall Street's investment banks have realized that the geeks are not going to make them rich. And the geeks have realized Wall Street will not make them rich, either. Small boutiques like GCA Savvian and Frank Quattrone's Qatalyst are taking whatever midmarket M&A action there is; Wall Street's local bankers have been reduced to shopping around private investment rounds in companies like AdBrite and Glam Media. There's even talk of creating new markets for tech-startup securities which bypass the public ones. Sarbanes-Oxley regulations have made going public an even more tiresomely bureaucratic affair; meanwhile, employees at fast-growing companies like LinkedIn and Facebook are itching to realize some of their paper wealth. The only potential buyers of those shares are "accredited investors," which the SEC defines as individuals with net worth of more than $1 million or steady income of more than $200,000. Netscape cofounder Marc Andreessen recently spoke of the unintended consequences of post-Enron regulations; instead of protecting the public investor, they have resulted in cutting him off from opportunity. The rich will get richer, while the average Joe will never get a chance to invest in the next Google. (Or, one should note, the next Pets.com.) The Valley's entrepreneurs love to disparage Wall Street. Google's cofounders famously tweaked the bankers' noses by insisting on an egalitarian auction format for the company's IPO. Yet no one has invented a perfect algorithm for distributing the fruits of the Valley's innovation to the investing public. Wall Street's thundering herds of braying brokers, for all their flaws, managed to spread the wealth. The notion of the insular Valley doling out its profits to a crowd of privileged insiders surely appeals to those already inside the circle. But it should alarm everyone else.