From Beantown to the Beltway, the Powers That Be Are Still Obsessing About the Valley - TheStreet

From Beantown to the Beltway, the Powers That Be Are Still Obsessing About the Valley

It's overhyped, overpriced and overconfident, but Silicon Valley remains the center of the universe for tech investing.
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BOSTON -- It takes a trip east to be reminded why Silicon Valley matters. Up and down the East Coast last week, the line of questioning was the same: Why does Silicon Valley think the world revolves around itself, and how long can the valley's run last?

Power, like beauty, is in the eye of the beholder, of course. And bellyaching aside, the powers that be from Boston to Washington, D.C., continue to seek guidance from that overhyped, overpriced, overconfident and overcaffeinated strip of earthquake-prone land between San Francisco and San Jose.

The fascination and envy were evident in the decision by

Highland Capital Partners

, an experienced and distinguished venture-capital firm in Boston, to

hire sell-side analyst Keith Benjamin as its first California-based partner. Tired of having its partners schlep cross-country to participate in deals and bothered by not getting the respect it feels it deserves, Highland determined it needed someone who's in the valley every day, not now and again.

"I was on the West Coast more than I wanted to be," says Dan Nova, a Highland partner, who also notes that on those trips west he consistently found himself in meetings with Benjamin, until recently the lead Internet analyst for San Francisco investment bank

BancBoston Robertson Stephens

. "Once we compete, we do pretty well," says Nova. "It's the ones we don't see that I'm concerned about. You get great deals by hanging out on the soccer fields."

And it's not as if Highland has missed out on great deals. Two big hits have been Santa Monica, Calif.-based retailer

eToys

(ETYS)

and search-engine technology firm

Ask Jeeves

(ASKJ)

in Berkeley, Calif. (Neither, technically speaking, is in Silicon Valley, but that's another story.) But it is obvious that Highland has won nearly no "mindshare," that critical commodity of our day that allows today's business to beget tomorrow's business. Ask the average in-the-know type in the Internet world who funded eToys, and the answer is obvious:

Sequoia Capital

, the powerful Sand Hill Road venture firm best known for backing

Cisco

(CSCO) - Get Report

and

Yahoo!

(YHOO)

. Ditto for Ask Jeeves, funded also by

Institutional Venture Partners

, the firm whose partners are pairing with

Brentwood Capital

in a new firm to gain more Internet mindshare.

"We brought Geoff Yang and IVP into Ask Jeeves, and he's got his picture with the butler in

Business Week

," grouses Nova, referring to Ask Jeeves' animated mascot. And yet despite successes like eToys and Ask Jeeves, and despite the amount of time Nova has spent on transcontinental planes, eight of Highland's last nine venture investments have been in the New York and Boston areas.

There is, of course, the dark side of Silicon Valley. No one can enjoy the lovely weather because everyone's working so hard and getting stuck in traffic when they leave work. There's the cost of living that makes a $500,000 home in Palo Alto a decidedly downmarket fixer-upper. And most importantly, there is the fact that employee loyalty lasts about five minutes where cheap stock options in the next hot initial public offering are one headhunter's call away.

Nova tells the story of a portfolio company that was suffering from 150% employee turnover because it was perceived by its workers to be missing the IPO train. "We were slow," says Nova. "We were taking about a year to build the company.

"The issue in the valley isn't recruitment," he concludes. "It's retention."

True enough. And yet the valley's upsurge continues. Will it last? That's probably an irrelevant question. The valley undoubtedly will go through another downcycle, but it has an almost innate ability to reinvent itself. Just in recent memory the video-game boom subsided,

Apple

(AAPL) - Get Report

waned, and semiconductors became a commodity. And then came networking equipment and, ultimately, the Internet. With each faddish event the can-do spirit of the highly educated valley kicked in. Why should the most dynamic media company around (Yahoo!) be headquartered in Santa Clara, Calif., unquestionably the least hip media center on earth? Answer: because that's where the money and the ideas are.

So you've got to be there. And that's why

TheStreet.com

(TSCM)

, based and funded in New York, opens its newest office this week in Palo Alto to complement our already thriving bureau in San Francisco. Investors in the new economy need the latest from ground zero. We'll be there to give it to you.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.