The last 4-6 weeks have produced some seriously concerning/exciting/strange conversations with my friends across Silicon Valley. Maybe it’s just because I’ve had more time for coffee shop and lunch meetings since our game launched, or maybe it’s because something dramatic is happening. Either way I can say emphatically, something in Silicon Valley is changing. Whether boom or bubble I’ll let you decide. Here are the major indicators to watch:

1. Rising Valuations (unsustainable)

2. Talent Shortage (unsustainable)

3. Commercial Real Estate Boom (just starting)

Here are some of the external indicators:

Exhibit A) Rising Funding Rounds – Early stage companies getting HUGE angel rounds and valuations that ‘appear’ to go no where but up, even surprising guys like Paul Graham. At Startup School he said;

“One thing it means is that the high valuations startups are presently getting may not last forever. To the extent that valuations are being driven up by price-insensitive VCs, they’ll fall again if VCs become more like super-angels and start to become more miserly about valuations. Fortunately if this does happen it will take years.”

Exhibit B) Digg Firings – Digg recently fired its worst (generally you fire your worst employees*) 25 employees. But the sadness lasted about 2 seconds when job offers started pouring in from companies like AOL, IGN, GDGT, Groupon, and Twitter?!? The Google/Facebook talent battle is incredibly interesting to watch as well as two of the best fight for the best talent.

Exhibit C) Zynga Office – They may not be in Silicon Valley, but Zynga’s new office is SF is the biggest commercial real estate signing in five years. There are rumblings that Facebook has been looking at the old HP campus (500,000 SQ FT) in south Mountain View.

Here are some of my internal indicators:

Talent Shortage: I’ve talked to more than two dozen engineers looking for jobs in the past 8-weeks. I’ve seen some incredible things. One is that talented yet unproven college grads are getting offers from $120,000k to $180,000 (?!?). This has been inappropriately inflated due to competition in the Valley. Another friend literally went 4-days before getting a huge unsolicited offer. Smells fishy.

This was also confirmed by a Sand Hill friend who adds that Valley companies are looking outside the Valley to meet their needs saying “If you’re not Facebook or Twitter right now good luck getting the top guys.” Some companies are looking to build offices in nearby locations like Portland and SLC where the opportunities are less competitive and talent comes cheaper.

Also look at the number of companies getting acquired for talent by Google, Facebook, and now LinkedIn. Seems like someone is getting bought for talent every other week. It hasn’t been that way for a couple of years. A top tier developer friend recently told me that he’s been encouraged by many to start a company and sell to Google/Yahoo in 6-months for a big check just to acquire the team. I believe it’s 100% realistic.

Another indicator is that many engineers are choosing to take money instead of money + options. I see a lot of developers just ‘working for the money’. Options currently seem to have fallen out of favor or seem less enticing in the current landscape (This excludes people headed to Facebook).

Real Estate: Talk to a real estate broker in the Valley and they’ll tell you things have really picked up in the past 2-months. Space in Palo Alto and Mountain View downtowns are starting to fill or get offers. Prices haven’t increased dramatically yet, but they will once people start to realize what’s happening. That is great for an industry that’s struggled the last two years, but it’s also an indicator that something bigger is happening.

Valuations: So much has already been made of this lately I don’t feel I need to back it up because it’s clearly on the rise. Dave McClure and Paul Graham have said some interesting things about it if you want something to read.

So what does it all mean? Draw your own conclusion, but something is definitely happening. I’m not bold enough to call it a boom or bubble yet – but something is changing.

*The only time the worst employees aren’t fired is if an entire division is dropped as part of layoffs. When this happens the good, the bad, and the ugly all get the same treatment. I’m not sure if that applies in Digg’s case, but it’s something to consider.

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