It is certainly a depressing endeavor to read the business section of the newspaper these days. With the economy in truly serious trouble and so many other problems globally, it’s hard to imagine how we’ll ever get out of the hole we’re in. Sitting in the heart of Silicon Valley, one might think that we can take solace in the fact that the United States will have a competitive advantage in the high-tech sector for at least a few years to come. Technology has, after all, brought our economy to incredible highs in the past. Yet if my lunchtime conversations of late are any indication, we shouldn’t be counting on the Valley to get us out of the slump anytime soon.

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photo credit: esteban

In an ominous sign for Silicon Valley’s entrepreneurial machine, venture capital firms are cutting back on their investments in companies at their earliest stage of development and being forced to provide extra financing for later-stage companies that can’t leave the nest and go public.

Overall, venture capital investment remained flat at about $7.4 billion in the second quarter, according to a report released Saturday by the National Venture Capital Association and PricewaterhouseCoopers. But the amount of money invested in companies seeking their first round of venture investment fell 12 percent to $1.6 billion, down from $1.8 billion in the first quarter. Also, first-round financings fell to just 21 percent of all venture funding — the lowest percentage since the fourth quarter 2004.

Mark Heesen, president of the N.V.C.A., suggested that the drop reflected caution by funders who are worried about their inability to cash out of their investments through initial public offerings of stock.

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photo credit: Neil Hunt

WHAT if you could make fuel for your car in your backyard for less than you pay at the pump? Would you?

The first question has driven Floyd S. Butterfield for more than two decades. Mr. Butterfield, 52, is something of a legend for people who make their own ethanol. In 1982, he won a California Department of Food and Agriculture contest for best design of an ethanol still, albeit one that he could not market profitably at the time.

Now he thinks that he can, thanks to his partnership with the Silicon Valley entrepreneur Thomas J. Quinn. The two have started the E-Fuel Corporation, which soon will announce its home ethanol system, the E-Fuel 100 MicroFueler. It will be about as large as a stackable washer-dryer, sell for $9,995 and ship before year-end.

The net cost to consumers could drop by half after government incentives for alternate fuels, like tax credits, are applied.

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You didn’t really think that Silicon Valley would be immune to the general convulsions in the overall economy, did you? I am not sure it is as bad as the NYT gleefully makes it out to be, but there is growing evidence of a tech slowdown, including M&A deals and IPOs drying up, slower job growth, signs of weakness on Web advertising, cautious corporate IT spending, and rising costs for companies that offshore their labor force due to the decline of the dollar.

The latest numbers from the National Venture Capital Association show that the startup economy was starting to feel some pain in the first quarter. Venture-backed M&A deals hit the lowest level in a decade, with only 56 deals announced in the first quarter, down from 83 in the fourth quarter of 2007. The IPO market also dried up, with only five venture-backed IPOs, compared to 31 in the fourth quarter of 2007. (See chart above). The average amount raised for each IPO was $56.6 million (down 42 percent quarter-over-quarter). And the average M&A deal size was $124.6 million (down 40 percent quarter-over-quarter)

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photo credit: hira3

SAN FRANCISCO — Housing prices in Silicon Valley remain defiantly high. New BMWs and Saabs cruise Highway 101. But for the first time there are signs that the current economic downturn is taking its toll on the country’s cradle of technology and innovation.

Job growth has slowed, start-up companies are hiring and spending more cautiously, and early-stage investors who nurture the start-ups with money and expertise are growing more frugal.

Most of the investors, entrepreneurs and innovators who build companies in the Valley do so with the hope of taking them public or selling them — the rainmaking opportunities that people here call exits. But with gloom pervading the financial markets and the business climate, the exits are hard to find.

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photo credit: blogsorbeta

SAN FRANCISCO — Compared with other forms of human interaction, online social networking is really not all that social.

People visit each other’s MySpace pages and Facebook profiles at various hours of the day, posting messages and sending e-mail back and forth across the digital void. It’s like an endless party where everybody shows up at a different time and slaps a yellow Post-it note on the refrigerator.

Now a new wave of Silicon Valley companies is bringing live socializing back into a medium that has, in the parlance of the technologists, grown overly asynchronous.

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Given the valley’s tremendous success in recent years with such down-to-earth products as search engines and music players, tackling solar power might seem improbable. Yet some of the valley’s best brains are captivated by the challenge, and they hope to put the development of solar technologies onto a faster track.

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Redfin CEO Glenn Kelman wrote a blog post a couple of days ago comparing Silicon Valley unfavorably to the Seattle tech scene.

I spend a lot of time in both places, and I think some of his observations are correct (people here compete to the death, people there go hiking). But even though I occasionally criticize Silicon Valley myself, I think there are some things that are dead wrong in his analysis. If you want a well balanced life, Silicon Valley is not for you. But if you want to change the world and are willing to do absolutely anything to achieve your dreams, there is no better place to be than here.

Stroll through the hip Fremont District and you will sense the Valley vibe. Google recently opened a research lab here, its second in Microsoft’s backyard. Technology start-ups are sprouting up amid quirky neighborhood landmarks like a bronze statue of Lenin and the Fremont Troll, the giant concrete creature lurking beneath the George Washington Memorial Bridge.

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Thor Swift for The New York Times

Giriraj Vengurlekar, an engineer who lives in Sunnyvale, says the cricket pitch can be something of an informal job market

ALVISO, Calif. — Palo Alto Networks is a high-tech start-up with ample financing and ambitious plans. But despite its name, the company has no offices in Palo Alto, Silicon Valley’s unofficial capital.

Instead, it is based about a dozen miles farther south, on the outskirts of San Jose, in Alviso. The company is developing technology to protect computer networks from hackers and misuse, so it chose to be where engineers with networking expertise are clustered: around big companies in the field like Cisco and Juniper Networks.

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