By William Booth and Ariana Eunjung Cha
Washington Post Staff Writers
Tuesday, August 6, 2002; Page A01

PALO ALTO, Calif. -- Silicon Valley is the textbook case of boom and bust, the longest-running soap opera scrolling on CNBC, the home of what is so five minutes from now. And as the world adjusts to the new reality of accounting scandals, corporate bankruptcies, CEOs in handcuffs and a stock market that appears to suffer from multiple personality disorder, Silicon Valley is . . . optimistic.

"From my perspective, it's the best time to invest," said Tim Draper, a founder and managing director of the powerhouse venture capital firm Draper Fisher Jurvetson. "When I make trips to East Coast, boy, they are down in the dumps. Here, it's like 'I lost my job, so it frees me up to do something entrepreneurial.' "

Be assured that Draper and the humbler citizens of the Valley have been smacked upside the head by the markets, just like everyone else. Personal portfolios, for those who didn't cash out, are tanking. Investment has dried up. Venture capital in the Valley, which reached a staggering $21 billion in 2000, is likely this year to peak at about $3 billion.

So, yes, here in the Valley, there is forced idleness. There is remorse for vaporized stock options. There is regret for the hype that pumped the place up so high before the bubble burst. But the Valley has seen this before.

This is the wildest ride in the national economy -- a fast-cycling, hype-driven Wonkville of revolutionary innovation and dot-bomb calamity. The Valley has survived the outrageous fortunes of the military industrial complex (1970s), the silicon wafer business (1980s) and the personal computer (1990s), all dead or gone overseas or now established and boring.

So the day traders aren't sharing hot picks at the storefront offices of Charles Schwab anymore. The Porsche Boxsters are rolling back onto the lots, as drivers can't keep up with their leases. Sometimes, it seems like the whole Valley has gone surfing in Bali.

The place is recharging its batteries.

"A lot of my friends seem to have taken an extraordinary interest in their gardens," said Eric Lee, a software engineer enduring "a mandatory sabbatical," as he put it, from the technology sector, as he and a few friends enjoyed a discount sushi special here on University Avenue.

There's also the distinct whiff of guilt in the night air.

After proclaiming the Internet "the largest legal creation of wealth in the history of the planet," the grand old man of venture capital, John Doerr, essentially was forced to apologize for hubris last year. There's a communal sense that those feelings that startups selling dog food over the Internet were going to revolutionize the world were, well, somewhat overblown.

But the prospect of riding the next big wave still shimmers like a Pacific sunset, drawing the low and mighty alike.

Out: quickie IPOs and every dumb idea for a new Web site. In: pharmaceutical breakthroughs and nanotech, the science of the teeny-tiny, or the ability to compress a computer into the size of a dust mote.

Raj Jayadev, 27, is the editor of Silicon Valley De-Bug, a Web site and 'zine dedicated to documenting the life and times of the ubiquitous "temps," the low-wage phone clerks and box packers of the region.

"The folks who worked temp, they're just unemployed right now," he said. "But these younger workers are looking to be their own entrepreneurs. Not in the dot-com sense, but to do whatever they do on their own, trying to make some money: artists putting designs on shirts, selling them at flea markets, musicians and DJs putting on shows, doing the hip-hop thing."

Even Jayadev was looking for the silver lining. "Everybody is hoping rents come down," he said.

Indeed, the rents for commercial space are reentering the zone of reality. The Bay Area's peninsula tops the nation in vacant office space.

So far, though, prices for single-family homes have remained among the highest in the nation, with a two-bedroom, one-bath in the better neighborhoods still selling for $500,000.

"The housing market is still bizonkers," said Barry Holroyd, a veteran engineer. "There's this feeling that the housing market is artificially inflated, and there's a strong temptation to sell out."

But he is holding on. Holroyd has had three serious job interviews in recent months. He thinks there will be a return to better times, but probably not like the gold rush years of the late 1990s.

"Now we're back into the new economy?" he wondered. "Or is it the old economy? It's so dynamic. It's completely unpredictable."

After a lost year, many entrepreneurs are regrouping. The result is the reemergence of mom-and-pop Internet upstarts that existed briefly in the 1990s before being bought out or pushed out by corporate giants.

These companies are small and practical, and they harbor few ambitions of becoming publicly traded, much less the next Amazon or eBay.

Adrian Scott's Ryze.com is one such venture.

When Scott, a mathematics PhD who lives in San Francisco, first became involved in Internet startups a few years ago, he thought big. Revolutionary technologies. World domination.

Scott, 29, was one of the first investors in Napster, the swapping service in which anyone in the world could download songs for free. He was also one of the founders of FlyCode, a Napster of sorts for movies.

Well, the record companies ended up suing Napster and forcing it essentially to unplug; Scott lost his $50,000. Then FlyCode ran out of cash just as its site went live; $4 million of investors' money was gone.

Now, he's working on a Web site that helps people make new business contacts based on common background and interests. The site is as bare-bones as the company, with nary a graphic. Scott is the Web master, the programmer, the CEO, customer support and publicity guy.

"The key to building a business in this kind of downturn market is to really focus on what's vital. . . . So the site is not the prettiest site in the world. But it works," Scott said.

The collapse of the stock market has actually meant more opportunity for Kathleen Pacyna, a marketing consultant from Mountain View.

During the boom years, Pacyna remained a group manager in customer relations for Sun Microsystems despite offers for higher-level positions at dot-com upstarts. Big companies, she thought back then, were naturally more stable. The thousands of stock options she got from Sun were almost guaranteed to make her money.

But as Sun's market worth began to fall, along with those of other big companies, trading at under $10 a share versus more than $100 a share in 1999, she decided it was time to pursue her dream of working on her own.

"There is no security anywhere. Big companies are not any more secure than small ones," Pacyna said.

Not so long ago, dot-com executives were the superstars of the Valley. They were plastered on the cover of national magazines, drove BMWs and had a paper worth in the millions. But as allegations of widespread accounting fraud, stock market manipulation and insider trading continue to surface, and as nearly 900 Internet upstarts have been driven out of business, they are being looked at warily by neighbors and friends.

Northern California psychologist Stephen Goldbart said that just as hubris defined those who built companies during the boom years, humility is what these entrepreneurs are feeling now.

"Before, it was all about sudden wealth syndrome. Now everyone's suffering from sudden loss of wealth syndrome," said Goldbart, a co-founder of the Money, Meaning and Choices Institute, who counsels many high-tech workers.

He said the depression is not just about money, but also about the loss of hope and dreams. It's like the way a child might feel when he's told there is no Santa Claus -- or that Santa Claus just ripped him off.

It would be an exaggeration to say that practically every dot-com that went public in the 1990s, from Amazon to VeriSign, has been accused of some wrongdoing. But nearly 330 lawsuits alleging stock fraud were filed last year, compared with 204 in 2000, according to a Stanford University study.

The Securities and Exchange Commission recently brought eight indictments against area high-tech companies. In 1999, there were two; in 2001, 15.

"The ecosystem of Silicon Valley continues to function," said Dale Fuller, the CEO of Borland Software, which just posted another quarter of modest profits. "We're very, very familiar with peaks and valleys. We've reaped the rewards. And now we're on a growth path."

Fuller and others say the weeds have been whacked, the dot-com bubble burst, and that "this is still the place everyone in the world wants to come to."

Booth reported from Palo Alto; Cha from Washington.