IN SILICON VALLEY -- Many people have wondered lately what happened to the American Dream. Somehow, in the face of tougher foreign competition, a wary Wall Street and skittish customers, that fabled chance to turn a clever idea into a caravan of cash seemed to slip away.

Len Bosack and Sandy Lerner are proof that the dream -- and this sunny region of Northern California that thrives on it most -- are alive and well.

Just a few years ago, the husband-and-wife team was developing computer equipment in a bedroom of their home, assembling it in the living room and holding meetings with their nine-person staff in the cramped dining room. Lacking a sales force, they peddled their goods over electronic computer networks. Lacking a service department, they took customer calls at 2 a.m. on a phone conveniently positioned by their bed.

Today, their company, Cisco Systems Inc., is fast filling a spacious industrial building south of San Francisco and is shipping $70 million a year worth of sophisticated equipment used to link clusters of computers at scattered locations. Modestly paid employees of Stanford University until starting Cisco, the young couple now have a net worth in Cisco's publicly traded shares of $80 million.

Bosack and Lerner are doing much to strengthen the ethic of risk-taking that has made this area the world's leading hothouse for innovation. Even as the technology-rich Northeast flirts with recession and as defense cutbacks cloud Southern California's future, Silicon Valley is enjoying a bit of a resurgence. Fed by the recent hunger on Wall Street for new stock offerings, young technology companies like Cisco are stirring up an enthusiasm that is unmatched since 1983, when nearly three dozen Silicon Valley companies went public in a frenzy of first-time stock offerings.

These so-called initial public offerings, or IPOs, are the affirmation of a dream for entrepreneurs and a message to others that brilliant ideas can turn into reality. Hidden inside every company with a successful IPO is another budding Steve Jobs, newly endowed with a bulging bank account. "In their own mind, they will say, 'I'm going to do a start-up. I know I'm good,' " said Roger Smith, president of Silicon Valley Bank. "It's part of the valley fever, if you will."

Almost without exception, the offerings have been greeted by an investor stampede that has helped push their stocks well above their initial offering price. Xilinx, a maker of specialized computer chips that went public in June, wanted to sell 2.5 million shares. Its underwriters had orders for 38 million. VeriFone, which provides retailers a system to electronically verify credit cards, expected to sell its shares for $14 at most. The March offering was made instead at $16 and the stock opened at $19.50.

For the most part, the shares not only go up quickly, they keep going up. Laserscope, a maker of surgical lasers, went public last fall at $9 and closed Friday at $25.50. Though the market's recent skittishness hurt, many issues continue to trade well above their offering price and at steep prices in relation to their profits -- a reminder to investors that what rises quickly can also plunge with equal speed.

Measured by their impact on the national economy, these companies merit little more than a blip since most have but a few hundred employees and their sales are in the tens of millions of dollars. But the value of IPOs as a confidence builder is enormous. What economists may not be able to measure, entrepreneurs and investors here can feel.

Doubters See Decline

Granted, not everybody is ready to declare these rosy times, particularly when compared against Silicon Valley's headier early days. By some measures, they have reason to be concerned. Commitments by venture capitalists, the premier financiers behind start-ups, seem to be slackening. A survey by the San Jose Mercury News found venture capital funding declined from a peak of $264 million in the first quarter of 1989 to $130 million in the first three months of this year.

Some people are questioning whether the falloff represents an underlying shift away from the risk-taking mentality toward a more sedate environment. Upside, a sassy monthly magazine, summed up the sentiment with a recent cover story that declared: "The valley is becoming increasingly conformist, intolerant of deviances from 'correct' behaviors and ideologies and appallingly self-righteous."

Such an assessment may merely be a misreading of what is a new entrepreneurial flavor in Silicon Valley. The young firms here are as bold and exciting as their predecessors, but they take a different form and character to meet a more seasoned climate.

For one thing, few start-ups today aim to carve out major new markets, as did Apple Computer Inc. with the personal computer or Intel Corp. with the microprocessor. Instead, many of the new firms are filling in the blanks in technology -- leveraging off the electronics revolution born here to make already invented products better, faster, cheaper.

Dotting the valley, for example, are firms like Cisco, Ultra Network Technologies and publicly traded Synoptics, all contriving new ways to speed data more efficiently from one place to another.

Other companies are discovering niches to fill as a software operating system known as Unix gains popularity. Network Computing Devices, for example, sells so-called X terminals that can handle sophisticated graphics and communications needed when several Unix computers are linked together. NCD, on everybody's list of the hottest private companies in the valley, expects revenue of $50 million this year, its second year of shipments.

And among those waiting in the wings to go public is Radius Inc., a company founded by Apple alumni who saw an early opportunity to leverage off the success of Apple's Macintosh. The first Radius product -- an oversized display screen that could replace Apple's standard model -- was pieced together on a Ping-Pong table on the top floor of a house belonging to a key Mac developer. The company's product line, items intended to enhance computer graphics, brought in $79 million in sales and $4 million in profits in the past nine months, but competition from computer makers many times its size seems certain to give Radius a run for its money.

Even as these firms and others in computers, software and communications prosper, much of the action these days is in companies that hold promise for improving medical care. In the past two quarters alone, venture capitalists have poured $70 million into Bay Area medical start-ups -- more than in any other industry segment tracked by the Mercury News.

"The '70s were the birth of biotech and the '80s were broadening the technology," said Brook Byers, a San Francisco financier specializing in biotech start-ups. "The '90s are market-focused."

Some of the projects being generously bank-rolled at private firms here: drug development using sugars at Glycomed, Alzheimer's diagnosis and treatment at Athena Neurosciences, cancer and AIDS treatments at Applied ImmuneSciences. Among the more unusual firms is Molecular Devices, which has developed a process for measuring changes in cells directly on the surface of a silicon chip.

Also altering the landscape of Silicon Valley is the fact that many teams have done it before. Doing start-ups has become almost a career for some inventors, as well as managers. At the top of Network Computing Devices, for example, are Bill Carrico, 40, and Judy Estrin, 35 -- a husband and wife pair that built a computer-networking company, Bridge Communications, earlier in the decade and now have years of experience and several million dollars to show for it.

Carrico and Estrin left Bridge, after selling it to a larger firm, one Friday in the summer of 1988. The next Monday they started at then-struggling NCD, their planned six-month vacation down the drain.

This seasoned set of second-timers brings a new dimension to the valley. Supposedly, they make fewer mistakes. "We know who the players are. We know what the process is. The biggest gift is the time leverage," Carrico said.

For this experience, they draw fat pay checks, not particularly admired in a place where entrepreneurs used to earn their stripes by working months without pay. Two-year-old C-Cube Microsystems, for example, whose founder previously launched a successful chip company, is already paying its top staff six-figure salaries.

The reward has come early in what seems certain to be a lengthy and risky endeavor. The company has developed a means of squeezing digital images into smaller spaces so they can be more easily stored or transmitted. The technique potentially could be used to make computers and printers more versatile. And it might help bring into being digital cameras or even so-called high-definition television. But in all cases, C-Cube is at the mercy of makers of such equipment who must decide whether to adopt the C-Cube technology for their products.

The more generous pay packages, like at C-Cube, are only one sign of a larger trend -- the steeper cost to private financiers of doing start-ups. Companies are raising more money in part because the technical and marketing challenges are tougher and more costly. At the same time, in the wake of Wall Street's disinterest, more of the burden has been borne by private investors in high-tech IPOs.

To satisfy the insatiable need for funds, young companies seem more and more to be turning to cash-rich Asia. Though funding from overseas is not new here, it appears to be coming more frequently these days -- and in bigger chunks. Apple co-founder Steve Jobs, who left to start Next Inc., received an almost unheard-of sum of $100 million from Canon, for example, in exchange for a 16.7 percent equity stake.

Kubota, the Japanese tractor maker, has poured tens of millions of dollars into several Silicon Valley firms, including C-Cube. Less visible, perhaps, is a rising tide of money from Taiwan -- money that often flows quietly into the plethora of small companies launched here by entrepreneurs of Chinese descent.

Often, foreign investors trade cash for access to the start-up's know-how, adding a new dimension of risk to the young firm's future by potentially creating new competitors. Entrepreneurs, in answer to consternation about such deals in Washington, insist foreign investors are simply more generous than many Americans. Sometimes, they find they can barely raise interest in this country at all.

"If somebody feels it is un-American to sell technology to Japan, then all they have to do is give us money," said Larry Boucher, president of two-year-old Auspex Systems, his second start-up. Boucher faced a typical dilemma. He had raised $14 million from American venture capitalists, but it wasn't enough to bring Auspex's ambitious plans to fruition. It was proving tougher than expected to sell Auspex's costly "servers" -- equipment that helps users get information on a computer network -- especially against established players like Sun Microsystems. Auspex badly needed money to build a U.S. sales network.

So Boucher recently traded technology and equity for $12 million from two Japanese firms. "It will be of no value to me to have the technology," he said, "if I can't get it to market."

Shoestring Start-Ups

In this sea of millions, it is easy to lose sight of the old-fashioned Silicon Valley entrepreneurs who are -- in the revered tradition -- barely scraping along. But they are everywhere. There's no shortage of start-up ideas: New Enterprise Associates, a large venture capital firm, sees 1,500 business plans a year from anxious Bay Area entrepreneurs -- more than ever.

One struggling inventor is Paul Pires, who three years ago quit his job to pursue his dream of building a mechanical transmission that can operate at an endless number of speeds. To do a start-up, he said, "You just jump out and pull the rip cord and hope the parachute opens."

Pires quickly depleted his savings and now is being helped along by an acquaintance with start-ups in his blood. Wayne Higashi, 46, who profited from an earlier venture, is helping to bootstrap the new company by lending it money to pay its four employee. So far, he's out $300,000. To equip the place, Higashi gave equity in the company, instead of a check, to a local used furniture dealer. What he got in return was all too familiar -- recycled desks and chairs from his earlier venture.

And at Cisco, Bosack and Lerner say they only now realize how much of a personal toll around-the-clock entrepreneurship can take. "I don't think people understand what 'give up everything' means," Lerner said. Launching Cisco cost them their hobbies, their friends and perhaps even their marriage. Though the two work together, they now live separately.

Still, they cannot shake the bug. The couple spent time recently dreaming up ideas for new companies. Disillusioned by the formality brought about by Cisco's seasoned new management team, Lerner longs to "prove you can do it without MBAs and a marketing department."

"I'd like to do it," she said, excitement building in her voice, "to be a good American."