The prognosis for Silicon Valley looks very good

The world's engine of innovation is sick, stricken by the coronavirus. But it will emerge stronger than ever. Here’s why the valley will be just fine.

First, you need to know that Silicon Valley is going to be fine.

The victim is faring similar to most COVID-19 patients. Hurting, struggling to breathe, but hanging on.

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What makes the San Francisco Bay Area the legendary "Silicon Valley" is a self-propelling process by which big technology companies generate disgruntled engineers who leave to start their own small companies, some of which grow to large companies, all with the help of educated immigrants and venture capital.

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With the air cut off by executive order and startups put on a diet by declining funding, the lungs are being damaged, but it will survive. Here's a more detailed prognosis.

The seed money for tech innovation

The venture capital racket is notoriously slow, and they're slow to respond to the coronavirus crisis as well. The first quarter was surprisingly close to normal, but revealed a slowdown. VC's financed 126 Silicon Valley companies in January, 60 in February and 44 in March. Although funding and amounts will probably decline further over the coming months, they're not expected to stop. Bets will get less risky. Startups will have to prove solid business models. And all that is probably a good thing.

What's really happening during the coronavirus crisis is a refocusing and a re-engineering of who gets funded and why. Investors know that some companies are going to come out of the crisis as major winners. This is especially true of any company that enables the digitization of work in general, but healthcare and education in particular will fare well. And they're going to want to fund such companies.

The immigrants and the effect on the valley

Only 18 percent of Silicon Valley companies are considering or implementing layoffs, according to a Silicon Valley Leadership Group poll. Some 61 percent said they're still hiring.

They won't be able to hire immigrants, however. President Trump signed an executive order this week temporarily halting immigration for green card seekers.

Silicon Valley companies are complaining about this, of course. But it's probably a good thing. The reason is that as part of the remote work trend, which is here to stay, Silicon Valley companies should do a lot more hiring of people all over the world and have them work remotely.

I predict an explosion in remote hiring. In the future, people will be given H1B visas only for management and leadership positions, and it will become increasingly rare for them to be sought after by Silicon Valley companies for software engineers and their ilk. The new paradigm is: Hire globally but bring in people from abroad when you're grooming for management.

The state of Silicon Valley startups

Legendary Silicon Valley investment banker Mary Meeker issued a report last week about how the coronavirus is affecting technology. She points out that the crisis is accelerating digitization rapidly causing work to go online and forcing rapid change, especially in the digitization of healthcare.

There have been several doom-and-gloom reports about startups being "starved" of revenue and funding, having to lay off most employees or shutting down. But most of these reports are global or national. Silicon Valley startups are doing far better than most.

Yes, lots of Silicon Valley startups are going to fail this year. What else is new?

What's new are the criteria for failure. Startups are either accelerating or dying based on their fitness for the new world of pandemics, social distancing and remote work.

The coronavirus crisis is re-wiring society, changing the way people live and work. Many of these changes are permanent. And society suddenly has new needs. People need to work from home, connect with colleagues and clients remotely, avoid getting sick and get better medical care. They'll want to shop online more, be entertained at home more often and cook more. Homes will be transformed. Travel will change. Everything will change.

As a result of this re-wiring, a whole new set of businesses will be favored in the new world. The process of digitization of everything is being accelerated. Startups will flourish in this new environment, and Silicon Valley will provide them. 

The big tech companies

So far it appears that the big Silicon Valley companies are doing fine. Some are even thriving. With so many people staying home, companies like Facebook and Netflix -- and, of course, Zoom -- are doing far better than they otherwise would have done.

One of the weird things about the biggest tech companies is that they're sitting on mountains of cash. Apple has more than $200 billion. Google, or Alphabet, is hoarding well over $100 billion. Other large companies also have a lot of cash on hand. But while there will no doubt be cost-cutting and austerity measures even at these companies, they're at no risk of folding or fading into irrelevance.

And many are helping the world cope with the crisis. This is especially true of Apple and Google, which recently announced a partnership to build compatible contact tracing features into their respective mobile operating systems, which app developers can leverage to help people know if they've come in contact with someone who has the virus. The feature is called Exposure Notification, and the companies this week announced that they're adding more randomly generated keys, strong Bluetooth metadata encryption and that the beta version of the feature would become available next week.

The world suddenly feels that it needs big Silicon Valley companies -- to both save lives and help revive the economy after the crisis.

So don't mourn Silicon Valley. The patient is going to make it, and come out of the crisis healthier than ever.

The coronavirus is forcing everyone to confront the unknown, rapidly change and digitize. And those are the things Silicon Valley does better than anyone.