Silicon bubble shows signs of ballooning

The enthusiasm for social networking and mobile apps has venture capitalists clamouring to give money to young companies, which has given rise to an elite club of start-ups worth billions. Successive investments in Twitter have reportedly increased its value by 33 per cent, to $4 billion, while Zynga, creator of Facebook game FarmVille, is worth more than $5 billion.

Less than a decade after dot-com bust taught Wall Street and Silicon Valley investors that what goes up does not keep going up forever, a growing number of entrepreneurs and a few venture capitalists are beginning to wonder if investments in tech start-ups are headed toward another big bust. The chief evidence, according to industry experts, is the way venture capitalists and established companies are clamouring to give money to young companies, including those with only a shred of an idea. Companies involving social shopping, mobile photo sharing and new social networking are finding it easy to attract investors. No one really knows if there is a bubble until after one pops. Nevertheless, there are many signs of froth. For starters, this is not a stock market bubble. None of the companies are publicly traded.

Instead, entrepreneurs are increasingly looking to large technology companies like Microsoft, Apple or Google with mountains of cash, not the stock market. The frenzy is as much the result of simple laws of supply and demand as herd mentality. Thanks to constantly falling cost of computing power, a start-up needs less money to get off the ground.

Some venture capitalists, hungry for growth and troubled by weak returns, have moved toward smaller investments, hoping to catch the next Facebook in its infancy.

Most Silicon Valley investors still see no signs of gloom and doom. Ron Conway, San Francisco financier says he does not think there is any bubble.