There is one Silicon Valley bubble that never deflated after the technology boom ended. As a new generation of tech start-ups prepares to take its shot at the big time, that could have disruptive consequences for the Valley's delicate entrepreneurial ecosystem.
There are, in short, too many venture capitalists with too much money to spend.
"The business is not contracting fast enough," complains Jim Breyer, a partner at Accel, one of the Valley's leading VC firms.
Bruce Dunlevie of Benchmark Capital, another firm that made a name for itself during the internet boom, adds: "It's a business with barriers to exit unlike any I know."
The overhang of money in the VC business is estimated at $80 billion to $100 billion, all of it committed by investors and waiting to find its way into promising young companies. With only some $18 billion put to work by VC firms last year, and fresh money starting to flow into the funds again, that over-capacity could take years to work off.
This is bad news for many of the new companies hoping to catch the next big wave of corporate and consumer spending on technology.
Since the tech bubble collapsed, conventional wisdom has held that there is a financial drought in Silicon Valley. However much cash they may have at their disposal, the venture capitalists have been too wary about putting it to work.
But in hot new areas of technology, the money is flowing unabated. These tend to be less capital-intensive than some of the grandiose visions hatched during the boom. Also, the big advertising budgets of the dot-coms, which soaked up much of the venture capital cash of the late-1990s, are a thing of the past.
As a result, while the overall level of financing has fallen dramatically, there are still too many VC firms chasing the most popular new ideas.
In areas such as Wi-Fi networking and software designed to be distributed over the Internet, it is not unusual to find 10 or 12 start-ups fighting it out over particular niches, says Mr. Breyer.
That is reminiscent of the 1990s, and raises the risk that excessive competition will drive down profits and investment returns, he adds. The VC industry has failed to come to terms with this over-capacity. While other parts of the Valley ecosystem have suffered a painful readjustment since the end of the 1990s, there is no natural mechanism for it to shrink.
The barriers to exit of which Mr. Dunlevie complains are written into the contracts of the VC funds. The "limited partners" - investors, such as big public-sector pension funds, which promise capital to the VC funds - have no rights to cancel their commitments once they have been made. The VCs, for their part, have little incentive to hand money back voluntarily, since they earn a fee on the uninvested part of the money.
To add to the pressure, new money is starting to flow into the VC industry again.
"This will be a big fund-raising year," Mr. Breyer predicted at a conference this week organized by Thomas Weisel, a San Francisco investment bank.
The latest figures from the National Venture Capital Association, released this week, confirm that things are already moving into high gear. In the final three months of last year, VCs raised more than $5 billion - almost as much as the previous nine months put together.
Equally significant, the new money raised during the quarter was more than the amount invested in start-ups during the same period — the first time that has happened since the tech bubble burst, and a sign of how difficult it will be to work off the excess.
For the VC business, meanwhile, the continuation of the 1990s bubble has allowed mediocrity to persist unchecked.
Mr. Dunlevie quotes figures from Horsley-Bridge Partners, a San Francisco-based investment firm that allocates money to VC funds. Between 1990 and the middle of last year, $195 billion was invested by VC funds.
According to these figures, funds in the top 25 percent in terms of performance received $20 billion of the money, and have since returned $80 billion of cash to their investors.
In aggregate, the rest of the money has shown no net return; in fact, based on cash returned so far, investors have lost about 10 per cent of their money, though the picture may improve as newer investment funds mature.
"The most interesting thing about venture capital is, it doesn't scale [up]," says Mr. Dunlevie. "It's a cottage industry."
With $100 billion or so on hand, that could well point to more years of over-pay and under-performance ahead for the VC business.