Coming to San Francisco for the first time in a few years brings home how much it has been transformed. Whatever you call what is happening — a boom, a bubble or a flood of money into what was known as new technology before the ‘new’ became redundant — has augmented the city’s reality.

Once, there was a gaping divide between southern and northern California — between Hollywood and Silicon Valley. To the south was the dream factory of fantasy and imagination; in the north was science, hardware such as the transistor and chino-clad venture capitalists who worked in business parks on Sand Hill Road and lived in sprawling suburbia. San Francisco was a pretty, but unexciting tourist town.

It feels more like Hollywood now, full of people writing scripts and honing pitches. “Brave new world companies create something that was not there before. They do not just save somebody money,” a middle-aged man told a young entrepreneur at a nearby table in a diner on Monday morning. The ingénu should portray his venture as more than ‘faster, better, cheaper’.

Behind innovations that have suddenly come to feel routine, such as facial and voice recognition, lie rapid ad­vances in pattern recognition and emerging forms of artificial intelligence

Later that day one venture capitalist described his own firm’s decision to turn down Uber when it was first raising money as ‘a lamentable failure of imagination’. The partners should have realised that the pitch for a smartphone limousine service in San Francisco implied a platform to revolutionise global transport. Instead of thinking of the legal obstacles, they ought to have suspended their disbelief.

The old things are shrunken — the San Francisco Chronicle is thin and full of wire stories — and others are exploding.

An entire district has sprung up around China Basin on the edge of the city; Apple, which used to carve its stores into old buildings, has levelled a building by Union Square to build a Foster + Partners retail temple; the city’s bars are sleek and vibrant.

Silicon Valley is at one of those historic moments when a set of technologies start to work — and to work together — in unexpected ways. In this case, the interaction of mobile, robotic and artificial intelligence is producing a wave of applications and devices, from voice-activated software to self-driving cars. The machine knows what you want and where you are, and is steadily learning how to serve you.

Andrew McAfee, co-author of The Second Machine Age, describes the experience of being transported in one of Google’s self-driving cars as going ‘from terrifying to thrilling to boring in 15 minutes’. The machine not only drives competently but with tedious predictability, always observing the speed limit and slowing at every obstacle, as if constantly trying to pass a driving test.

Behind innovations that have suddenly come to feel routine, such as facial and voice recognition, lie rapid ad­vances in pattern recognition and emerging forms of artificial intelligence. The capacity of computers to sift through databases and comprehend what people are saying, what they mean and what they desire is evolving faster than many researchers had anticipated.

As a result, plenty of investors are eager to throw money at start-ups that look as if they possess a piece of technology and a business idea that will form at least part of the brave new world. The fear of missing out is overwhelming the fear of losing money, as Bill Gurley of Benchmark Capital warned recently.

History’s famous investment bubbles often formed around such combinations of easy money and fantastical inventions, and some of today’s venture capitalists suffered through the dotcom bust of 2000. Prod them about that and the optimists respond that the $48bn invested by US venture capital funds last year is only half the amount sloshing around at the last peak 15 years ago.

This ignores the fact that a lot of the new money is coming not from venture funds but from other investors, including mutual funds such as T Rowe Price and Fidelity. Three-quarters of recent fundraising rounds by ‘unicorns’ — start-ups valued at $1bn or more — were led by ‘non-traditional’ investors, according to a recent study by Fenwick & West, a Silicon Valley law firm.

One is Carl Icahn, the activist investor, who this week put $100m into Lyft, a rival to Uber. Mr Icahn often makes life difficult for his investment targets but is as enamoured as everyone else with his Silicon Valley picks. “We’ll be the first to admit that you are more knowledgeable in these areas than we are,” he wrote fulsomely to Apple this week.

Wall Street needs Silicon Valley more than the other way round. Large late-stage funding rounds such as Lyft’s are allowing unicorns to prance around for longer in private instead of being acquired or seeking initial public offerings. They can get on with their efforts to change the world without the world being able to second guess.

Is it any wonder that a lot of young technology entrepreneurs, and the engineers they employ on high salaries and rich stock packages, feel as good about themselves as film stars? “These guys don’t fear the big companies as much as they should. They think they can just sling rocks at them and win,” says one venture capitalist.

They are creating a new reality, or at least they appear to be — which is enough to attract money. It will not last for ever, of course. Herds of unicorns may perish, leaving people to wonder why they were so credulous. But Silicon Valley is a fun place to be.

john.gapper@ft.com

Published in Dawn, Economic & Business, May 25th, 2015

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