Not so.  Enter Sequoia Capital’s “RIP Good Times” presentation.  Within a day, eight people had forwarded it to me, along with notes taken by a briefly-anonymous Sequoia portfolio CEO.  Shortly thereafter came the Benchmark Letter, which another investor and our corporate counsel both forwarded to me.  And the Ron Conway email.  The argument is that revenues and earnings will fall off the table (thus perhaps justifying the fact that today’s S&P 500 is trading at a pretty low average P/E of 10.5), thus necessitating tectonic readjustments to spending.

And there it was: in one great, coordinated movement, Silicon Valley panicked.  It was as if the Valley remembered 2000-2001 and couldn’t sleep.  A friend of mine, at a Seqoia company, worked the weekend and executed a 40% layoff earlier this week.  Hi5 cut staff, Zillow and Adbrite did the same, and the list goes on and on.  One day everything is fine;  the next, the world is ending.  Trader mentality hit Sand Hill Road.  With the zeal of the converted, a paroxysm of cost-cutting swept Valley CEOs.

This “stampede for the exits” mentality of supposedly long-term investors here in the Valley makes zero sense.  One of my Directors correctly pointed out that Moritz et al. at Sequoia were undoubtedly “firing for effect,” and I’m sure they were, but tell that to the employees laid off by my friend’s Sequoia-backed company.  The problem with making rapid adjustments to early stage companies is that the adjustments themselves effect the business.  There’s a Heisenberg Uncertainty Principle in startups:  trimming too fast or too precipitously will injure the company far more deeply than it would a larger, established company.  Why?  Because start-ups in particular rely on their employees to go the extra mile, think the impossible is possible, burn the midnight oil, and invent the ingenious.  They also rely on their employees knowing they’re involved in something special, relishing their creative environment, and collaborating with their colleagues.  (For which, of course, they need to have colleagues…!) Take all that away, and a start-up is just a thinly-staffed, under-capitalized company with no track record or proven market.

There’s another, more profound risk, however:  react too strongly and Heisenberg will assure your startup misses the market opportunity it’s not expecting.  The problem with over-optimizing, particularly in venture-backed companies, is that they will miss the unexpected, creative opportunity, either because they are so busy dealing with the ramifications of precipitous cost-cutting or because they will be so under-staffed and so hyper-focused on cash flow that they will have neither the energy nor the creative spirit to do something daring when the opportunity presents itself.

Does this mean we should be spending profligately and ignoring the broader dynamics of the economy?  Of course not.  No CEO in his or her right mind would do so.  But the fact remains that what makes Silicon Valley great is certainly not its ability to play the part of proverbial “tail” to the economic dog which wags it.  Every one of us should take a careful look at our spending, our sales forecasts, and make sensible business decisions based on what we see.  (In our case, we see changes coming and are adjusting for them.  We’re cutting where we need to, investing where we can afford to, and otherwise treating the shake-up as an opportunity to test every single one of our assumptions.  And, yes, if one of those assumptions changes and we see a problem, then we’re going to cut spending.)  But lay off 40% of staff just because someone gave a presentation?

Fortunately, voices of sanity have begun to speak up.  My friend and colleague Pascal Levensohn (full disclosure: also now an investor and Board member in my company) wrote an excellent post today putting context around the Sequoia presentation.  And none other than the Sage of Omaha himself is going long on US equities.  All of us running businesses under these economic circumstances are well-served to create a back-up plan (the “survival plan”), take a whack at expenses wherever and whenever possible (hey, shouldn’t we be doing that all the time anyway?), test every single assumption in our models, and perhaps think long and hard before hiring additional staff.  But then we should go back to work, build amazing businesses, and remember that Silicon Valley is about the future and we’re in charge of creating it.

As the press release on our website explains, inclusion in the AO Global 250 “signifies major developments in the creation of new business opportunities in the global technology industries.” And, hey, if AO’s founder, Tony Perkins (of Red Herring fame) gives us his approval, I for one am happy to have it.

**GRINCH UPDATE 12/18: Some militant copyright holder has filed a DMCA Takedown request with YouTube, so this wonderful piece of (IMO) fair use parody was temporarily unavailable. Fortunately, Matt Hempey has created version 1.1, which went online this evening**

**GRINCH UPDATE 12/18: Some militant copyright holder has filed a DMCA Takedown request with YouTube, so this wonderful piece of (IMO) fair use parody was temporarily unavailable. Fortunately, Matt Hempey has created version 1.1, which went online this evening**

As I poked around YouTube to see what other bits of cynical commentary I could find, I found that the group which created this little gem, The Richter Scales, has been busy singing their unique sharp commentary for a while. Check out this equally funny piece (which hasn’t quite gone viral—34,000 views since September) about the sub-prime debt melt-down:

This particular one strikes a chord (sorry ) because the song on which it is based, “There’s a Fine, Fine Line (Between Love and a Waste of Time)” from Avenue Q, was written by my friend and college classmate, Bobby Lopez, who just might just be the youngest composer to win a Tony Award for best score, which he and collaborator Jeff Marx shared in 2004 for Avenue Q. The world is, indeed small.

And it gets smaller.

With a little more poking, I discovered that The Richter Scales are based right here in San Francisco. They’re quite the motley crew of former a cappella singers from various universities. Naturally, since my alma mater has something of an a cappella “problem” (15 singing groups on one campus will do that), I figured I might find a few, and, sure enough, there’s friend Nils Erdmann, a year ahead of me and a member of the elite Senior mens group the Yale Whiffenpoofs. A cappella singing was maybe the highlight of my undergraduate experience, and my group, Out of the Blue, is still going strong—some would say stronger, now that that my voice is but a distant memory!—and celebrating its 20th Anniversary this year. With some 200 or so alumni, there will be a run on hotel rooms in New Haven for the event….)

And now it comes full circle: A cappella singing seems to be somewhat addictive for those of us who indulged in it in college, and just the other night, an old friend from school asked me if I’d sing background on a project her band was working on. Little did I know the evidence would be caught on tape—complete with a street-side serenade and the resultant reaction from our Mission crowd:

And now for the clincher: The Richter Scales have quite the sense of humor (as witness their great “I Hate A Cappella”), but they’re even tougher on the Tech industry. Earlier this year, they were nominated for a CARA award (by CASA, the Contemporary A capella Society of America, who else?) for “I’ve Got Mail”.

Enjoy.**If the Grinch lets you.**

For various reasons, Facebook has become my social network of choice. In the gross network size sumo match, it wins handily (55 million users at last count), and Facebook keeps growing in my consciousness, so I got curious: Just who is using these sites? Is the demographic changing?

For starters, I was convinced I could predict the likelihood of a person being a Facebook member based on their age. Could I? You betcha! It took some digging, but after a couple of days of running searches and compiling statistics, I had solid data supporting the hypothesis. (See below for methodological notes.) Here, for example, are the gross number of Facebook members who voluntarily associated themselves with specific graduating classes at four top US universities:

So the number of Facebook members increases as college graduation year increases. Not terribly surprising, but I was somewhat surprised by the “spread” between Harvard and Princeton. According to this first cut, it appeared that Princeton graduates are less likely to adopt Facebook if they are older, whereas Harvard graduates are somewhat more likely to do so. Once I corrected for the size of the undergraduate populations of the respective schools, the spread shrank significantly:

There is still a difference between the universities, but the trend is considerably tighter. (For those wondering why the lines stop earlier for Harvard than for Princeton, and why they don’t reach as high, see the methodological notes.) Those who like to look closely at charts will notice that the trend is really surprisingly monotonic: there just aren’t that many later years which have lower membership than earlier years. Taking the average makes the trend even more obvious:

Now it gets interesting. These data pretty much prove that Facebook usership is seeing exponential demographic growth: the exponential regression shown above (dotted white line) is by far the most accurate regression for these data (r²>0.99; nothing else comes close).

As an aside, note that members counted in the statistics above graduated college before Facebook, or any of the social networking sites with any real following, launched. This is particularly interesting because it points to some further areas of research: what is causing this adoption? Is this a “sideways” look at Metcalfe’s Law in action?

So age does matter, if you want to find someone on Facebook!

Next question: what can we make of the differences between adoption rates at different universities? It turns out there are some trends there as well. For starters, I broadened the focus beyond the admittedly minuscule sample of the four top US universities above. Arbitrarily, I chose to expand the list to include a few state universities of much larger size, as well as another top private university (MIT). Here are the total number of members of Facebook who have voluntarily associated themselves with their university networks, along with the respective universities’ undergraduate and total student populations, for comparison:

This chart tells us two important things: one, on a gross numbers basis, graduates and students at the University of Michigan would seem to be experiencing the greatest network effect value on Facebook, followed by Harvard and UCLA. This isn’t altogether surprising, however, given the relative sizes of the student populations at Michigan and UCLA. But correct (normalize) these data for size of student population, and an entirely different trend jumps out:

What do these charts say? If you correct for size of undergraduate population, Stanford University students and graduates are far more likely to be members of Facebook than are the students of these few other universities (59.3% more likely than nearest “competitor” Princeton, and 9.5 times more likely than UCLA students). Perhaps this is to be expected from a university in the heart of Silicon Valley, a mere few minutes’ drive from the venture capitalists who fund so much of the social networking industry. But the trend is even more interesting when one corrects for the overall student body size: then Princeton University is the hands-down winner, outstripping nearest competitor Stanford by 42.2% and besting UCLA by 2.7 times.

At first blush, the answers to this second question would seem to fly in the face of the first: how can Princeton students and graduates be so much more likely to be users of Facebook while still lagging behind the other schools in “older” graduate adoption? As you have no doubt surmised, the difference lies in the activity of the current student population. What Princeton loses in “older” graduate adoption of social networking technology it more than makes up in adoption by its current student body. Or to put it another way, if you meet someone on Facebook, and she is from Princeton, she’s likely to be younger than that fellow you met from Harvard!

Methodological Notes:

All of the data in this posting were collected either by using Facebook’s Friend Finder or reviewing the “Network” home pages for each of the various universities. Due to result size limits imposed by Facebook, presumably for performance reasons, queries by class year and university which return more than 500 listings report “of over 500 found.” By paging through the results, it is possible to get beyond 500 and reliably spot results up to about 550 or so hits, but in no case will Facebook display the 551st hit. Therefore, in all the datasets, any value reported above 500 was treated as an “overflow” and was not calculated into averages.

There are several potential problems with the above techniques used to quantify class membership. First, not all members of an undergraduate class are of the same age. Second, Facebook does not reliably distinguish between undergraduate and graduate class membership when searching (it does, to some extent, when reviewing an individual’s profile). Third, Facebook does not distinguish between students, faculty and university staff when calculating the size of its Networks. Especially for the larger universities—with larger staffs—there is likely to be some impact from this particular source of error. Finally, affiliation with class years and universities is strictly optional, so there is undoubtedly selection bias present in these figures. Of particular note is that there are undoubtedly some people who affiliate with a University network but intentionally choose not to divulge their graduation year.

The seminar was sponsored by the Business Leadership Council of the Jewish Community Federation of San Francisco, the Peninsula, Marin and Sonoma Counties (nothing like a short name) and was hosted by the Mountain View office of Fenwick and West LLP.

Pascal discussed the dynamics of VC-backed boards (the fact, for example, that they often vote unanimously; that they can suffer from “big dog on the block” syndrome, in which the “big name VC” often drives all the decisions; the dangers of strategic money in VC deals; and even the tendency of “name VCs” to leave the board and replace themselves with junior partners when a company is in trouble). Pascal also suggested that VC-backed companies circulate and tabulate a Board effectiveness survey in much the same way that public companies do. It was refreshing to hear someone state what many CEOs already know: if CEOs are the single least reviewed and formally evaluated employees in VC-backed companies, then Board of Directors are perhaps the second least reviewed and evaluated aspects of corporate governance.

Now if the Board is responsible for setting the direction and the CEO for steering the ship, and they are the least reviewed and evaluated elements in the company, what’s wrong with this picture? Pascal has published an excellent whitepaper on Board governance which ought to be recommended reading for everyone involved in venture-backed businesses. Suggestion for intrepid VCs: provide a copy of this whitepaper as an exhibit to your Term Sheet!

So today I’m going to brag a bit: ShotSpotter systems are now deployed in cities nationwide, from Los Angeles, CA to Washington, DC, and they’re saving lives and helping police make arrest. ShotSpotter systems really do make a difference (60-80% reduction in gunfire rates in coverage areas, 30% reduction in violent crime rates in some areas we cover, we helped FBI and local authorities catch the Ohio Sniper back in 2003-2004), and its gratifying when the press picks up the facts and–for once–makes the front page news out of some good news.

First some background: One of the features we wanted to demonstrate was that our sensors can filter out the sonic “snap” (really a small sonic boom) created by a bullet as it moves through the air. Not all bullets create this sonic snap; only supersonic bullets do. Most military weapons fire supersonic projectiles, including the M16-A4 rifle, an AK-47, etc. So someone standing down-range of a supersonic weapon hears two noises: the sonic snap of the bullet, followed by the muzzle blast of the weapon. Unfortunately, this sonic snap confuses soldiers, because the noise comes off the bullet, and not from the muzzle of the weapon, and thus the human brain gets confused and doesn’t correctly figure out the origin of the gunfire. Our ShotSpotter sensors can figure out the difference between the two sounds, and we triangulate on the muzzle blast (where the shooter is) and not the sonic snap (where the bullet is