Whatever Happened to Silicon Valley Innovation?

Transmeta Corp. (TMTA) once embodied the Silicon Valley dream. Starting in 1995, the company raised more than $300 million in a nervy bid to reinvent the market for chips powering portable computers. Yet Transmeta struggled in recent years, and the grand hopes officially ended on Nov. 17, when the Santa Clara (Calif.) company agreed to be acquired by a little-known rival. In the empty lobby of the company's headquarters shortly before the sale was announced, a note on the reception desk told visitors to call an extension and "ask for Mary Anne." Incoming and outgoing mail bins on the wall were both empty.

Meteoric rises and catastrophic collapses are the norm in Silicon Valley, of course. It's all part of the process of creative destruction that's one of the Valley's strengths. But for some tech industry veterans Transmeta's fall is a lesson in how dramatically things have changed in the information technology capital. Venture firms are shying away from the kind of large and risky bets they made in the 1990s, and some experts say a company like Transmeta could never get off the ground today. "If it takes more than $100 million to get a company started, you probably can't get the returns VCs want," says Navin Chaddha, managing director of Mayfield Fund, which has backed standouts such as Compaq Computer and Genentech. The venture model for capital-intensive companies is "broken," he says.