Just over a year ago, former venture capitalist Andrew Anker took a senior management job at Six Apart, a high-profile local start-up. His confidence about Silicon Valley's impending resurgence was so strong that he predicted, in an interview with the New York Times, that the area was 12 to 18 months away from a development like Netscape's initial public offering -- the seminal event that unleashed the Internet revolution and the unprecedented wave of IPO-fueled wealth creation that came to be known as the Internet bubble.

The spectacular Google initial public offering, which dwarfed Netscape's, has come and gone. Scores of hot start-ups have sprung up around the valley. But on the eve of the 10th anniversary of the Netscape IPO on Tuesday, a new Internet revolution or bubble appears as remote as the prospect of a business wrapping its identity around a sock puppet.

``I may have been off on the IPO side,'' Anker now says. ``I wasn't off on the excitement side.''

Anker's rethinking captures the paradox gripping the valley. Yes, there's excitement -- there are lots of innovative ideas and start-ups, and lots of venture capital flowing into them. The valley's innovation machinery is humming again.

``It's an excellent time,'' says Mitchell Kertzman, the former CEO of Sybase and Liberate, now a venture capitalist at Hummer Winblad. ``We are seeing really good entrepreneurs, really good technology and really good innovation.''

But some of the forces that propel those innovations from simply cool ideas into economic drivers for the entire region are faltering.

In short, start-ups aren't lubricating the valley as they have historically: They aren't creating the broad-based wealth or employment they formerly did. And they may never again. Partly that's because of post-bubble wariness toward initial public offerings. But it's also because of a far broader, and probably more permanent, trend -- the shift of technology jobs overseas.

Even the good news is tempered: Some veteran venture capitalists worry that, once again, too much investment money is flooding into the valley. If true, it could lead, in an eerie reminder of the late '90s, to the funding of flimsy ideas, followed by a slew of meltdowns.

For the moment, though, the good and the bad of the bubble remain a distant memory.

Despite a sizzling housing market and crowded shopping malls -- and despite the energy among entrepreneurs -- there's that lingering feeling that the valley has lost its punch. Indeed, nearly four years into the national economic recovery, Santa Clara County is still down about 200,000 jobs -- roughly one in five -- from its bubble heyday. The 20 percent decline in jobs is the biggest for any metropolitan region in America since the Great Depression.

What could spark a resurgence? The region functions best with a smooth, three-step process involving ideas, capital and a way for that capital to multiply -- or in investor lingo, a ``liquidity'' event.

Here's the ideal: First, smart engineers and entrepreneurs come up with new technologies and ideas. Then, venture capitalists, who raise money from eager investors, provide the entrepreneurs with capital. Finally, initial public stock offerings, or alternatively, acquisitions, allow that capital to multiply. The riches from these ``liquidity events'' are distributed mostly to company founders and venture investors, but also to employees, when they cash in stock options. As long as no one element gets out of whack, the cycle repeats itself.

Ripples from Netscape

Clearly, the Netscape IPO pushed things off balance. Its most profound effect was to dramatically lower the bar for liquidity events. All of a sudden, just about any company could -- and did -- go public. Investors who poured dollars into dumb ideas that were losing money made spectacular returns. By 1998, the valley was in a full-blown bubble.

It all came to a sudden halt when the stock market began a nearly three-year downward spiral in the spring of 2000. Companies folded. Thousands of investors lost their shirts. Yet others, including many venture capitalists who had unloaded shares before the bust, enjoyed untold fortunes. That has sustained the mystique about outsize returns in the venture industry.

The result is that venture capitalists continue to collect money from pension funds, endowments and other large investors seeking to diversify their portfolios. In addition, investors from Europe and Asia are joining the parade. Says Jim Breyer, one of the valley's most respected venture capitalists: ``There is far too much money.''

After the stock market crash of 1987, the number of venture capitalists and venture-capital funds declined. But after the Nasdaq crash of 2000, the numbers stayed roughly the same, says Breyer, who recently completed a stint as chairman of the National Venture Capital Association.

There are solid opportunities in such sectors as network security, digital media technologies, data storage, life sciences and consumer Internet services. But Breyer and some others say the valley may be launching too many ``me too'' companies. In 1995, before the froth, there might have been two or three companies going after a hot segment of the networking market, Breyer says. ``Today, there might be a dozen.''

Flush with money, venture capitalists have been investing in young Bay Area firms at a steady rate -- $6.7 billion to $7.7 billion annually -- since 2002. It may seem like a paltry sum when compared with the $33 billion invested in 2000 at the peak of dot-com mania. But it's far higher than any year before 1999. And the amount flowing from investors into venture-capital funds continues to grow, up more than 88 percent nationally, to $6.1 billion, in the most recent quarter compared to a year earlier.

In contrast, IPOs remain rare, held down by skeptical investors and tougher legal and financial hurdles. There have been only six IPOs so far this year in the valley, compared with 67 in pre-bubble 1996 and 78 in 2000. To be sure, many start-ups are being acquired. And the lack of overheated IPOs, especially among companies with no profits, has pluses: It has reset the expectations of entrepreneurs, who no longer seek overnight wealth.

`Walking dead'?

But it's hard to ignore the seeming imbalance between investment and potential returns.

``A huge inventory of private companies is being built, and if we don't have liquidity events, we'll start to see problems,'' says Andy Verhalen, a partner at Matrix Partners. ``Companies can only be supported by private investors for so long.'' In other words, the valley could again be populated by the ``walking dead'' -- as companies facing guaranteed extinction were known in the aftermath of the bubble. Then, many venture capitalists, lacking big hits, might pull back.

Even if venture capitalists and company founders do manage to get rich when some hot start-ups go public or get acquired, one part of the valley's ecosystem remains troubled. For a healthy economy, the wealth needs to be spread around, not just with stock options, but with jobs.

That's a task for start-ups, and this time around, they don't appear to be up to it.

Indeed, the area may be known the world over for its Apples and Oracles, Intels and Ciscos. The giants anchor the valley's economy. But historically, it is start-ups, not established companies, that create the bulk of new jobs here.

That's likely to be truer than ever now. The valley's top public companies have learned to do more with less. They are just back from a year of record profits, yet they have added virtually no jobs in the valley. Some, such as Hewlett-Packard and Sun Microsystems, are still shedding workers. And start-ups have not filled the gap.

One reason may be that many start-ups, especially in the consumer Internet sector, don't need as many workers. Consider Six Apart, the company that Anker joined. Its first product, a tool for blogging, was built entirely by the husband-and-wife team that founded the company. Soon after the software was uploaded to the Web, thousands of people began using it. That quick leap from invention to market acceptance may seem common now, but before Netscape it was unheard of.

``Now to start an Internet software company, you don't need to hire 500 people and build a direct sales force,'' Anker says.

Overseas migration

Overseas hiring has also played a part in keeping local employment growth down.

Venture capitalist Verhalen estimates that 70 percent of the companies his firm funds have at least some of their engineering, quality assurance or support functions offshore.

The impact could be significant.

From 1990 to 2001, start-ups created 258,700 jobs, according to a study by the Public Policy Institute of California. During the same period, established firms that were around when the decade began lost 120,500 jobs.

That creation and destruction left the valley with a net gain of 138,000 jobs.

If just 20 percent of start-up employees were to be hired overseas, a new boom of 1990s magnitude -- unlikely even in the rosiest of scenarios -- would leave the valley with a net gain of only 87,000 jobs in a decade. In a lesser period of innovation and expansion, start-ups may not be enough to make much of a contribution to employment growth at all.

The burst of the bubble, though painful, has helped stabilize an economy and investment climate that was far too frothy to be sustainable. With a strong lineup of marquee companies and nearly a third of all new venture-capital money nationwide still being invested here, there's no risk of the area going bust anytime soon. But the valley's New New Economy is stingier: Don't look for wealth to be spread as it was in the bubble -- or even in the healthy years before.MIGUEL HELFT (mhelft@mercurynews.com) is a Mercury News editorial writer. He has been covering the tech industry for nearly a decade.