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Dotcommers pull the cork out
28 December 2002

A few Saturdays ago in Silicon Valley, a group of smartly dressed locals sat in a seminar room listening carefully to Vivek Thoppay, a financial adviser from Merrill Lynch, reel off facts about asset allocation and diversified portfolios against a backdrop of PowerPoint slides.

So far, so obvious, at least for most of the audience of business and technology professionals gathered together by WineGlobe.com, a San Mateo-based retailer.

Even the investment-savvy experts reached for their notebooks, though, when a slide flashed up showing that the 1987-1997 growth of the FTSE 100 (199.14 per cent), the S&P 500 (191.25 per cent) and the Nikkei 225 (minus 0.46 per cent) fell far short of the full-bodied 571 per cent appreciation achieved by 10 of the top 1982 vintage Bordeaux wines during the same 10-year period.

During an hour of talking and wine-tasting, the seminar panel explained how investing in wine could be less risky than playing the markets. "The prices of fine wines continue to go up," says WineGlobe.com's buyer, Eric Entrikin.

Being close to the Napa and Sonoma valleys, two of the US's top wine regions, the Silicon Valley community has long paid homage to the local wine industry - from stocking up healthy cellars and watching the value of each bottle increase, to owning vineyards themselves.

Ravi Sethi, a technology entrepreneur who founded the Silicon Valley companies Berkeley Networks and NetContinuum, has amassed a wine collection over the years worth about $50,000 (£32,000). Mr Sethi's interest in wine dates back to his university days at Berkeley in the 1970s, when he would go on regular wine-tasting jamborees in nearby Napa. After he sold Berkeley Networks in 1998, he began investing in wine and even thought about buying a vineyard.

Meanwhile, Bill Murphy, a former Hewlett-Packard executive, is now the owner of Clos LaChance vineyard.
"There's no doubt about it," says Jane Evans, a wine enthusiast and senior advertising sales representative for CIO Magazine. "People who have made money in Silicon Valley are supporting the local wine culture."

The relationship between Silicon Valley and the Napa Valley is as complex as a tangled vine, flush with cabernet grapes. Some experts, such as Vic Motto, managing partner of Motto Kryla and Fisher LLP, a US wine business consultancy, maintain that wine consumption is not affected by the economy.

"The Californian wine industry has been growing at twice the rate of the economy as a whole for the last 15 years," says Mr Motto. But evidence suggests that the tech boom and bust, and the lifestyles and investment interests of the Silicon Valley technology community over the past decade, have affected both the Californian and global wine markets.

In spite of the fact that Silicon Valley notables such as Mr Sethi took an interest in wine long before the internet upswing, the technology boom of the 1990s brought with it a great deal of demand for Californian wines. When disposable incomes peaked, wealthy dotcommers acquired a taste for fine vintages, and spending $230 on a bottle of '93 Opus One was just something you did.

"The consumption of luxury goods increased proportionally with the economic boom," says Lawrence Kosick, alliance vice-president at internet portal Yahoo! and wine lover.

Yet the accelerated enthusiasm for Californian wines in the 1990s owes as much to the quality of the wines as the size of people's bank-balances. "Some incredible vintages came out of California in the 1990s," says Ian Mendelsohn, wine specialist at Christie's auctioneers. Wines were produced in small quantities and sold only via exclusive mailing lists. Because these wines were so hard to obtain, boutique labels such as Screaming Eagle, of which less than 500 cases are produced each year, had incredible cachet and could fetch triple or quadruple their list price. As the excitement over Californian wines increased, sales of top-end Burgundy and Bordeaux vintages fell.

The Californian wine hype was, to a degree, a local phenomenon, driven by the predilections and purses of boom-time California residents. And as in many industries, including the technology sector, the wine industry follows its own boom and bust cycles.

According to Bruce Cass, executive director of the Pacific Rim Wine Education Centre, a wine information resource, the US wine market has followed an 11- to 12-year cycle since the Prohibition ended in 1933. "The last bust was scheduled for the mid-90s," says Mr Cass, "but because the economy was so strong, the cycle was interrupted."

It is also worth remembering that, unlike many of the collectible French wines which have an international market, about 85 per cent of California wines are sold domestically. California accounts for about 75 per cent of all wine sales in the US.

With the tumbling economy, the tardy slump in the US wine market is happening. One of the main reasons for this is the current surplus of grapes in California, a result of rapid planting during the wine-happy 1990s. "The grapes are just shrivelling on the vines," says Mr Mendelsohn.

Another factor is that investors' money has dried up with the economic downturn.

Many technology industry workers may not have the same net-worth today as they had in 1998, but for those who acquired a taste for expensive wines during the high times, the falling prices should create increasingly affordable opportunities for building up a quality cellar.

Unlike some other forms of investment, investing in wine, like art, is more about pleasure than increasing wealth. With tax, storage, insurance and middlemen costs to think about, wine is not widely considered to be a liquid asset, despite the physical "liquidity" of the product.

The gurus at WineGlobe.com tell would-be investors to buy and store twice as much wine as they plan to drink, so that when it reaches maturity, they can drink half, sell the rest and feed their vintage-gulping habit on the proceeds.