(FORTUNE Magazine) – In early July, before the heat wave enveloped my hometown of New York City, I set out for San Francisco to spend the summer exploring how big money has changed life for Internet people there and in Silicon Valley. I was supposed to concentrate on people under 40, for the most part, who have worked for Internet companies and have made a few million dollars in the past couple of years. Not hundreds of millions, just a few. "The middle class," my editors joked. I figured it would be fun, shooting the breeze with people my own age, people who--according to the hype--love their work, love their lives. They'd hit the jackpot. I'd find out what makes them tick. Sounded great.

Then I got there and got kind of depressed.

It wasn't that the people I met didn't embody all the qualities I thought they would. They did. They were ambitious, affable, and polite. I liked most of them.

But something gnawed at me. Internet wealth has given hundreds of lucky, hard-working people the chance to forget about their bills and live it up a little. But it has also created a community where grossly skewed expectations, measured in terms of dollars, define personal success. Inner peace isn't free in this town. People with money ooze self-esteem. People without it have a panicked look in their eyes. Intangible benefits--having a fun job, creating exciting technology--don't stand on their own anymore, no matter how often people say, "It's not about the money." (And they say that a lot.) It's all about the money.

I wish I could write a story that just celebrated the spirit of the place at its best: ultraconfident, fast-thinking, energized, optimistic. But much of the time Silicon Valley didn't feel that way to me. Often it felt desperate, silly, overcaffeinated, full of doubt.

For decades now, Silicon Valley has produced fabulous riches, often for very young people. But the past three years--the Internet years--have been truly remarkable. Unlike technologies such as the semiconductor and arcane software code, the Internet is accessible to people who aren't Stanford-educated engineers or corporate wonks. It has generated unimaginably great stock returns, even after this summer's slump. According to research firm Venture One in San Francisco, in the first six months of 1999 venture capitalists invested $11.4 billion--90% of what they invested in all of 1998. And Internet heavy hitters like America Online and Yahoo keep buying up small fry with their high-priced stock.

The upshot? A lot of the people working at Internet companies have made a killing.

Take Katie Burke, 29. A onetime investment banker, she graduated from Harvard Business School in 1995 knowing she wanted to "be involved with the Internet." She soon found herself working on a free, Web-based e-mail product called RocketMail, for a company called Four11. "Every MBA bone in my body resisted. I wasn't sure about the business model," she says.

But the product was a huge success. Soon a bunch of companies--some with very deep pockets, like Microsoft and Yahoo--wanted to purchase Four11. "We were kind of on a roll," says Burke, "so we were, like, Do we want to sell the company? But we had to be realistic. If we weren't bought, we'd have to compete with these people." Eventually Four11 made a deal with Yahoo, which paid for it with stock, then worth $85 million.

Burke considered striking off to do something else but instead stayed at Yahoo for a year, during which time the stock price (adjusted for a two-to-one split) rose a staggering 686%. "All of a sudden the numbers got really big," she says. When she left Yahoo, she had to give up three-quarters of her remaining options. But between the quarter she still owned and shares that had already vested, she had enough to make her a millionaire many times over.

If you ignore the fact that Katie Burke is a woman--the great majority of Internet millionaires are men--she exemplifies the average Internet millionaire in three ways. First, Burke still works, even though she doesn't need to. She now has her own startup, desktop.com. "I could not be happier," she says. "I love building up from scratch." She seems to be good at it: In August, desktop.com got $29 million in funding from Accel Partners, Kohlberg Kravis Roberts, and Sequoia Capital.

Very few people who've had success in the Internet world quit. Most dive back in to new startups. I asked everyone I met for names of people who had taken their money and tried something else, just for the hell of it. I found a few people who had taken breaks, but no one who had "retired." Not a soul.

The second thing that makes Burke typical is that she has worked for a major Net player--in this case, Yahoo. While there's a common perception that everything in Silicon Valley turns to gold, the truth is that most companies fail. Most people who have a few million dollars have been compensated in options from one of the big superstar companies, like eBay or Yahoo or Netscape (now owned by America Online, itself a killer stock). They either work for the big guys directly or, like Burke, worked at the upper level of startups that the big guys have acquired.

Third, Katie Burke is modest about spending. As Burke got rich, she moved from a two-bedroom apartment she was sharing with friends to a one-bedroom place in San Francisco's Pacific Heights area. She lives alone now, but she still rents. She helps her family out. She's traded in her 1996 Jetta for a 1998 Jeep.

People here have always loved to gloat--whether it's true or not--that Silicon Valley money isn't flashy. Members of the young Net set claim the same thing, and with some credibility. The millionaires I interviewed chose cheap restaurants when we got together for meals. They never dressed up, and they spoke often of their interest in charities. When Netscape bought 35-year-old Anil Godhwani's company, AtWeb, last December, the first thing he did was buy four adjacent 3,000-square-foot houses in a gated community in the hills near Fremont so that his entire family could live in one place. "It's always been my dream to bring my family together," he says.

Godhwani seems to know what his money's for. That's not true for many of the other new millionaires, who can't quite decide whether money is (a) a good thing, (b) a really good thing, or (c) an evil foisted on them as they try to change the world through technology. What almost all do agree on is (d) that a reporter from New York shouldn't be asking about it. They know that they're part of something special in Silicon Valley, that the past few years have been unique. But they don't seem to want to acknowledge that money has been a part of it. Many people chastised me for having the nerve to ask about personal wealth. One young CEO thought some people might talk, but "only the assholes."

In the midst of this ambivalence about their newfound dollars, one thing is clear: Money is the Netheads' marker of intelligence, drive, worth as a productive member of society--perhaps their only marker. "People here want to make it, just like in New York," says millionaire entrepreneur Tony Espinoza. "It's just that here there's a number attached to it." Jason Singer, a former tech consultant who now runs Chalk, a San Francisco nonprofit, sees it like this: "I think success here comes from three things--good work, new math in the stock market, and luck. But when I've brought up new math or luck with friends who've made a lot of money, they get really upset. People here take themselves really seriously."

There's even a hierarchy to money. Wealth from an IPO is better than money gained via acquisition. "If you're acquired, a company validates you. If you go public, the market--the world--validates you," says Nirav Tolia, a Yahoo millionaire who went on to found Epinions.com, a startup in Mountain View. Leaving stock on the table to work in a new startup, a la Katie Burke, is way cooler than hanging around at a sleepy dinosaur like Netscape until you get all your options ("vesting in peace," that's called).

In short, no money's more prestigious than entrepreneurial money. "People look at me differently now that I've started my own company," says Donna Sokolsky, co-founder of Spark Public Relations, a high-tech firm in Palo Alto. Jason Singer and Chalk co-founder David Glickman plan to hand over management of their nonprofit to an executive director by the end of the year and then move on to e-business startups. "One on one," Glickman explains, "when we talk to people about Chalk, they're impressed. But starting a nonprofit is seen as being easier than doing a successful for-profit startup. I want both experiences."

Another aspect of Silicon Valley "modesty" is the attitude many Net types with families have toward their kids' inheritances. Andy Katzenstein, an estate planner with the law firm Manatt Phelps & Phillips, says that compared with his clients in L.A., Internet millionaires are very restrictive when it comes to leaving money to their kids. Sometimes the inheritance is capped at a few million dollars, sometimes the money is controlled by a trustee, and sometimes it gets cut off once the young'un gets a job.

At first glance that may seem admirable. But you have to wonder how the Internet babies will respond to their relatively meager inheritances as they get older. I asked Katzenstein what he thought. He mulled it over for a minute. "I imagine some of them will be resentful," he finally said. "They'll think to themselves, 'I can have $100 million and still be a good person!' "

Maybe small inheritances, too, are an extension of the ego trip, a continued self-assuring murmur that, indeed, all this new money is not about luck. I earned this! the millionaires seem to want to scream--to themselves, to the world, even to their kids. Prove you can do it too!

The Puritanism about inheritance and other financial matters belies the fact that in many ways, the Internet has made money more visible than ever in this region. Says Katie Burke: "Cocktail parties have changed. It's so-and-so got acquired, so-and-so bought a house. People have asked me, How much do you think so-and-so is worth? It's the not-so-pretty side of what's happening."

No one knows anyone else's bank balance firsthand, of course. But people do know how big various IPOs and acquisitions are, and by combining those bits of fact with a lot of semi-educated guessing, they can extrapolate a figure to be jealous of.

Oliver Muoto, vice president for marketing at San Francisco startup Epicentric, explained to me how it works. Because of SEC restrictions, said Muoto, "an IPO is usually less liquid than a buyout." After your company goes public, you can't sell any stock for a specified period--typically six months. When a public company buys a startup, on the other hand, the scenario is much more rosy. In most cases the vested portion of your stock options, which were purely paper money when your company was private, suddenly become vested options in the acquiring company. That is probably very good news--because acquirers tend to have wildly inflated stock prices and because you can flip a bunch of those options right away and get actual cash money. After that, you simply kick back and watch what happens to your acquirer's stock price as the rest of your options vest.

So here's the way you might concoct a crude analysis of how much money your e-biz pal made by selling off his or her startup. A fair guess--a guess, mind you--might be that the venture capitalists own 40% and the founders 45% of the startup, with the remaining 15% distributed among employees. So if a company with three founders is acquired for stock valued at $100 million, each founder probably gets options from the acquiring company worth around $15 million. Then just make allowances for vesting schedules and fluctuations in the acquiring company's stock price and voila!--a guesstimate of net worth. You may be well wide of the mark, and others may use slightly different formulas, but such details don't stop anyone from playing this guessing game.

To see this kind of calculation in action, you have to hang out in San Francisco. The tech world may still have its epicenter farther down the peninsula, but for young, single Net millionaires, San Francisco's the place to live--the Valley is simply too dull.

The city has also become the place where they choose to headquarter their companies, mostly in the burgeoning industrial area known as SOMA (as in South of Market Area; Market Street is the main commercial drag in downtown San Francisco). A few years ago, much of SOMA was a dead zone. It's still gritty, but now SOMA has a museum (the San Francisco Museum of Modern Art), several hotels (including the stylish W), a new Sony entertainment complex called the Metreon, and a healthy crop of cafes, nightclubs, and restaurants. It also has a ton of Internet startups camped out in funky lofts and nestled in the cozy townhouses that circle South Park, the neighborhood's patch of green. So many that part of the area has come to be known as Multimedia Gulch.

Demand for office space in Multimedia Gulch is so great that it's typical for fledgling dot.coms to sign pricey five-year leases even though most will outgrow their new offices and move in fewer than six months. "The $12,000 a month isn't going to hurt if we're successful," says Tim Hickman, an Internet millionaire (he was a marketer at Netscape) whose new company, iTixs, plans to stay in its offices only five months. (For more on iTixs, see First.)

It sure beats working out of the garage. The typical SOMA office is a big open space, with computers lined up on makeshift desks, papers strewn about, large expanses of white wall, wood beams (if the company's lucky), and often a skylight or two. The people who work in the outfits are invariably young and well dressed and usually white. They're funky and hip, not geeky and retiring. Walking down the street, Hickman and I bump into an iTixs product manager coming in for his first day of work. He's dressed like a skater dude. The tips of his spiky hair are bleached almost white.

People throw parties in SOMA, lavish parties. Sometimes there are several on a single night. Free cocktails, free food, live music, and tchotchke party favors are de rigueur. A Wednesday-night party thrown by a company called Alexa Internet featured professional dancers sporting G strings. The event was packed, wall to wall. "San Francisco was really fun until it became L.A.," one press-shy millionaire told me as a feather-headdressed dancer sashayed by, geeks in tow. Other people thought they saw ghosts of the New York I-banking crowd of the '80s. "The only thing missing is the eight ball of cocaine," one partier observed. "Jagermeister!!" screamed one drunk woman late in the evening, as a bartender walked by with a bottle of the stuff.

There's a cynical edge to the Internet scene in San Francisco, an arch sensibility you don't find down in the Valley, where young people are almost painfully earnest. At Round Zero, a popular networking event that takes place monthly in Palo Alto, entrepreneurs do some schmoozing but spend most of their time engaged in moderated discussions on topics such as "Startup Fever: All Aboard the Entrepreneurial Bandwagon." In San Francisco networking is all about, well, making the scene at parties like the Alexa bash.

It doesn't take hanging out in Multimedia Gulch or at chichi parties to see a change in the city. Men in pinstripes are still on the make in the financial district, and hippies still meander through the Haight. But more and more, San Francisco is becoming a company town. "One of the things I dislike about Washington, D.C., is that if you're not in politics, you're completely out of the loop," says Eric Budin, vice president for corporate development at more.com in San Francisco. "Now it's becoming like that here."

As Internet millionaires move in, other people are being priced out of previously affordable neighborhoods like Potrero Hill. Rents there have almost doubled in the past two years. The natives don't like it. Back in May, someone started vandalizing Yuppie SUVs parked on the streets of the Mission, traditionally one of the city's grittiest regions.

If an onslaught of Internet millionaires is making San Francisco less affordable and vaguely vulgar, it's making normal family life in Silicon Valley downright prohibitive.

Housing costs are, in a word, out of control. According to Stephen Levy, who heads up the Palo Alto-based Center for Continuing Study of the California Economy, the average price of a house in Santa Clara County is $400,000, the highest in the country. Even though they're already staggering, home prices in Santa Clara County are increasing more rapidly than in any other metropolitan region in the U.S. Flush with cash, tech people just keep bidding prices higher and higher and higher.

A lot of people are scared by this, and rightly so. You hear many stories of professionals--doctors, accountants, lawyers--getting priced out of the Valley. With property values going up faster than wages, Levy says, it could get to the point where "if you don't own a house already and you don't have stock, you'll be in real financial trouble here."

Not having stock is hardly a concern of the Net set. To get an idea of what it takes to be one of the young Net millionaires who thrive in the region, I talked to Linda Yates and Paul Holland, a married couple who are 36 and 38 years old, respectively. I met them for lunch one day in a coffee shop near Holland's office, at startup Kana Communications in Palo Alto. Yates wasn't working at a dot.com at the time, but her husband had insisted that she come along for the interview. "She's an equal player in the story," he told me.

Yates is a former investment banker who was once CEO of the Menlo Park management consulting firm Strategos. Holland is head of sales for Kana, which produces software that manages e-mail for large corporate Websites. The couple, who met at the University of Virginia in the early '80s, have planned their careers expressly so that they can afford to live the way they please. "Linda has worked for cash, and I've worked for equity," Holland says.

The strategy has worked well for them: Yates pulls in a salary in the high six figures, while Holland has already been through one successful software IPO (at Pure Software, in 1995). Industry trade magazine Red Herring and others have speculated that Kana may go public sometime soon. Holland won't comment, but it's clear that he believes that he and Linda are on the right track. The couple live in Palo Alto with their 9-month-old daughter, Kylie, but are planning to build a larger house nearby soon. In a later conversation Holland mentions something about "getting his next zero." Like all the Internet people I talked to, Yates and Holland are thrilled to be a part of the revolution. "It's like being in Rome in the year zero!" Holland says. Yates thinks, "It's more like the Renaissance."

What really gets them going is talking about the extended trip around the world ("our sabbatical") they took in 1997. They plop a laptop on the lunch table and show me photos from the journey. The snapshots are part of a presentation that includes bulleted lists detailing their philosophy for "non linear living": Break the bonds of the cubicle convict. Take risks early and often. Stay hungry. Stay current. They have more such rules and are planning to put them all in a book that will be called Non Linear Living: A Lifestyle for the 21st Century. They love to talk about this stuff with younger couples. "We are evangelizing a different way of life," Yates said. "It's all about mixing the personal and the professional."

As she flipped through the slides, Holland grabbed my reporter's notebook and began sketching out a graph that he also likes to show young couples, one that illustrates how a pair in their late 20s could plan their net worth at 35. The line on the bottom showed how they could get to $500,000: by both keeping their wage-earning jobs. The line in the middle placed them at $2 million: one person keeps a wage job, the other works for equity. Finally, at the top, a plan to amass $10 million to $20 million: Both should work for several dot.coms, collecting a portfolio of options along the way.

I asked what it was like for the people who don't get a big hit. "It sucks," Yates said. "But it doesn't spell the end of your career."

"People get really bitter and depressed," Holland added. "Our marriage is a partnership and a romance," Yates told me as we prepared to leave. "If you're not into each other's careers, you really shouldn't live here."

Thanks to the record levels of venture capital and a constant scarcity of good people, you can get a pretty handsome salary working for a dot.com these days--$100,000 is not an unusual starting wage for a 23-year-old programmer, for example. Joe Cha and Jamie Lerner started a company called Xuma, headquartered in SOMA. Xuma has managed to get 40 top-quality engineers on staff and hasn't lost a single one to the competition. "The stories of Internet millionaires make our hiring job impossible," Lerner complains. "There's no humility. People have no loyalty. It's a bidding war. Everyone who comes in here has gotten an offer everywhere else they've interviewed."

So how does he get them to stay? "They ask and they receive," says Lerner, himself an engineer. "They're treated like Hollywood talent. They're stars."

But in the past couple of years, a new kind of worker has descended on Silicon Valley in search of that wealth, a kind of worker who's convinced that gold is practically falling from the sky. These people--typified by the hordes of MBAs who arrive ready to apply their marketing and finance smarts to the dot.com world--show up with a sense of entitlement, a sense that, of course, they're going to get rich. "Every candidate for a VP-level job comes in here asking for 2% of the company," groans the founder of one company. "One of our VC firms only got 8%."

The MBAs don't fit seamlessly into the Valley scene. MBAs are traditionally risk-averse: The reason most people go to business school is to ensure getting a six-figure job after graduation. Valley veterans look at B-school people and don't see the fire in the belly they themselves had when they were romantic renegades. MBAs look at Silicon Valley and see something far different from what they were taught to expect in business school. Michael Levine joined eBay after graduating from Berkeley's Haas School. The former investment banker doesn't speak with the passion commonly displayed by hard-core entrepreneurs. He also works shorter hours than most--60 per week, instead of the customary 80. "I'd love it if in ten to 15 years I had $10 million to $15 million, well invested," he told me. "But I'd like to have a life. I don't know. Maybe I'm not there yet." The stakes seem lower for Levine, but in some ways he represents the future of the Valley. After all, his company is headed by a Harvard MBA, Meg Whitman, who took the reins from programmer Pierre Omidyar.

Some worry the trend will mean fewer innovative, trendsetting companies. "The newer people are more motivated by wealth," says venture capitalist John Mumford of Crosspoint Venture Partners in Woodside. "It's troublesome. It's What's in it for me? instead of Let's create something!" He says he's seen it when he interviews candidates for jobs: "So many questions about options!"

Scott Kauffman, CEO of AdKnowledge, a Web advertising service, agrees. "More and more, people are guns for hire these days. It used to be you could run an interview and spend the majority of your time talking about the company. You could become almost philosophical. But now the discussion is what stage of financing you're at."

Others maintain faith in the system. Adam Dell (yep, he's Michael's younger brother) is an associate partner at Crosspoint and sees many of the same startups that Mumford does. But his read on the influx of new talent is decidedly more forgiving than his boss's. "I think the high-profile nature of the Internet success is driving young people to take risks," he says. "There's nothing wrong with that. If some people grow to love it, all the better."

I ask what he thinks about MBAs, as a group. "I would say one thing to all MBAs from top schools: My e-mail is adam@cvcp.com," he says. "I mean that. MBAs are smart, intelligent people. They're a good thing to have in a company."

Dell chuckles: "You know, it would be really great if you could print that in the magazine."

What haunted me, as I groped my way through all the millionaire giddiness, were the conversations I had with people who, despite years of work, hadn't made it yet.

"Money has become a yardstick," a friend who's been at the startup game for ages told me over tea. I'll call him Josh. Three years ago, before the latest boom, Josh used to send me e-mail every once in a while--effusive e-mail--about the latest ideas he'd been working on. I always thought his projects seemed pointless, but he seemed to believe they were nothing short of miraculous. Today Josh, at 30, is a top guy at a well-known Website with real, live customers, and yet he seems kind of beaten down. "I'll be really disappointed if we don't come into some liquidity," he frets. "There's a limited window of opportunity. I wish we were ready for our IPO!"

The guys at Xuma seemed a little worn out too. When I first called Joe Cha to make an appointment, he was thrilled to let me come by and "kick the tires" at the company. When I told him my story was about the effect Internet wealth has had on Silicon Valley, I could practically hear him deflate over the phone. "Oh," he said. "I guess I shouldn't be surprised that that's what FORTUNE cares about."

At Xuma's offices he spoke more about his fatigue. "I can't bear to see another dot.com commercial," Cha said. "I love this company, but the technology overload can make you insane on a personal level. I can't look at a computer at the end of the day. I can't listen to the radio. I can't watch TV." Jamie Lerner wanted to know when magazines like FORTUNE were going to start writing about the people who fail. "Business magazines these days are depressing," he said. "They're like People magazine for entrepreneurs. You think it's easy to do an Internet startup?"

Lerner has a point. We've all been seduced by it--the almost instant riches, the new glamour scene in San Francisco, the self-congratulatory boasts that what Internet millionaires have created has really made a difference in the world. Maybe what Internet money has done, more than anything else, is make all of us obsessed with a technological phenomenon that we would have otherwise been able to judge rationally. Maybe we've all gone a little dizzy from dollar signs, and in a few years we'll see that all this was actually pretty meaningless, a waste of energy. A few people will have made some money. Big whoop.

Sure, some Valley types do occasionally take a stab at putting it all in perspective. "Look," Anil Godhwani told me. "After you make your first million, there are two directions you can go. You can mellow out and enjoy your life, or you can get in the rat race even more. Wouldn't it be nice to be a billionaire? Here you have a bunch of young people who have come into tens and hundreds of millions, even billions, and they are defining the Valley. Sadly, a lot of them--of us, I include myself--stay in the race to earn more. To what end, I don't know."

Others who don't know don't care. Early in my trip I had lunch in Palo Alto with a fortysomething CEO who told me flat out that $10 million was "chump change." "I don't know of anyone who thinks that one million, or five million, or ten million is enough," he said. He even smirked a little as he spoke, as if to say, "Silly reporter!"

I found the conversation extremely upsetting. I talked about it for weeks. This CEO, you see, hadn't had a big hit. His company had yet to have an IPO, had yet to be snatched up by Yahoo, by Microsoft, by Amazon.com. And $10 million is chump change?

How awful for him.