[Venture Capitalists notes] Moneypenny
Sense we have our own Venture Capitalist "within" Amati Corporate, I thought this piece from my archive might prove valuable, since our VC is a man about town in Silicon Valley :^)
Back on the job,, 007
JW@KSC
Rise of the Silicon Patriots
(Part 1)
RISE OF THE SILICON PATRIOTS
(Part 1)
You could say these venture capitalists
are building a new economy, funding the
high-tech dreams that will transform our
society. They'd say you were
underestimating them.
By Donald Katz
Embedded in a carefully bricked
roadway in the center of the 16-acre
arsenal for Silicon Valley money called
3000 Sand Hill Road, there sits a
burnished brass disk engraved with an
image of the sun. The Copernican
implications are entirely appropriate to
the moment and place, for in the
northern California corridor of innovation
that stretches from San Jose to Marin,
Sand Hill Road is recognized as the haunt
of a special class of capital, a
supercharged pool of money, and an elite
fraternity of individuals who direct its
creative powers.
A huge redwood sign near the sun disk
lists the names of money
firms--Bessemer Venture Partners,
Institutional Venture Partners, New
Enterprise Associates, Oak Investment
Partners, Sequoia Capital--that mean
nothing at all to any number of ace stock
pickers and Wall Street bankers. The
Sand Hill Road financiers are venture
capitalists who live in something of an
underground, an invisible economy of
entrepreneurial risk that has spawned
many of the most dynamic, innovative,
and wealth-producing corporations of the
post-World War II era. The VCs occupy
a realm of extreme risks and extravagant
rewards. It is a tribal world predicated on
the aggressive ethos of the hunt--a hunt,
as the godfather figure of American
venture capital, Arthur Rock, once said,
for entrepreneurial dreamers possessed
of "the potential to change the world."
In a good year, a talented partnership of
venture capitalists can create 40 or 60
percent profits for investors in their
venture-capital fund. A "home run" in
venture-capital parlance might mean that
a million-dollar investment in the infancy
of a commercial endeavor grows into a
stake worth tens or hundreds of millions
withina couple of years.
Total failure is as much part of the
venture-capital experienceas mythic
levels of success.
The powerhouse VC firm Sequoia
Capital, manned by only eightfull-time
partners, invested from a few hundred
thousand dollarsto no more than $7
million in some 32 different young
companies that went public over the past
ten years. When Sequoia, located on the
second floor of building four at 3000
Sand Hill in the small, affluent town of
Menlo Park, placed its original bets on
the companies, the enterprises were little
more than the fervid aspirations of young
entrepreneurs. Only a few of the
companies Sequoia helped fund had
anything like revenues when the money
was dispensed. Few of them had
fleshed-out management teams or fully
developed products. Some of them didn't
even have offices or completed business
plans.
But by the late fall of 1995, the
combined market value of the public
companies Sequoia helped calve--names
such as Apple Computer, Avid
Technology, Cisco Systems, Electronic
Arts, Oracle Systems,and 3Com--had
ballooned to more than $75 billion, and
that figure doesn't include the wealth
spun off as the fast-growing companies
ascended. The number doesn't tell of the
many dozens of other Sequoia-bred
companies now operating as divisions of
large corporations, of the tens of
thousands of jobs created by the many
start-ups, or of the innumerable
inventions offered up in the process that
have helped create new markets for other
companies seeded by other VC firms.
Nor does it reflect the significant number
ofSequoia technology companies that
went belly-up since the pioneering
venture-capital firm was founded in
1972--total failure being as much part of
the venture-capital experience as mythic
levels of success.
Professional venture capitalists invest $4
billion annually in some 3,000 nascent
enterprises. That pales before the more
than $400 billion in annual capital
expenditures by American corporations,
and before the fact that a million new
businesseshave been launched annually
into the American entrepreneurial
carnival in recent years. Yet of the more
than 600 new companies added to the
Nasdaq public market lists over the past
five years, more than 400 were in some
part spawned through the auspices of
professional venture capitalists.
A few thousand venture-capital pros,
most of them concentrated in a few
hundred tiny VC firms, have quietly
ridden herd on anessential
macroeconomic process: Wealth
generated by the mass-production-and
natural-resource-based empires of the
industrial age has been transferred to
enterprises, entrepreneurs, and investors
creating an era of information sciences,
of electronic machinesand the
garage-based child-entrepreneurs who are
already American legends. The best VCs
and their companies become
extraordinarily wealthy. But their labor,
the VCs will say, is less about the simple
pursuit of profit than it is about helping
the very civilization transform from the
old to the new.
Sequoia money and advice helped
support the founders of Apple,Atari,
and a networking company called
3Com.
A dense veil of mystique and folklore
surrounds the seasoned venturers who
helped create the entrepreneurial petri
dish of Silicon Valley. Donald Valentine,
the 63-year-old founder of Sequoia
Capital, is particularly decorated by
mythos. There are rich tales of his
volcanic boardroom proclamations and of
young entrepreneurs (sometimes the
stories have a salesman or a journalist)
becoming so intimidated by Valentine's
exacting personal style that they pass out
on the table (or throw up or burst into
tears). This apocrypha is more than
matched by the verifiable stories of
Valentine making himself, his stable of
young genius-entrepreneurs, and many
investors in his VC funds extremely rich.
It was Valentine who rolled $1.8 million
worth of venturers' dice before the young
techies looking to expand a company
called Cisco Systems in 1987. As every
technology entrepreneur in northern
California or along the silicon corridor of
Route 128 in Massachusetts can tell you
in some detail, Cisco went public only
three years later. If Sequoia had held its
ownership in Cisco Systems--instead of
dispersing shares from the initial public
offering, per VC tradition, to investors
who fed the Sequoia fund from which
Cisco was seeded--Valentine would
control Cisco assets worth $4 billion.
Back in 1977, Valentine wrote a check in
support of the entrepreneurial aspirations
of an aggressive local kid named Steven
Jobs, who "looked for all the world like
Ho Chi Minh," as Valentine recalls it.
Jobs would build Apple Computer with
the aid of Sequoia money and advice.
Valentine also helped guide the founders
of Atari, the first company to make
computer-based games. He supported a
networking company called 3Com, which
has become so large and successful that
the corporation recently purchased the
right to put its name on the former
Candlestick Park. The San Francisco
Giants and 49ers now play in 3Com
Park.
The superstar IPO of 1993, Microchip
Technology, was another Sequoia-fed
corporation, and in this case Valentine
and most of his seven partners have held
on to the roughly 20 percentof the IPO
shares they claimed as payment for their
money and services. Microchip was
recently valued at 45-X, as the VCs say,
45 times Sequoia's original cost. A mere
4-X return, the quadrupling of an
investment over three or four years, is a
ho-hum performance along Sand Hill
Road.
A study conducted by Venture
Economics, one of the leading
quantitative market trackers of the
introverted VC trade, indicates that only
7 percent of VC investment accounts for
60 percent of profits. Another study
reveals that six of ten companies
financed by venture firms go bankrupt.
That's a startling strikeout average, offset
by the amazing size of the home runs a
successful venture portfolio can produce.
"There are four buildings here at 3000
Sand Hill," Don Valentine once noted.
"In these four buildings there's a billion
dollars cash. Now, I'm not sure how
many good ideas exist in Silicon Valley,
or on the planet. But a billion can finance
them all. The problem isn't money; it's
the scarcity of good ideas.
"This place," Valentine declared one
recent afternoon, waving one hand
toward the sunshine outside his office
window, "is the center of the universe.
The entire venture industry puts but $3
billion or $4 billion to work in a good
year. It's nothing compared to the value
of trades made in the public markets
inside a morning, but money is not the
essential point. That we happen to start
companies that have come to dominate
the Nasdaq is not the point either. It's a
footnote," Valentine declared, leaning
into each word across the table, staring
hard. "It's but an amusing anecdotal
footnote to the important history being
made. People come and ask what I do,
and I say I'm in the business of building
companies. I build companies. That's
what I do."
Valentine has short, iron-gray hair swept
up and back in a wayreminiscent of
union officials of the bygone industrial
age, or of precapitalist Russian physicists.
His corner office is decorated with
LeRoy Neiman originals and all sorts of
framed stock certificates and other
venturing mementos displayed like
trophies won in over 23 years of
big-game pursuits.
Valentine actually hails from New York
City, but friends and colleagues know
that the ultimate Silicon patriot prefers
not to talk about life before he was
delivered unto "the cauldron of creation,"
as he puts it, that was northern California
in 1955. Valentine learned about
hypertrophic technology businesses as
one of the tough-guy,
whiskey-after-work scientists and
executive swho jockeyed the postwar
electronics industry from vacuum-tube
systems to transistors to the brilliant
application of tiny circuits on one side of
a thin wafer of silicon. Valentine was
present when the integrated-circuit guys
started calling the power-packed silicon
slices "chips."
Valentine set up Sequoia as a kind of
boot camp for a varietyof young
geniuses forming a new California
subculture of
technologist-entrepreneurs.
Continued |
