VC pioneers share words of wisdom
By Matt Marshall
Mercury News
Posted on Thu, Oct. 10, 2002
The founders of West Coast venture capital reunited last week in Mountain View to reflect on lessons learned.
Problem is, many of their lessons weren't valid for today's VCs. Before the end of the panel, some of the young turks listening from the back rows got up and left.
It was highly unusual to have all of the VC elders in one place, as they were at the Computer History Museum: Bill Draper, who launched the first venture fund here in 1958; Pitch Johnson, who joined him four years later; Burt McMurty, who arrived in 1969 and founded Institutional Venture Partners; Tom Perkins, who founded Kleiner Perkins Caufield & Byers with an $8 million fund, a record at the time; Don Valentine, who worked at Fairchild Semiconductor and then founded Sequoia to back companies such as Atari, Apple Computer and Cisco; and Arthur Rock, who backed Fairchild and Intel.
They imparted important lessons. Humility: All of them admitted to mistakes. Patience: McMurty toiled for six years and two months until he realized a gain from his investments. Personal connections: Rock, Perkins and Johnson all attended Harvard University's MBA program, and so if you hooked up with one of them, or attended Harvard MBA, you were set.
Connections explained a lot: Draper got into the business, he said, because he had the ``right father.'' His father, William H. Draper Jr., became the first VC on the West Coast after directing the Marshall Plan's economic component in Europe. Perkins started his first company by getting financing from Bill Draper. Valentine went to work at Fairchild, the company started by Rock, and got to know innovator Bob Noyce.
The VC network still exists, but it is bigger and looser.
When a moderator asked the panel what lessons had been learned that no longer apply, McMurty put his finger on it: The collegiality among venture firms has disappeared; the large number of players has made things much more competitive. The old rule: ``We were in a capital-starved climate,'' he explained. ``If a company got funded, it was very likely that it would be the only company in that business.''
There was more room to make mistakes. Each VC mentioned a famous company they had failed to back -- Apple, Sun Microsystems, Tandem -- that still got backing from another member of the VC gang. That gang was so small that each VC firm ended up with at least one home-run company -- despite their bungling.
When the notoriously difficult founders of Cisco Systems, Sandy Lerner and Leonard Bosack, were looking for money, their lawyer reportedly told Valentine he was the only person who could ``handle'' the founders. Valentine is known as one of gruffest VCs in the valley, and his firm was the only one interested.
VC was an oligopoly. Johnson attributed his entry into VC to an invitation by Draper to come visit him in Palo Alto. ``He said, `I can tell you how to make money without actually doing anything.' ''
Since the Internet bubble burst, to say VC is a competitive business is an understatement. Last year, VC returns were negative for the first time. Hundreds of VC firms are pumping money into scores of companies in each sector, many of them chipping away at tiny niches.
McMurty says the founding of Sun Microsystems signified a different era. Sun had to learn how to survive in a competitive space, and it became stronger for it. It can be argued that John Doerr, of Kleiner Perkins, who backed Sun, embodied the emergence of a new generation of VCs: aggressive, promotional, ready to mix and match entrepreneurs, technology and marketing strategy to come up with the winning combination.
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