I was in my laboratory...
probably talking to students.
Here's a call, comes out of the blue.
This young guy...
wanted to know if the technology
was ready to be commercialized.
Then he said the magic word.
He says'
"I have access to some money
that would allow us to get started."
And I said, "Okay."
I said, "Where does the money originate?"
And he said,
"I'm a junior member
at a venture capital firm."
I went to look up what
"venture capital" meant.
I had never heard of it before.
The risks were just enormous.
They came to me
with no business plan.
Willing to risk everything
You have to be a street fighter.
Tick, tick, tick, tick, tick.
We didn't know what we were doing.
Silicon Valley.
Technical breakthrough.
$100000.
A million dollars.
$10billion.
Intel.
Apple.
Genentech.
Cisco.
Good markets.
Create companies.
Growing companies.
The sky's the limit.
The rest is history.
I don't know to write a business plan.
I can only tell you how we read them.
And we start at the back.
And if the numbers are big, we look at the
front to see what kind of business it is.
You have to look at the way conventional
wisdom works and abandon it.
No one has ever accused
me of underestimating...
myself.
Jobs and Wozniak came up to see me.
Steve Jobs is a national treasure.
He is so visionary and so bright.
Uh, I had to fire him though.
These men didn't always wield
such influence and power.
In the beginning, they barely
knew what they were doing.
Fifty years ago, they were just
young guys from modest means...
who thought they could
help build innovative companies.
This is the story of a handful of men...
who stirred up a revolution
in finance and technology,
because they saw opportunity
where others only saw risk.
Venture capital.
I don't think I thought of it first.
But I don't know anyone...
who used the term before I did.
Back in the spring of1957,
Arthur Rock was just
a junior banker on Wall Street.
But then one day, an unsolicited letter
arrived at the office.
The letter was unusual, and no one else at
his brokerage firm knew what to do with it.
It was a cry for help.
And it would forever change
the trajectory of Arthur Rock's life.
You gotta be lucky.
Everybody's gonna be lucky
at some time or another.
Thing I'd say is,
I was lucky to be lucky early.
The letter on Arthur Rock's desk...
had come from eight engineers
in California.
A group of brilliant young men...
who would soon become known
as "the Traitorous Eight."
We were young guys.
A bunch of young engineers
and scientists mostly...
working together
at Shockley Semiconductor.
They were having a hard time with
Shockley, and they were gonna leave.
Things had deteriorated
at Shockley Lab.
He was a very difficult person
to work with.
And a group of us started considering
the possibility at least of leaving.
So anyhow, we did write-
"'This prospectus is to introduce a group
of senior scientists and engineers...
who have been working together at the
Shockley Semiconductor Laboratory."
Shockley had just won a Nobel Prize.
It was probably a little presumptuous
of us to think we could push him aside.
"A group feeling arose
to the effect...
that rather than leave one by one,
we believe that we are much more
valuable to an employer as a group."
These were, by their resumes,
very superior people,
and I thought, "Gee, maybe
there's something here."
Something more valuable
than just to be an employee.
That "something" that Arthur saw...
inspired him to step out of his
ordinary role as a Wall Street banker.
And that's when we met
Arthur Rock.
Arthur came out to meet
with the group of us.
And Arthur said, "You ought to start your own
company, and we'll find financing for you."
They hadn't thought
of this idea themselves.
Nobody thought of starting
their own company in those days.
It was a new idea,
but it was a good one.
At that time, there was
no venture capital,
so starting companies was new.
It was innovative.
Arthur Rock had to get creative about
finding capital for the Traitorous Eight.
His bank had contacts with rich families
like the Rockefellers and the Whitneys,
but they weren't interested in backing a
start-up all the way out in California.
So we, uh, made a list
of companies.
In fact we sat down with
the Wall Street Journal-
Looking for companies to ask to invest in
these eight fellas in forming a new company.
I think we had 35 companies.
All of them said no. "No!"
The attempt
to start a new company...
might have ended then and there,
with the Traitorous Eight
returning to their job search...
and Arthur Rock admitting defeat.
But then Arthur received
one last lead.
We were pretty much at wits, end.
And somebody suggested
that I see Sherman Fairchild.
Sherman Fairchild was
an entrepreneur himself...
and also a very wealthy man.
He right away saw the possibilities,
and decided that Fairchild
Camera and Instrument...
would invest the million and a half
dollars we were looking for.
I call myself
"the accidental entrepreneur."
With the 1.5 million Arthur raised,
the Traitorous Eight started Fairchild
Semiconductor in Mountain View, California,
a sleepy rural town
35 miles south of San Francisco.
Fairchild was the first company
to manufacture...
the sophisticated silicon chips
that would power computers,
rockets and spacecraft,
paving the way
for the high-tech age.
In time, the fruit orchards
surrounding Fairchild...
would give way
to electronics companies,
and the area would become famous
as the Silicon Valley.
If they hadn't stayed together and
formed Fairchild Semiconductor,
probably there'd be
no silicon in Silicon Valley.
Arthur Rock had gotten a taste
of something exciting and significant.
But as it Tuns out,
he wasn't the only one...
trying to figure out
how to fund young companies.
Just up the road from Fairchild,
a handful of businessmen...
were experimenting with their own
version of venture capital...
together, around a lunch table
in San Francisco.
The best things in life
are free
But you can give them
to the birds and bees
I need money
In the '50s and '60s,
there were a group of us in San Francisco
that used to get interested...
in small, high-tech companies
down the peninsula.
There were, I think, five of us
in our group.
We all had jobs, but we had
other time on our hands too,
and we decided we just would put
a little investment club together.
We were just a bunch of
young men in San Francisco...
who knew each other
and respected each other.
What it was like was
a very close fraternity.
I guess I can use
that word carefully.
We'd have a table
of six or eight for lunch.
None of us had enough money to do an investment
by ourselves, so we had to have help.
If one of us ran across
an entrepreneur...
who was trying to start a company,
we would invite him up for lunch.
And after lunch, we would ask him to step
out onto the street corner for a while.
Give us 10 minutes, and we would make
up our mind as to whether we wanted...
to invest in his company or not.
I don't remember that.
We didn't do that.
We were too classy to do that.
That's a little bit quick, I think.
If the guy's a real nut'
why, you'd say good-bye to him...
without asking him
to go get a cup of coffee.
Two members of the group
wanted to do even more...
than gather around
a lunch table every six weeks.
In 1962,
Pitch Johnson and Bill Draper...
put up all their personal savings,
quit their day jobs...
to form a partnership,
and hit the streets.
Pitch and I each got a Pontiac leased,
and went around
and knocked on doors.
And if it sounded
like ABC Electronics,
then we'd go in, ask the president to
sit down and tell us, "What do you do?"
You know.
"Well, what do you do?"
"Well, venture capital."
"What's that?"
My kids would go to school.
"What does your dad do?"
"My dad's a policeman."
"My dad's a fireman." "My dad's a banker."
"And what does your dad do?"
"Oh, he's a venture capitalist."
"Dad, what do you do actually?"
You know?
We were just stumbling around,
trying to figure out what to do.
But we just knew that if we got involved
with good people and good markets,
we could probably
build a company.
Growing companies.
Create companies.
You're helping to create something
where nothing existed before.
And quite a large community
gets sustenance...
that wouldn't have existed unless you had
gotten together with this entrepreneur...
and his team
and helped him along the way.
The Lunch Group had established
a good formula.
Everyone was sharing in the profits and
success at these fledgling companies.
But over at Fairchild
it was a different story.
Fairchild was an imperfect vehicle.
I joined Fairchild
at the end of the '50s.
I was not part of the Traitorous Eight.
Fairchild was owned
by a corporation.
An eastern corporation,
and the sense of
division of equity...
was both unknown to them
and repugnant to them.
All of the East Coast companies
had this hierarchy.
And they didn't understand...
about giving options
to all the employees...
the way West Coast start-ups
saw fit to do.
So none of the people
in Fairchild, including me,
had any kind of significant
ownership position.
So, in the early '60s,
people began leaving Fairchild
to set up start-ups...
and to begin to participate
in what people correctly realized...
was going to be
something special.
Meanwhile,
back at his desk in New York-
Well, I had wanted to do more
of these venture capital type deals,
but the money was all in the east.
And the scientists who had moved
from the east to the west...
had all the ideas.
So I saw a great opportunity
in bringing the East Coast money out...
backing these people
on the West Coast.
"Go West, young man."
In 1961, Arthur Rock raised five million
dollars from East Coast investors...
and moved to San Francisco to start
his own venture capital firm.
He found a partner in Tommy Davis,
who had been managing investments
for a California oil company.
Davis and Rock quickly became
the biggest venture players in town,
funding a series of hugely
successful technology companies.
And in the close-knit Silicon
Valley community of the 1960s,
it was only a matter of time
before Arthur Rock...
would once again cross paths
with the Traitorous Eight.
Throughout the 1960s,
Fairchild was bleeding talent.
The lure of stock options
and independence...
inspired many of
the brilliant young engineers...
to peel off
and start their own companies.
But Gordon Moore and Bob Noyce,
its two most important founders,
remained loyal to their company-
until May of1968,
when Fairchild's East Coast
management made a fatal mistake.
Noyce was the logical internal
candidate to be the next C.E.O.
But they decided they were gonna
look on the outside.
That changed the whole ball game.
Noyce said, "I'm gonna leave.
Are you interested?"
So I said, "Okay. Let's do it."
They needed financing,
and they called me...
to see whether I'd be interested.
They came to me
with no business plan,
other than what they verbally
said they wanted to do.
Arthur said he needed something
to talk to potential investors with.
Just to give people something.
We wrote a business plan,
and it was one page-
Double-spaced,
and that was it.
It just says we were going
to make things out of silicon,
and some interesting
electronic devices.
Oh, I said in general terms
we were going to make memories.
It has lots of typos in it.
I think Bob typed it himself.
It's not a very profound document,
but it's really kind of cute.
I said, "How much money
do you need?"
And they said,
"Two and a half million dollars."
And I said, "Okay."
"What percentage of the company do
you think you'd be happy giving up...
for two and a half
million dollars?"
And they thought and said,
"Well, how about half?"
And I said, "That's fine."
And within a day and a half,
I had raised two and a half
million dollars.
Intel opened its doors in July of'68,
and Arthur Rock's partnership with
its founders was only just beginning.
Arthur was our chairman
of the board in those days.
I spent a lot of time there.
Venture capitalists
do write the check,
but that isn't all we do.
Writing a check is easy.
Yeah, it doesn't take much ink.
I attended staff meetings.
Arthur asked good questions.
I was on the phone to them a lot.
Was an excellent board member.
Offer advice.
Planning.
Setting up an audit committee.
Customer relations.
Interviewed a lot of people.
Built all the pieces
of an enterprise.
I just brought what I consider
common sense to the table.
He even met his wife there.
He gave us guidance on when not to go
public as well as when to go public.
I was very involved in that.
This was all new to Intel,
but wasn't new to me.
We went public the same day
that Playboy Enterprises went public.
At the same price.
And a few years later
one of the analysts says,
"The market has spoken.
It's memories over mammaries, 10-to-1."
And the home of the
Brave
You know there's lots of things
that I'd like to do
Yeah, child,
I want to do them with you
And that takes money
Hey, look at those power men
Yeah, lots of money, child
Shortly after Arthur Rock
went out on his own,
Forbes profiled him
in an article that caught the eye...
of a young investment manager
in Boston.
When they said,
"Well, now that you and Mr. Davis...
are doing separate things,
what are you going to do?"
He said, "Well, I'm gonna find a younger
partner and do it all over again."
And I said, "You know, gee."
I had never even-
I mean, it was a light bulb.
And I sat down and I wrote him
a longhand letter.
And I never had ever done
anything like this before.
The following Monday
I got a telephone call.
"Mr. Rock's on the line."
I said, "Really?"
Dick's letter was very intriguing.
He's just generally knowledgeable
and on the same, uh, piano as I was.
And then I found out later that there were
over a thousand responses to the article.
And that Arthur had a handwriting
expert that analyzed my letter.
Isn't that funny?
So that's how I got
in the venture business.
Well, you know,
there are no firm rules...
in the venture capital business,
except that there are no firm rules.
Did you have any problems
in convincing your colleagues?
Oh, yeah, they thought I was
out of my mind on this one.
By the early '70s, inspired
by the success of Arthur Rock,
more members of the Lunch Group
began to quit their day jobs...
and setup
their own venture funds.
Reid Dennis gave notice
to his boss at American Express.
He said, "Reid, are you sure
this is what you want to do?"
I said, "Bill, I've never been
so sure of anything in all my life."
He said, "Well, we really
don't want you to go,
but if you're determined to go' you ought
to take some of our money with you."
And that's what gave
us the impetus...
to start Institutional
Venture Associates.
A career in venture capital
now seemed so alluring,
and potentially so profitable,
it was attracting people
outside of finance.
Two Silicon Valley engineers,
Eugene Kleiner and Tom Perkins,
formed what would become
one of the most successful...
venture firms of all time.
Well, I sort of got into venture
capital by the back door.
I was working for the
Hewlett-Packard company...
when I had an idea for a
radically improved kind of laser.
And then I started a company...
to manufacture the lasers.
When it was all over I realized,
gee, I had been
a venture capitalist.
I put up the money.
I put up the management.
So then when I met Gene Kleiner,
who had left Fairchild,
we were both planning to go into
the venture capital business.
And we realized
we complemented each other.
I mean I'm pretty intense
and high-strung'
and Gene was
sort of calm and portly...
and had a soothing
Viennese accent.
Eugene was just brilliant.
He was fun to be with.
I remember once we met
an entrepreneur,
and after he left I said, "Gene,
you know, do you trust him?"
And Gene said, "I would trust him
with my life, but not my money."
And that's how it started.
We hung out our shingle'
and nothing happened.
The phone didn't ring.
We had a part-time secretary-
We called out, nobody called in.
We saw some deals,
and we did some deals.
We lost money
in our original deals.
And I'll mention them,
even though they were very embarrassing.
The most notorious,
and maybe the funniest'
was a company called Snow Job-
Which was a scheme to convert
motorcycles into snowmobiles...
and back and forth.
Which actually worked,
and it was a lot of fun,
But one of the fuel crises landed at about the
time we were ready to go into production,
and we couldn't get distributors,
and, uh, so it failed.
So Eugene and I thought'
you know, "This is not working.
We've got to do
something differently."
Tandem was a huge risk
for Kleiner Perkins.
If Tandem had failed, there would have
never been a second Kleiner Perkins fund.
I think I was 33.
I was young, in terms of people
starting companies,
but there weren't a lot
of people starting companies, so-
Well, Jimmy Trey big-very smart guy.
Very impressive.
He had this idea,
which he'd carried-
not the technical part of it,
but the need...
for a truly fault-tolerant
computer.
A computer
that would never fail.
At that time, for instance,
the New York Stock Exchange...
would fail about every day,
or every other day.
And something would go wrong in it,
and it would destroy data.
People knew the problem,
but they didn't have a solution.
So just think of it. I mean, credit
checking, airline reservations, banking.
All financial things.
- Hospitals.
- All communications.
Just all kinds of things...
where it's just not acceptable
to have the computer go down.
We knew-Tom and I knew-
that if we could figure out a different
kind of computer architecture...
to solve this problem,
that we could create a big company.
The problem was IBM had won
the mainframe battle in '74.
And there was an article that said there
would never be a new computer company.
Never. That was '74.
And the cover was a picture
of a shark,
and IBM was eating up
every company.
When you think about
what decisions are being made,
you got IBM wiping out GE,
Siemens.
So it would be easy not to
want to go after that, right?
So you have to be brave. I mean, you have
to see it, and you have to be brave.
And being brave is one thing
you got to say about Tom.
You gotta look to get money
from strong people.
Because weak people
don't invest in tough times.
But that's when most of
the big winners are created.
Well, first of all, we didn't want
to be the only backers of Tandem.
We tried to raise venture capital.
I made a trip back east.
I remember the first time
we gave the pitch.
Jimmy was straight out of Texas,
a real character,
and I didn't think he'd go over
very well on Wall Street.
He had to take me to buy a suit.
He probably shared that.
I literally took him to Brooks Brothers.
And shoes, socks, the works.
He always said, uh-
I forget what he said,
but, "He could buy the suit,
and that still didn't help."
And took him back to Wall Street,
and of course the first thing he said is,
"Well, how do I look?
Tom dressed me!"
You know-
Tom was, uh, a little more
sophisticated than me.
But we didn't get the money.
Untried management.
An unlikely idea.
Most people would not have thought
this was gonna be a big winner.
But I felt strongly enough
about Tandem that, uh,
even if we had to put up
all the money, we would do it.
And then finally, at the last minute,
Pitch Johnson put in a small investment.
I like to think that
Tom felt my presence...
would be helpful
in raising money elsewhere.
It ratified our concept.
I was credible in those days.
Hi. I'm standing here next to
a beautiful Tandem computer.
I think everyone recognizes
this fine computer.
It took us a long time
to get that first order.
The very first customer
was Citibank.
But when we got the first order,
and the computers performed
as expected, even better,
the growth took off
and became explosive.
We went seven,
25, 50, 100 million,
200 million, on up to a billion,
and we were a Fortune 500
company in '82.
You use a Tandem computer today...
pretty much any time you use
your credit card for anything.
When I started
in the venture business,
it never occurred to me
that we would have multiple funds...
that would easily exceed
a billion dollars.
I got into the business
somewhat fortuitously.
When I made the decision,
I had already put in 13 years
working in real companies.
In 1972, Don Valentine decided...
to trade on his connections
in the semiconductor industry...
and went in search of capital
to start a venture fund.
We went to see a guy
at Salomon Brothers,
and he said "You know'
I've listened to the pitch,
but, you know, you didn't go
to Harvard Business School."
I said, "Great observation.
True. Guilty as charged."
He says, "Why didn't you
go to business school?"
I said, "I went to Fairchild Semiconductor
Business School. Great business school.
Start-up company.
Pioneer in a technology.
Phenomenal leadership
and recognition."
I said, "I don't need to go to a
business school for what I'm gonna do."
Rebuffed by Wall Street,
Don Valentine found a mentor...
in a Southern California
mutual fund manager...
who staked the money for Don's
first venture fund.
I'm not interested in entrepreneurs
who will do it our way.
I'm not interested in entrepreneurs
who think there's a dress code.
I'm interested in entrepreneurs
who have a vision...
of doing something consequential,
preferably that becomes big.
For most people,
there's something intimidating...
about the idea of interacting
with a computer,
but that is
what's happening here.
Atari had one of Silicon Valley's...
absolutely larger-than-life
personalities leading it,
Nolan K. Bushnell.
Bushnell was a young engineer...
working for game manufacturer
Nutting Associates...
when he decided to strike out
on his own in 1972.
The real thing that
allowed me to start Atari...
was I worked for Nutting,
and these guys couldn't find
their butts with both hands.
I said, "You know,
I can run a company,
and I won't make any of these same
mistakes these idiots are doing."
The first game
Atari designed was Pong.
Nolan took a prototype of the game,
strapped it to his back...
and placed it in a bar
in Sunnyvale, California.
By the next morning,
customers were lined up outside...
clamoring for a chance to play.
We put it on location.
It earned a lot of money.
Production soared, and there seemed
to be an insatiable appetite...
for the coin-operated game.
From the outside, Atari looked
like a wildly successful company,
producing an endless stream
of popular games.
But there was one key problem.
The company was started
with 250 dollars.
And so we never had any money.
If you're a hardware company,
you need a lot of capital for inventories.
The more successful,
the more you have to raise.
Because the more inventory
you have,
the more customers
you're waiting to pay you.
It takes a lot of capital
for a hardware start-up.
In 1974 Atari was
flirting with bankruptcy...
and desperately needed
financial help.
But Nolan found
the traditional channels off-limits.
Banks-in the traditional sense
of banks-lend on assets.
So, "Do you have a house?
I'll give you a mortgage.
Do you have a car?
I'll give you a loan on your car."
Nolan had no basis
for a bank to be comfortable.
I went through the factory,
and the smell of marijuana
nearly knocked me to my knees.
And I was gasping and coughing.
Nolan says, "What's the matter?"
And I said, "I don't know what those people
are smoking, but it's not my brand."
Don might have passed on Atari...
had Nolan not shown him a surprising
new product in development-
Home Pong
Atari's engineers had discovered they
could get the entire Pong game...
down to the size of a shoe box.
At the time, playing video games at
home was a revolutionary concept.
We showed Don our plans
for the home games.
He finally decided
there was a business there.
Fabulous product.
Giant market.
He used to say, you know,
"The coin-op business-you think it's big?"
He says, "You ain't seen nothin'."
Huge.
Once we decided
to finance Atari,
it was a matter of trying to figure
out who else would invest in it.
Funds in those days were tiny,
and in order for us
to start a company,
we had to very collegially
work together.
I brought him other investors.
However, it takes a while
to get used to Nolan.
And there's a story there
about one of our meetings,
where the man from Fidelity was sitting
in a chair with his blue suit on,
and the rest of us
were in the hot tub.
Nolan was unrelentingly
picking on him...
about his prudish behavior and why
he wouldn't get in the hot tub.
With a controversial
entrepreneur...
and no existing market
for home video games,
months went by while the other investors
remained on the fence about Atari.
So Nolan himself took his Home Pong prototype
on the road in search of customers.
Of course, we were young
and felt we could solve...
any problems that came along,
and, you know,
selling them to Toys R Us,
that can't be that hard.
It was, actually.
I like to tell the story about...
taking the Pong game to the toy
fair in New York and selling none.
So we thought,
"Let's try the television shops."
And they didn't want it.
These are very fragile companies
with a lot of things missing.
And the approach
we've always taken is,
if we make this investment,
is our Rolodex...
strong enough
to help these people?
So much luck
goes into these things...
that without it, I think very few of
us would have very many successes.
One of our investors was
a very big shareholder of Sears.
And they facilitated
the introduction...
to the buyer at Sears
who would buy a product like this.
I think he was charmed by Nolan...
and found this experiment
might be fun.
Everybody's talkin' 'bout
a new way of shopping
Do you wanna lose your mind?
Home Pong hit the shelves...
just in time
for the 1975 Christmas season.
And of course, the rest is history.
When he plays the game
from Atari
Have you played Atari today?
Have you played Atari today?
My father was the sole proprietor
of this little candy store.
My father was a very petty
union member.
My dad was a wonderful guy,
and, um, he really encouraged
self-reliance.
Well, we sold a little groceries,
a little magazines,
a little candy,
a little ice cream, cigarettes.
At a very early age,
I worked there.
I clerked.
I was six years-
seven years old.
It's easier to explain
he drove a truck...
than it is to explain
what he did in the union,
'cause I didn't understand
what he did in the union...
other than fight
with the head of the union.
And we used to have
a lot of, uh, arguments...
once I understood
what a union was,
and he couldn't understand why I was
so adamantly opposed to the unions.
It probably has to do with my...
deep-seated
sense of disobedience.
When I was 12 or 13,
I was trying to figure out how to
earn some money in the summertime.
So I said, "You know, Dad,
maybe I could sell light bulbs."
So I went down
to the local general manager...
of the Sylvania operation.
He said the smallest amount
that he could sell me...
would be a half a freight car
full of light bulbs.
And so I asked my mother if I could populate
our basement with all these light bulbs.
And so I got this wagon-
this big wagon-
and I went around and I sold light
bulbs for a whole summertime.
I called it the Bright Boy
Light Bulb Company.
It's a little bit over the top,
but that's what it was.
I was a nerd.
A highly motivated, impatient,
driven workaholic nerd.
Um-Who accidentally
became an athlete,
and got some sort
of social polish...
at a school for nerds-MIT.
I scrambled to get into a degree where
I thought I could earn a living,
which was electronic engineering.
I did that for a while, and I thought,
"God, this is pretty boring."
And I thought, "Well, you know,
I've heard about business school.
Maybe I should
take a crack at that."
And this is where I got inspired
by Georges Doriot.
Professor Georges Doriot...
was a father figure
to a generation of young men...
at Harvard Business School.
This French expatriate
had the distinction of starting..
The first corporation dedicated
exclusively to venture investing,
American Research and Development,
founded in 1946.
Ironically, Doriot's lasting impact...
would not be through A.R.D.,
which in its entire 25-year history
made only one notable investment.
Instead, Doriot's
most important influence...
came through the spell he cast
over his Harvard classroom.
Doriot was very controversial...
even at the time at Harvard.
He taught a course
called Manufacturing,
which really had nothing to do
with manufacturing.
And it was an extremely
popular course,
and it was all about starting companies,
and technology.
He talked about entrepreneurs.
He had some of them as guests-
what it was like
to start a company.
His lectures were how to dress,
how many drinks you should have
at a cocktail party.
It was sort of a Georges Doriot
philosophy of life.
Every year, he'd take
one whole session...
on how to read
the New York Times.
He'd hold up the paper and say-
"You should be able to read
this paper in four minutes.
What is the first section I read?"
He said, "Now the first thing you want
to do is go to the obituary page.
There you will learn
the lives that are important,
and the kind of life
that you can build for yourself."
He would talk about working
with entrepreneurs.
And when times got tough,
as they always will-
and he made that point-
that he would invite
the entrepreneur over to his home.
They'd have dinner, and then he'd
just sit him down in his library...
and play phonograph records
of French marching music.
You know, just to deal with
the psychological wounds, you know.
When he was talking about
venture capital, starting companies,
he was as good as there was, because
he was the only guy who understood it.
I bought it all-
hook, line, sinker.
Yeah, the best things
inlifeare free
But you can give them
to the birds and bees
I want money
That's what I want
So give me muh, uh-huh,
mo-mo-money
At the time we started Genentech,
there was no such thing
as genetic engineering.
And to take the idea
of commercializing gene splicing,
the risks were just enormous.
And I said, "Well, you know,
what if God or Darwin won't
let us make a new life form?"
It was a bet on technology,
and you looked at the value of
the pharmaceutical industry,
and if you had a better
way to develop drugs,
the power was enormous.
Nobody had a clue
whether they could pull that off,
but you did know...
that if they could, it was big.
It came out of the blue for me.
I had not been thinking
about starting a company.
I thought I was going to, uh, die at the
lab bench with a pipette in my mouth.
But, uh, Bob called,
and he wanted to know if the technology
was ready to be commercialized.
Bob Swanson, I think, was the most
prescient individual I've ever met.
Once he understood...
what the potential technology was
in genetic engineering,
he got the whole picture,
way ahead of anybody else.
Eugene and I were looking around
for someone to add to the partnership,
and Bob joined us.
But there just wasn't enough
going on in those days, amazingly,
to really have him
full-time working on our ventures.
We didn't have that many.
But we were interested in doing
something in genetic engineering.
We sort of said,
"Go there, find something.
And if you can, we'll finance it.
If you can't, well-"
You know.
So he was motivated
to find something.
And he calls Professor Boyer
at the University of California.
Boyer said,
"I'll give you five minutes."
It turned into,
you know, many hours.
In those days, funding
for research was, uh, difficult.
And so, you know, I had some,
you know, ulterior reasons...
for paying attention
when he said he had money.
Over the next couple of weeks,
Swanson persuaded Boyer...
to take the idea of gene splicing into
some sort of a commercial operation.
And Bob brought Boyer to me.
So we go into one of
the, uh, Embarcadero Towers,
and we go up to the top floor.
And you can
look out over the world.
It was something like out of a movie,
and holy smoke.
So we go in, and these stern-looking guys
are sitting there in a suit, you know.
Perkins says,
"Okay, Well, what are you going to do?"
What do you do?
What equipment do you need?
How do you know that you've done it?
How do you test?
It's scary.
What are the risks? Contamination?
Everything I could think-
Here was this rich guy, you know, talking
to us about science, and funding science.
I paid attention, you know.
And I didn't know anything
about raising money.
Of course, I knew nothing whatsoever
about the technology. I mean, nobody did.
I had to rely on him.
Because there was so much
to be done.
He was a very hands-on guy.
They wanted to raise, um' about three
million dollars to build the factory,
hire the people,
and then see if it would work.
But underlying it all...
was the-the tremendous risk factor of,
you know, would it be possible?
It was pure research, you know,
and everybody knows that venture capitalists
shouldn't openly fund pure research.
So my idea in everything has always
been to try to put the risk up front...
and get rid of the risk
as fast as you possibly can.
Bob and I were very naive...
about how we were going
to do what we did.
We changed the business plan.
I persuaded them to do it
a different way.
To subcontract the experiment
to two different institutions.
By subcontracting,
Tom Perkins eliminated the need...
to buy equipment, build a lab
and hire staff.
The estimated three million dollar
start-up costs...
were reduced to just 250,000.
Kleiner Perkins put up the money,
and Genentech was in business.
It was Bob Swanson and a checkbook
sitting in our office here.
That was Genentech.
Boyer and Swanson set out
to create human insulin.
But, to test their concept,
they began with a less complex hormone.
City of Hope Medical Center
in Los Angeles...
would try to engineer a gene
for that hormone.
Then, UC San Francisco would
splice that gene into bacteria...
to produce the hormone
in significant amounts.
After a very long time, City of Hope
succeeded in making the gene,
and then we transported
the gene-
Bob had it in his pocket-
up to University of California.
And Herb Boyer
inserted it into the bacterial host.
Then it worked.
So we had our breakthrough.
That was the first time
in history...
that, uh, mankind
had ever made an artificial, um-
Well, let's just say
an artificial bacteria.
Most doctors agree that
genetic engineering..
Will be the source of most drugs
in the next decade.
As scientists look ahead, they see
a myriad of products. New vaccines-
We haven't
scratched the surface yet,
in terms of, uh,
new hormones and molecules...
that the body produces itself
to keep itself healthy.
The next step, of course-
You know, it wasn't my goal
to start an industry.
My goal was to, um,
make sure the science got translated...
into an endeavor
that would be useful to people.
In all the things I've done,
I think I'm most proud of Genentech,
because it, uh, Well, saved hundreds
of thousands of people's lives.
Well, isn't it great if you can
make money...
and change the world for the better
at the same time?
We are now entering our
fourth generation of computers.
Difficult problems which once required 30 hours
of work by a computer as large as a house...
can now be solved in 12 seconds by a
computer no bigger than a bathtub.
In 1976, the computer was
about to get personal,
expanding beyond the government, institutions
and businesses to enter the home.
For venture capitalists, this represented
the opportunity of a lifetime.
We turned down Apple Computer.
We didn't-
We didn't even turn it down.
We didn't agree to meet
with Jobs and Wozniak.
Oh, that would have been a fabulous
investment if we had made it,
but we didn't.
We said, "Oh, no,
we're not really in that business."
I thought, "How can you use a computer at
home? You're gonna put recipes on it?"
I sent my partner down
to look at Apple.
He came back and he said, "Guy kept me waiting
for an hour, and he's very arrogant."
And, of course, that's Steve Jobs!
I said, "Well, let's let it go."
That was a big mistake.
In 1976, the only people who
believed in the personal computer...
were the geeks and nerds who
gathered at Home brew Computer Clubs.
At one such club, 21-year-old Steve Jobs
had partnered with Steve Wozniak...
to create a circuit board kit
they called...
The Apple I.
Steve Jobs was
working at Atari at the time,
so the most obvious person to ask for
start-up money was his boss, Nolan Bushnell.
They needed an investment,
and, uh, they offered me a third
of Apple Computer for $50,000...
and I said,
"Gee, I don't think so."
I could have owned a third
of Apple Computer for $50'000.
A big mistake.
But I said, "Call Don Valentine."
'Cause Don had a high probability
of seeing the opportunity.
So we had our meeting.
I went to Steve's house.
And we talked,
and I was convinced
it was a big market...
just embryonic ally beginning.
Steve was in his Fu Manchu look,
and his question for me-
"Tell me what I have to do
to have you finance me."
I said, "We have to have someone
in the company...
who has some sense of management and
marketing and channels of distribution."
He said, "Fine.
Send me three people."
I sent him three candidates.
One he didn't like.
One didn't like him.
And the third one
was Mike Markkula.
Mike Markkula worked for me at
Fairchild before he went to Intel.
He called me up and said, "There's
two guys over in Los Altos that, uh,
could really use your help,
and you ought to go see'em."
I said, "Okay."
'Cause that's what I did on Mondays.
I was retired.
I think I was 32
when I retired from Intel.
But one day a week, I would help people
start companies and write business plans.
I did it for free, just for the
interaction with bright, uh, people...
that had a lot of
fire in their belly.
So I went
over and talked to the boys.
The two of them did not make
a good impression on people.
They were bearded.
They didn't smell good.
They dressed funny.
Young, naive.
But Woz had designed a really wonderful,
wonderful computer.
Technology that was
really advanced.
The problem was,
you could walk down the street in 1976...
and talk to a hundred people and say,
"Would you like a personal computer?"
And they'd go, "What's that?"
And so I told them.
I said I'd help them write a business plan.
So I got to working on it,
and I'd say, "Gosh", you know'
"the opportunity here is just too great."
The business plan said that, uh' with $142'000
we could be cash-flow positive in nine months.
And I came to the conclusion that we could build
a Fortune 500 company in less than five years.
I said I'd put up the money
that was needed.
Not only did he write the check,
Mike Markkula
came out of retirement,
becoming the president
and C.E.O. of Apple.
His first order of business,
build a board of directors.
And the first call he made
was to Arthur Rock.
Arthur would have missed Apple
if it weren't for Mike Markkula.
Jobs and Wozniak
came up to see me,
and they were very unappealing.
Goatee, long hair-
Markkula said, "Well,
before you make up your mind,
there's a computer show.
You ought to come down
and see what's going on."
And he did. He thought somethin'
was happenin'. He wasn't quite sure what.
There was this huge auditorium,
and there was this booth
with everybody around it.
I couldn't even get next to it.
And it was the Apple booth.
And it turned out
that I sure made an investment.
Then I got a call
from Don Valentine.
"I want to put
some money in that compa-"
I said, "Okay, you gotta
come on the board then."
Don's background is sales and
distribution and customer satisfaction.
Arthur's expertise comes from
the way financial markets work,
and, uh, how to choose people.
I don't think
there's a company today...
that could say that they had
a better board than that.
I mean, we couldn't-
We couldn't lose.
Taking his place alongside
the venture capital luminaries...
was the young Steve Jobs,
who had never even seen
the inside of a board room.
There was one board meeting
that he took his shoes off...
and put his bare feet up
on the-on the table.
And I said, "You're excused
until you can come back here...
and act like a board member."
He put his shoe back on
and everything was fine.
He just needed some training
and some direction...
and some, um, manners.
You know, in the venture capital business,
if you look at 200 deals,
and you-you might do
10 of'em,
and you will think they're all great,
and if one of'em is great,
then you're in the hall of fame.
If you make 10 deals,
you know, if you do it well,
some of them are gonna succeed,
some are going to fail.
There's usually one in there
we call the living dead.
Living dead, living dead, living dead.
They don't succeed, they don't fail.
They just sit there and lap up your time.
You're doomed.
They fail for
all kinds of reasons.
If it's struggling,
you probably should just get out.
Well, we hated to give up, you know,
and hated to admit defeat.
It was always traumatic.
You get personally involved
in these companies.
Everybody's heartbroken.
It's tough to lose money.
Losing money
is not a good thing!
Programs are instructions
to the computer...
that can be recorded
on floppy disks or cassettes.
In the early '80s,
a new kind of company...
began to attract
attention in Silicon Valley.
These programs
are called software.
A Data Quest report says there are now
27,000 software programs on the market,
with a new product being
introduced every 11 minutes.
Dick Kramlich had been listening to endless
pitches from software entrepreneurs...
in his office at
New Enterprise Associates,
a venture firm he'd co-founded
after leaving Arthur Rock.
One day, an entrepreneur
named Rob Campbell marched in.
I was out always
looking for money.
And I was flying from
Boston to California,
and I was sitting in the back of
the plane in the cheap seats,
where entrepreneurs
are supposed to sit.
And I noticed half the people on the
plane had their briefcases open,
and they had overhead
transparencies.
And they were thumbing through
'em' and they were marking'em up.
That really was kind of the genesis
of "Why PowerPoint?"
I liked the way Rob was doing this,
and I was really impressed
with PowerPoint.
You see' you sort of automate
a very cumbersome process,
and when you see it,
you know it!
It's just that this goes
right through your bones.
So, we started funding it.
Dick Kramlich's firm provided Rob
Campbell's company, named Forethought,
with an initial round of funding
to develop this new software.
But while the Forethought team
was working on PowerPoint,
the company was giving its
venture capitalists cause to worry.
Any new business seldom does what's
written in the business plan.
And we had
a multitude of problems.
Limitations of
the operating system.
Months invested in trying-
Couldn't develop it.
Engineering was delayed.
They were all "R" and not much "D."
Decision on acquiring File Maker-
Our largest distributor
went into Chapter 7.
So the bankruptcy judge is
now selling our products off.
Campbell's company was burning
through its investment money fast.
He approached Kramlich and his partners,
looking for another infusion of cash.
Rob came in and did a presentation'
talked about File Maker,
talked about what the presentation
product was going to be.
N.E.A. had hired a-a new, um,
partner, and he didn't like us.
He didn't like our company.
I don't think he liked me.
And then my other partner got up
and said, you know,
"Basically, you have one product
where you pay too much in royalties,
and the other one which is not gonna work,
so this isn't worth it.
Dick, we're saying no."
And I said, "No more money?"
He said, "No more money."
Despite his partner's doubts,
Dick Kramlich wasn't ready
to let PowerPoint go so easily.
My mother used to say,
"Don't ever underestimate Dick.
'Cause if he takes on a challenge,
he's going to get it done."
I said, "You know, this presentation
product is really a pretty good product."
So I said, "Would you all mind
if I did it myself?"
And they said, "Well,
you can do what you want to do.
It's not gonna be a conflict, just so long
as we don't have to put any more money in."
So I called my wife, and I said,
"Pam, um, stop work on the house."
I said, "I'm gonna fund
this company myself."
We would never do
what Dick did. Never.
There's so many potential
problems with a venture,
that if you have a serious partner, a good
partner, who says, "I just don't see this"-
How can you proceed?
As a matter of policy, we wouldn't
permit that in our place.
Well, he asked permission.
Well, we would say no.
Then there wouldn't be PowerPoint!
Good.
I remember telling Dick.
I said, "Dick, you did not make a mistake."
I thought it would be a million-dollar
product right out of the chute.
And, instead of a million dollars out of the
chute, I think we had two and a half to three.
It was much better
than what I had hoped for.
And so, I was thinking this was
enough to validate a public offering.
I think Dick would have liked us
not to be acquired.
He said, "You know, we really don't have the
structure in this company to be a public company."
You know, I was nervous
about access to capital.
He said, "Actually, we've been
approached by Microsoft.
And they have a presentation product,
but it's not nearly as good as PowerPoint.
And they would like to acquire us
and kill their own project."
I said, "If that's the way you want to go,
it's okay with me."
Another one of my greatest mistakes,
of which I have many,
is when Microsoft did the acquisition,
they wanted to do it all in stock.
So I was, like, "Oh, you know,
Microsoft stock has way too much risk.
They could dump their stock
on us at their peak!"
So we did an all-cash transaction.
And don't ask me to calculate what that
cost all of us. It's too-It's too hurtful.
Money don't get everything,
it's true
What it don't get, I can't use
I want money
That's what I want
That's what I want
That's what I want
That's what I want
That's what I want
That's what I want
That's what I want
The facts are, in Silicon Valley,
probably 40 % of the companies
that are financed...
change presidents in 18 months.
I mean, I always tell the young C.E.O.'s,
you're gonna work hard,
and you're gonna, you know,
if you're lucky,
you're gonna be successful,
and your company's gonna get big.
And then you're gonna get fired.
Firing people is always
the hardest for me.
That's a gut-wrenching
thing to do.
If they gotta go, they gotta go.
I'd rather find the right people
and back them,
uh, than find the right idea
and have to change the people.
Well, nobody plans to do that,
but those are the facts.
So, I operate from the principle
that-
Give him his shot. Help him as much
as we can. Hope that he makes it.
If he doesn't make it,
off with his head
and on to the next guy.
In 1984 Cisco Systems
was a two-person company-
The husband-and-wife team
of Len Bosack and Sandy Lerner.
Cisco was a typical start-up.
It was certainly
run out of our house.
A number of very illustrious companies
I think have that distinction.
Through Cisco, Sandy and Len
were early evangelists...
for what would one day
be called the Internet,
but which, in 1984, was really just
a jury-rigged network of computers,
used at universities
and in the military.
Cisco's product
was called a router.
And it solved a very big problem.
It allowed all kinds of computer systems to talk
to each other easily for the very first time.
This opened the door to the
development of an online world.
It was a desperately-needed
product.
But... no one would finance Cisco.
We tried from the very beginning
to-to get funding.
Uh, we just weren't successful.
We were not the first people
to see it,
as armies of people
have told me-
That they saw it before we did,
and they turned it down.
They took the position that this
wasn't a tenable business model.
I-I don't think, in their position,
I would have disagreed with that.
But I wasn't in their position,
and I did disagree with it.
These things are not so clear.
Different people
see them differently.
The person who got us involved
with Cisco said,
"You are probably the only person
in North America...
who would be willing to deal
with these people."
The people at Cisco-
If you were designing
hard-to-get-along-with people,
they got the model right down.
Difficult to do business with...
on any basis.
Totally intolerant of
a mistake made by anybody.
But very instrumental
in starting that company.
I think that we were difficult
to work with.
We were all very independent.
We were used to having our own way.
You know, certainly there's the
mind-set that has to go along...
with years and years and years
of people saying that, you know,
"You can't do what
you say you're going to do,"
"You can't make money'
even if you could do it,"
um, and that "You're
the wrong person to do it."
We bought a third of the company
for $2.8 million.
And we had an agreement
that basically said,
"You get a third of the company'
and we get a third of the company'
and we will find the people
to run this company."
None of us had ever
built a company.
We understood that there was an
enormous need for-for more structure,
and to bring in people that
we had no way to reach.
Sandy and Len agreed to
step down into new roles.
And Don Valentine
recruited John Morgridge,
a veteran of several high-tech
start-ups, to run Cisco.
Morgridge's first task was to address
what he and Don Valentine saw...
as a troubled corporate culture.
The quarter that I arrived,
we hired a shrink.
He eliminated fighting
in the open hallways.
Physical fighting, I mean.
I actually had the, uh...
vice president of engineering deck
the sales vice president in my office!
We really did have
a trench mentality.
This is not a good big-company mentality.
Quelle surprise!
But, on the other hand,
I think that there was no one
there in that original group...
who didn't ardently
love that company.
As Cisco grew,
a culture clash developed...
between the original employees
and the new hires.
And ultimately, this clash
centered on Sandy Lerner.
She was definitely
a strong personality,
and she definitely was the reason
the company existed.
Sandy was an incredible piece
in the puzzle...
of getting things done right
for the customer.
Silicon Valley has not always been the place
where the customer's thought of first.
They may, in some places,
be thought of second or third.
But Sandy was ensuring that the
customer was thought of first.
Unfortunately, at the expense of
some of the other major managers.
I had very much alienated
the other people in the company,
because, you know, other than Len,
they hadn't been there very long,
and, you know, I saw them,
rightly or wrongly,
as the people I was trying
to protect the customers from.
By her own admission,
she would detonate.
Usually in my office.
At Cisco, you know,
being the only woman and a technical woman,
I think I was just very,
very frightening.
And there just
wasn't a box for me.
And I think that I didn't make it...
particularly easy
for them to ignore me.
And I didn't make it particularly
easy for them to find a suitable box.
Um, in that, you know,
the boxes that existed for women at the time
didn't seem to fit what I thought I-I was doing.
Finally one day,
my assistant said
the conference room is filled...
with eight Cisco employees
demanding to see you.
All of the vice presidents of the
company were in the conference room.
They walked up Sand Hill Road
and said, "Either she goes, or we go."
"Terminate her,
or we're quitting.
All of us."
And he called me and said, uh,
"Do you want me to handle this?"
And I said, "No, I'll handle it."
And Sandy was retired.
First of all, I mean, let's
just get it out. I was fired.
John called me into his office.
He said, "You know,
you're now worth so much money,
it really doesn't make any sense
for you to work this hard.
You know,
I think it's just a good idea...
if you just, you know,
retire at this point."
I said, "But, John,
I have a lot to do here.
I-You know, I think I have a,
you know, a place in-in the company,
and I-I-I don't really
want to retire right now."
I was... 35 years old.
Um, and he said, "Well,
I think today's your last day."
I walked to Len's office' where Len
informed me that I must surely be mistaken.
And I sat in Len's office while
Len went up and talked to John.
And, uh, came back and
walked out the door with me.
And we never walked back in.
You know, this idea that 45 % of
founders will be gone in 18 months?
In retrospect,
that was clearly the mind-set.
Len and I clearly did not understand that
that was the game that we were playing.
You know, the first rule of any
game is to know that you're in one.
It's an unpleasant thing to do,
to fire anybody.
But it's clearly the facts of life.
I think each of them went
away with 170 million.
I don't know how people
think of what comes next...
after the first 170 million,
but, uh, I don't think they've
ever forgiven either of us.
I was once asked, did I start Cisco
to make a whole bunch of money?
And I said, "No.
If I measured myself that way'
I probably couldn't look at myself
in the mirror in the morning."
Um, I don't. I think I've been a pretty
good tool-user, and money is a tool.
You know, technology
keeps evolving,
and ever since Leonardo da Vinci,
it's been evolving,
and it will continue to evolve
through good times and bad times.
It will evolve.
Venture capital
is here to stay though.
Well, I get my greatest satisfaction out
of thinking back on the companies...
that I helped start
and helped grow.
It's... nice to sit in the glow
of your adulation,
but... without the entrepreneurs,
you're nothing!
You have to have these
real people with the ideas...
and their willingness
to commit their life.
I don't think,
and I would not say...
that Silicon Valley is the result
of good venture capitalists.
Not at all.
Entrepreneurship
is the main show.
Venture capital is an aid,
and sometimes people got lost-
"We must have venture capital."
No use having venture capital
unless you have entrepreneurs.
If it hadn't been for
the Treybigs and Swansons,
where would Kleiner and I
have been?
Without venture capital, the future
wouldn't happen nearly as quickly.
New companies are much better
at exploiting new technology.
They can extend
and exploit a new idea.
We would all have a lower
standard of living, worldwide.
It clearly got
the first man to the moon.
It clearly got, you know,
everything from we're country code
1 in the telephone system to,
you know, the Internet.
I think you can't ignore
the role of venture capital.
You know, can you imagine,
a guy going in and talking to a banker,
and he says, you know, "Look,
I want to start delivering mail by jets."
We go into Kleiner Perkins,
we say we want to make insulin in bacteria,
and he goes, "Okay!"
Great things don't really
come out of the status quo.
They come out of people with vision
and drive to prove the difference.
This underlying technology
was there,
and there was nowhere
for it to go, until, you know,
the venture capital
is up here, saying,
"We've got some money.
Let's take a chance."
We need guys with new ideas
about how to do things.
All these ideas-
You gotta get to the frontier.
Do something. Build a company.
The entrepreneurial spirit.
The entrepreneurial spirit.
Entrepreneurship.
Making the world go round.
Hard-working, visionary.
Change the way people work,
educate their kids.
And you can do it.
The best things in life are free
But you can give them
to the birds and bees
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