Something Ventured (2011) - full transcript

I was in my laboratory probably talking to students.

Here's a call comes
out of the blue.

This young guy wanted to
know is the technology

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 OK.

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 hadn't heard of it before.



The risks were just enormous.

MAN [VOICE OVER]: They came to me with no business plan.

MAN [VOICE OVER]: Willing
to risk everything.

MAN [VOICE OVER]: You haveto be a street fighter.

MAN [VOICE OVER]: Tick, tick, tick, tick, tick, tick, tick.

MAN [VOICE OVER]: We didn't know what we were doing.

MAN [VOICE OVER]: Silicon Valley.

MAN [VOICE OVER]:
Technical break through.

MAN [VOICE OVER]: $100,000.

MAN [VOICE OVER]: $1 million.MAN [VOICE OVER]: $10 billion.

MAN [VOICE OVER]: Intel.

MAN [VOICE OVER]: Apple.MAN [VOICE OVER]: Genentech.

MAN [VOICE OVER]: Cisco.

MAN [VOICE OVER]: Goodmarkets create companies.



MAN [VOICE OVER]:
Rolling company.

MAN [VOICE OVER]:
The sky's the limit.

MAN [VOICE OVER]:
The rest is history.

I don't know how 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.

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.

I had to fire him, though.

NARRATOR: These
men didn't always

wield such influence and power.

In the beginning, they barely knew what they were doing.

50 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 whoused the term before I did.

NARRATOR: Back in
the spring of 1957,

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 noone 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 sometime or another.

Thing I'd say is I was
lucky to be lucky early.

NARRATOR: The letter
on Arthur Rock's desk

had come from eight
engineers in California,

a group of brilliant young men who had 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 going to 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 these leaving.

So anyhow we did write--

This prospectus is to introduce a group of senior scientists

and engineers who have been working together at 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 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.

NARRATOR: That
something that Arthur

saw inspired him to step out of this ordinary role

as a Wall Street banker.

And that's when
we met Arthur Rock.

Arthur came out to meet
with a 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.

At that time, there
was no venture capital,

so starting companies was new.

It was innovative.

NARRATOR: Arthur Rock had to get creative about finding capital

for the traitorous eight.

His bank had contacts
with rich families

like the Rockefeller's and the Whitney's, but they

weren't interested in
backing a start up all

the way out in California.

So we 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.

NARRATOR: The attempt
to start a new company

might have ended then and there with the traitorous eight

returning to the 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 $1.5 million

we were looking for.

I call myself the
accidental entrepreneur.

NARRATOR: 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.

NARRATOR: Arthur Rock had gotten a taste of something

exciting and significant, but as it turns 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.

REID DENNIS: In
the '50s and '60s,

there were a group of
us in San Francisco that

used to get interested insmall high tech companies

down the peninsula.

There were, I think,
five of us in our group.

We all had jobs.

We had other time
on our hands, too.

We decided we'd just
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 had 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'd invite him up for lunch.

And after lunch, we'd ask him to step out onto the street corner

for a while, and
give was 10 minutes,

and we'd 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 to classy to do that.

That's a little
bit quick, I think.

I mean, if the guy's a real nut, you say goodbye to him

without asking to go
get a cup of coffee.

NARRATOR: 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 Pontiacleased, 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 you do?

You know?

Well, what do you do?

Well, venture capital.

Well, 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.

NARRATOR: The lunch group had established a good formula.

Everyone was sharing in
the profits and success

of 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.

NARRATOR: Meanwhile, back at his desk in New York.

Well, I 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.

NARRATOR: In 1961, Arthur Rock raised $5 million

from east coast investorsand 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 of 1968, when
Fairchild's east coast

management made a fatal mistake.

Noyce was the logical internal candidate to be the next CEO,

but they decided they were going to look on the outside,

and that changed
the whole ball game.

Noyce said, I'm going to leave.

Are you interested?

So I said, OK.

Let's do it.

They needed financing, and they called me to see

whether I'd be interested.

They came to me was
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.

It was one page.

Double spaced, and that was it.

GOR MOORE: It just
says we were going

to make things out
of silicon and some

interesting electronic devices.

Oh, I said in
general terms they

were going to make memories.

GORDON MOORE: It has
lots of typos in it.

I think Bob typed it himself.

It's not a very
profound document,

but it was really kind of cute.

I said how much
money do you need?

And they said $2.5
million, and I said, OK.

What percentage of the company do you think you'd be happy

giving up for $2.5 million?

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 $2.5 million.

NARRATOR: Intel opened it's doors in July of '68,

and Arthur Rock'spartnership 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.

It doesn't take much ink.

I attended staff meetings.

GORDON MOORE: Arthur
asked good questions.

ARTHUR ROCK: Was on the
phone to them a lot.

GORDON MOORE: He was an
excellent board member.

ARTHUR ROCK: Offered advice.Planning.

Setting up an audit committee.

GORDON MOORE:
Customer relations.

ARTHUR ROCK: Interviewed
a lot of people.

GORDON MOORE: 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.

ARTHUR ROCK: 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 that the market has spoken.

It's memories over
mammaries 10 to 1.

NARRATOR: 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.

DICK KRAMLICH: They said well now that you and Mr. Davis

are doing separate things what are you going to do?

He said, well, I'm going to find a younger partner

and do it all over again.

And I said, you know, gee.

I had never even-- Imean, it was a light bulb.

And I sat down, and I wrote
him a long hand later,

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 intriguing.

He's just generally
knowledgeable

and on the same piano as I was.

And I found out later that there were over 1,000 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 business.

Well, you know, there
are no firm rules

in the venture capital business, except that there

are no firm rules.

WOMAN: Did you have any problemsin convincing your colleagues?

Oh, yeah.

They thought I was out
of my mind on this one.

NARRATOR: By the early '70s, inspired by the success

of Arthur Rock, moremembers of the lunch group

began to quit their day jobs andset up their own venture funds.

Reid Dennis gave notice to his boss at American Express.

He said, Reid, are you sure this 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.

NARRATOR: 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 GeneKleiner, 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, and he was fun to be with.

I remember once we
met an entrepreneur,

and after he left, I said, Gene.

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 team to convert

motorcycles into snowmobiles and back and forth, which actually

worked and it was a lot fun, but one of the fuel crises

landed about the time we were ready to go into production,

and we couldn't
get distributors.

So it failed.

So Eugene and I thought
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.

TOM PERKINS: Well, Jimmy
Treybig, 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 init, and it would destroy data.

People knew the problem, butthey 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 were it's

just not acceptable to have the computer go down.

JIMMY TREY BIG: 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 wonthe 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 towant 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've got to say about Tom.

You've got to 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--
I forget what he

said, but he could buy the suit, but that still didn't help.

And took him back to
Wall Street, and of

course the first thing hesaid is, well, how do I work?

I'm dressed-- you know?

Tom was a little more
sophisticated than me.

But we didn't get the money.

JIMMY TREY BIG: I tried management, an unlikely idea.

Most people would
not have thought this

was going to be a big winner.

But I felt strongly
enough about Tandem

that, even if we had to put upall 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 thought

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 toa 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.

When we got the first
order and the computers

performed as
expected, even better,

the growth took off
and became explosive.

JIMMY TREY BIG: We went $725,$50, $100 million, $200 million

on up to a $1
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, Ihad already put in 13 years

working in real companies.

NARRATOR: In 1972,
Don Valentine decided

to trade on his connectionsin the semiconductor industry

and went in search of capital to start a venture fund.

DON VALENTINE: We went to see a guy at Salomon Brothers,

and he said, you know,I've listened to the pitch,

but you didn't go to
Harvard Business School.

I said, great observation.

True.

Guilty as charged.

He said, 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 going to do.

NARRATOR: 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.

DON VALENTINE: 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.

MAN [VOICE OVER]:
For most people,

there's something intimidating about the idea

of interacting with
a computer, but that

is what's happening here.

DON VALENTINE: Atari had
one of Silicon Valley's

absolutely larger than life personalities leading it--

Nolan K. Bushnell.

NARRATOR: Bushnell was
a young engineer working

for game manufacturer,
Nutting Associates,

when he decided to strikeout on his own in 1972.

The real thing that allowed me to start Atari was I

worked Nutting, and
these guys couldn't find

their butts with both hands.

I said, you know, I
could run a company,

and I won't make any
of these same mistakes

these idiots are doing.

NARRATOR: 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.

NARRATOR: 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,

and so we never had any money.

JIMMY TREY BIG: 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 are
waiting to pay you.

It takes a lot of capital for a hardware start up.

NARRATOR: In 1974, Atariwas flirting with bankruptcy

and desperately
needed financial help,

but Nolan found the traditional channels off limits.

DON VALENTINE: Banks, in a 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, and Nolan said,

what's the matter?

I said, I don't know what those people smoking,

but it's not my brand.

NARRATOR: 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" gamedown 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 nothing.

Huge.

DON VALENTINE: 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

collegialy work together.

I brought him other investors.

However, it takes a while to get used to Nolan,

and there's a story thereabout one of our meetings,

where the man from
Fidelity was sitting

in a chair with this 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.

NARRATOR: 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.

NOLAN BUSHNELL: Of course we were young, and felt that we

could solve problems
that came along,

and 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 Fairin New York and selling none.

So we thought let's try
the television shops,

and they didn't want it.

DON VALENTINE: These were 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 avery 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.

ALL: [SINGING]
Everybody's talking

about a new way of shopping.

Do you want to lose your mind?

NARRATOR: Home "Pong" hit the shelves just in time

for the 1975 Christmas season.

And of course, the
rest is history.

WOMAN: [SINGING] When he
plays a game from Atari.

Have you played Atari today?

GROUP: [SINGING] Have
you played Atari today?

[beeps]

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 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 or
seven years old.

It's easier to explain he drove a truck than it is to explain

what he did in the union, because 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 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 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.

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, 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.

God, this is pretty boring.

And I thought, well, I'veheard about business school.

Maybe I should take
a crack at that.

And this is where I got inspired by Georges Doriot.

NARRATOR: 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 ARD, which in its entire 25 year history

made only one
notable investment.

Instead, Doriot's most
important influence

came through the spell he castover 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.

It was an extremely
popular course,

and it was all about starting companies and technology.

We talked about entrepreneurs.

He had some of them
as guests-- what

it was like to start a company.

TOM PERKINS: His lectures were hot to dress,

how many drinks you should have at a cocktail party.

It was sort of a GeorgesDoriot 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.

TOM PERKINS: He would talk aboutworking 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, just to deal

with the psychological wounds.

When he was talking
about venture capital,

starting companies, he was as good as there was, because he's

the only guy who understood it.

I bought it all hook,
line, and sinker.

TOM PERKINS: 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.

I said, 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.

DR HERBERT BOYER: It came out of the blue for me.

I had not been thinking about starting a company.

I thought I was going
to die at the lab bench

with a pipette in my
mouth, but Bob called,

and he wanted to know
if the technology

was ready to be commercialized.

TOM PERKINS: 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

because 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,

and it turned into many hours.

In those days, funding for research was difficult,

and so, you know,
I had some, you

know, ulterior reasons
for paying attention

when he said he had money.

TOM PERKINS: Over the
next couple of weeks,

Swanson persuaded Boyer to take the idea of gene splicing

into some sort of
commercial operation,

and Bob brought Boyer to me.

So we go into one of
the 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 I thought holy smoke.

So we go in, and these stern looking guys are sitting

there in a suit, you know?

Perkins, says, OK, well, what are you going to do?

TOM PERKINS: What do you do?

What equipment do you need?

How do you know
that you've done it?

How do you test?

DR HERBERT BOYER: It's scary.

TOM PERKINS: What are the risks?

Contamination?

Everything I could think of.

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
much to be done.

He was a very hands on guy.

They ted to raise about $3million to build the factory,

hire the people, and then see if it would work,

but underlying it all
was the tremendous risk

factor of would it be possible?

It was pure research,
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 upfront and get rid of the risk

as fast as you possibly can.

Bob and I were
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.

NARRATOR: Bysubcontracting, Tom Perkins

eliminated the need to buy
equipment, build a lab,

and hire a staff.

The estimated $3
million 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.

NARRATOR: 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.

TOM PERKINS: 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, and it worked.

So we had our breakthrough.

That was the first
time in the history

that mankind had ever made an artificial-- well, let's just

say, an artificial bacteria.

MAN: Most doctors agree
that genetic engineering

will be the source of most drugs in the next decade.

MAN: As scientists look
ahead, they see a myriad

of products-- new vaccines.

We haven't scratched
the surface yet in terms

of new hormones and molecules that the body produces

itself to keep itself healthy.

The next step, of course--

It wasn't my goal
to start an industry.

My goal was to 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--

well, it's saved hundreds of thousands of people's lives.

Well, isn't it great
if you can make

money and change the world forthe better at the same time?

MAN: 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 12seconds by a computer no bigger

than a bathtub.

NARRATOR: 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 on Apple computer.

We didn't even turn it down.

We didn't agree to meet
with Jobs and Wozniak.

Oh, that would've 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
use a computer at home?

You gonna put recipes on it?

BILL DRAPER: I sat 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, lets let it go.

That was a big mistake.

NARRATOR: 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

has partnered with Steve Wozniakto 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 they offered me

a third of Apple
Computer for $50,000,

and I said, gee,
I don't think so.

I could've owned a third of Apple Computer for $50,000.

Big mistake.

But I said, call Don
Valentine, because 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 Manchulook, and his question for me--

tell me what I have to doto 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 could
really use your help,

and you ought to go see them.

I said, OK, because 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 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 100
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 think, gosh, the opportunity

here is just too great.

The business plan said
that with $142,000

we could be cash flow
positive in nine months,

and I came to a
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.

NARRATOR: Not only did
he write the check,

Mike Markkula came out
of retirement, becoming

the president and CEO 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,
and you ought to come

down and see what's going on.

And he did.

He thought something
was happening.

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.

He says, I want to put some money in that company.

I said, OK.

You've got to 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 how to choose people.

I don't think there's a company today that could say that they

had a better board than that.

We.

Couldn't lose.

NARRATOR: Taking his place alongside the venture capital

luminaries was a young Steve Jobs, who would never even seen

the inside of a board room.

There was one board
meeting, and he

took his shoes off and put his bare feet up 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 manners.

You know, in the venture capital business,

if you look at 200 deals,
you might do 10 of them,

and you will think
they're all great.

And if one of them
is a great, then

you're in the hall of fame.

If you make 10 deals,
you know if you do it

well some are gong to 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.

But we hated to give up,
hated to admit defeat.

It was always dramatic.

You get personally involved in these companies.

Everybody's heartbroken.

It's tough to lose money.

Losing money is
not a good thing.

MAN: Programs are instructions to the computer

that can be recorded on floppy disks or cassettes.

NARRATOR: In the early'80s, a new kind of company

began to attract attention
in Silicon Valley.

MAN: These programs
are called software.

A Dataquest report says there are now 27,000 software

programs on the market
with a new product being

introduced every 11 minutes.

NARRATOR: Dick Kramlich had been listening to endless pictures

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.

ROB CAMPBELL: 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 them, and they were marking them up.

That really was kind of the genesis of why Power Point.

I liked the way
Rob was doing this,

and I was really impressed with Power Point.

You sort of automate a
very cumbersome process,

and when you see
it, you know it.

It just goes right
through your bones.

So we started funding it.

NARRATOR: Dick Kramlich'sfirm provided Rob Campbell's

company, named Forethought, with an initial round of funding

to develop this software, but while the Forethought team was

working on Power Point, 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-- engineering
was delayed so long

we made the decision-- they were all R decision and not much

D. Go out [inaudible]
on acquiring File Maker.

Our largest distributor
went into Chapter 7.

So the bankruptcy judge isnow selling our product off.

And called us up and said--

NARRATOR: 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
presentation, talked

about File Maker, talked about what the presentation

product was going to be.

NEA had hired a new 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 into royalties
and the other one

which is not going to work.

So this isn't worth a dick.

We're saying no.

And I said, no more money.

He said, no more money.

NARRATOR: Despite
his partners' doubts,

Dick Kramlich wasn't ready tolet Power Point go so easily.

My mother used
to say don't ever

underestimate Dick, because if he takes on a challenge,

he's gonna 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 going to be a conflict as long as we don't

have to put any more money in.

So I called my wife.

I said, Pam, stop
work on the house.

I said, I'm going to 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.

INTERVIEWER: Well,
he asked permission.

We would say no.

INTERVIEWER: Then there
wouldn't be Power Point.

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 $2.5 to $3 million.

It was much better than
what I had hoped for.

And so I was thinking this is enough to validate

a public offering.

I think Dick would have liked us not to be acquired.

He said, but 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 had a
presentation product,

but it's not nearly
as good as Power Point,

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 OK 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 and 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 hurtful.

[MUSIC THE FLYING LIZARDS, "MONEY"]

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 youngCEOs you're going to work hard,

and if you're lucky, you're going to be successful,

and your company is
going to get big,

and then you're
going to 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

than find the right idea and have to change the people.

Well, nobody plans to dothat, 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.

NARRATOR: 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.

NARRATOR: Through Cisco, Sandyand 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 on line world.

DON VALENTINE: It was a desperately needed product,

but no one would finance Cisco.

We tried from the very beginning to get funding.

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 was

an untenable business model.

I don't think in their position I would've 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 work with.

We were all very independent.

We were used to
having our own way.

Certainly there's the mindset 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

and that you're the
wrong person to do it.

DON VALENTINE: 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.

SANDY LERNER: None of ushad ever built a company.

We understood that there
was an enormous need

for more structure
and to bring in people

that we had no way to reach.

NARRATOR: Sandy and Len agreed to step down into new roles,

and Don Valentinerecruited 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 Iarrived we hired a shrink.

He eliminated fighting
in the open hallways,

physical fighting.

I actually had the vice president of engineering deck

the sales vice
president in my office.

SANDY LERNER: 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.

NARRATOR: As Cisco
grew, a culture clash

developed between the original employees and the new hires,

and ultimately this clash centered on Sandy Lerner.

JOHN MORGRIDGE:
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 bethought 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 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, 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 inthat the boxes that existed

for women at the time
didn't seem to fit

what I thought I was doing.

DON VALENTINE: 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, 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.

You know, I think I have, you know, a place in the company,

and I don't really want
to retire right now.

I was 35 years old.

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 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 mindset.

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.

DON VALENTINE: It's
an unpleasant thing

to do the fire anybody, butit'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 I don't think they've

ever forgiven either of us.

SANDY LERNER: I was once
asked, did I start Cisco

to make a whole bunch of money?

And I said, no.

If I measure myself
that way, I probably

couldn't look at myself ina mirror in the morning.

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 daVinci, 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
the 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 get lost.

We must have venture capital.

No use having venture capital unless you have entrepreneurs.

If if hadn't been for Treybigsand 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 also have a lower standard of living worldwide.

It clearly got the
first man to the moon.

It clearly got
everything from we're

country code one
in the telephone

system to the internet.

And I think you can't ignore the role of venture capital.

You know, can you imagine a guy going in, 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 and bacteria, and he goes, OK.

Great things don't really come out of 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-- the venture

capital was up here.

I well, we've got some money.

Let's take a chance.

DON VALENTINE [VOICE OVER]:We need guys with new ideas

about how do things.

ARTHUR ROCK [VOICE OVER]:
All these ideas.

MAN [VOICE OVER]: You'vegot to get to the frontier

DON VALENTINE [VOICE OVER]: Do something.

Build a company.

MAN [VOICE OVER]: The
entrepreneurial spirit.

JOHN MORGRIDGE [VOICE OVER]:The entrepreneurial spirit.

TOM PERKINS [VOICE OVER]:
Entrepreneurship.

DON VALENTINE [VOICE OVER]:Making the world go round.

ARTHUR ROCK [VOICE OVER]:
Hardworking, visionary.

ROB CAMPBELL [VOICE OVER]:Change the way people work.

Educate their kids.

TOM PERKINS [VOICE OVER]:
And you can do it.

[MUSIC THE FLYING LIZARDS, "MONEY"]