Silicon Valley Deconstructed With Tom Perkins and Don Valentine | Disrupt SF 2013

welcome so I've been really looking forward to this you know you two are like the godfathers of this industry and it's not every day that an audience like this gets to sit down with people who've seen the evolution of Silicon Valley from the beginning and I'd be willing to bet that every single person in this audience has been impacted by the companies that you first backed and helped develop when you come to an event like this and you see this standing-room-only crowd what goes through your mind well TechCrunch is owned by AOL which is the company we started so it comes full circle so here we are I let me I just like to say something about what venture capital is and everything I learned about venture capital I learned from David Packard of the Yola Packard company now he's obviously a great entrepreneur he and Bill Hewlett but they did projects within the company in which each project had to make a contribution of at least a factor of 10 so they sought high risk they managed it carefully they got rid of the risk upfront and then they poured in the money and that is the fundamental lesson of venture capital and Packard was such an entrepreneur himself that while I was starting and building the computer business for Hewlett Packard which has done pretty well he let me start my own company in the Laser business before I came along the laser was kind of a laboratory curiosity I figured out how to make it like a light bulb cheap worked or it didn't you threw it away and Packard let me do that as a moonlighter while I was working for him and when it was successful he slapped me on the shoulder and was so proud of me so he was the mentor that I needed and I learned everything from it and is that why you went into venture capital I'd love to hear from both of you why you decided to create this industry I would like to correct the record I came a thousand miles to be here from Montana only to be identified with a major criminal I mean the Godfather is not an image but I hope my grandchildren recognize me and we're running out of horses heads I wanted to talk about the yellow brick road that's a Quay capital has been on a startup company I joined in 1959 silicon the word Silicon Valley hadn't been created yet this was a company to head extraordinary technology and one fundamental issue there were far more customers who wanted special things done in Silicon than we could handle so we had to divine an invent an analytical system for choice and the choice was based largely on the size of the market the nature of the application that we were going to turn into silicon and we used in an evolutionary way we use the same process of evaluation at Sequoia we wanted to have a very narrow focus highly customer sensitive system of selection and I'll just pause to get Tom to give equal vision about kind of preference well we went and I started that we made some really funny but rather stupid investments I will I will confess the worst one we did was a an idea to convert a motorcycle into a snowmobile and it was called I'm not making this up snow job and I spent a couple days on it up in the Sierras and I thought it was just terrific but the customers didn't jump for it and so we were really not doing very well at all in the aventure business and Eugene and I decided maybe we will just have to do it ourselves so we started a company called tandem computers which is now the top end of the Hewlett Packard computer line after a couple of mergers with Jimmy try big who worked for us as a partner and we put it together in our office we financed one other percent of it and it was a huge success how much did you put into oh gosh I don't remember numbers that well about I think about a million and a half which was a very significant portion of our fund our whole fund was eight million we wanted ten we couldn't raise more than eight and we had the largest fund in the world at eight million dollars and Don how much was Sequoia how much did you guys start out with largely the same size number but I think the perspective that you need is venture capital hadn't been invented yet Fairchild Semiconductor could not raise money 25 organizations turn the company down for financing and Tom and I agree that on the at the outside maybe fifty million dollars nationally was the available pool of money to finance new companies and that's in the early 70s so it's a very very small world and it hasn't been named yet back to you Chet what was your first investment our first investment was a company called Atari game company made with silicon and made with microprocessors which in our experience is the key decision we made which was the finance micro process is the patent for micro processes came from Fairchild so I followed what I thought was a insight to the future and financed everything moving that was made with micro processors the key benefit of all of the success of Atari they had a junior employee about 18 years old whose name was Steve Jobs tell me what it was like meeting Steve Jobs I know you know you passed on Apple right yes we did we looked at kleiner and I had looked at about three Kip computer companies we were very unimpressed and we very foolishly didn't even look at Steve and Wozniak big mistake but we Don has focused as he explained much more on silicon as his root we were a little more diverse of Genentech was a huge breakthrough for us and that was in our first partnership and we felt that we hadn't just create at a company but we had probably created an industry so we invested in many other things in biology most of them very successful and looking back on everything I've done I think Genentech is a I'm most proud of it was a huge financial success but we've saved you know thousands and thousands of lives which is good so going back to Don that you were mentioning about Steve coming from Atari what was that first meeting like did you meet him through the CEO of Atari how did that work without exaggeration I would say that every meeting with Steve was a showstopper at age 18 under greed and not the technical side of Apple that was was niak Jobs was able to craft questions that got to the heart of whatever the problem was and exploit the deficiency in the competitors product as well as employ the best and most technically developed silicon Sequoia has been a very linked and I've been waiting all night to use that word because it's an investment we made several years ago which is yet another spectacular company in Silicon Valley's lore LinkedIn if you're not in join so much for the advertisement we were very very narrow silicon microprocessor investor and in both Apple as well as many of our other companies like Cisco we made approximately ten investments we viewed Apple as an aircraft carrier its first memory system was hideous it was a audio tape cassette nothing was slower nothing was more unreliable so the obvious investment that had to be made was a disk drive company IBM was very compliant they opened their disk drive company in San Jose and made Winchester describes their which were liberally used and taken advantage of by the entire community when you look back at all the entrepreneurs that you've invested in Steve and and and many many others what's the consistent thread with all of them do they all have something in common well there's always been a debate what's the best investment to invest in an idea or in a person and that debate goes on forever I I feel you invest in the idea because bad people don't have good ideas so it's a very simple formula and when I used to look at business plans I would look at the back pages and if the numbers were big I'd look at the front to see what kind of business it was and it pretty sophisticated I backed Harvard Business School graduates which Don refuses to do Don you don't know Harvard Business School graduates oh I'm very discriminant I am against all business schools so I'm so I'm not and we've backed to some very successful companies from business school graduates but I we've also backed a company called a queue son which is now part of Siemens it became a New York Stock Exchange company in ultrasonic scanning and the president of that company had never had anyone work for him anyone he was purely a technician not even an assistant of any kind he wrote a business plan about the size of the New York telephone book I mean it was just incredible he sent it all around and of course nobody really jumped at it and I invited him up to the office and we talked about acoustical diffraction I knew something about optics from my laser experience and I decided we're gonna finance this company and he said but you haven't read the business plan I thought well do I have to you know and we financed that New York Stock Exchange was a great company and I learned a lot from him about management so we've had covered the whole spectrum we I have an answer to a question that hasn't been asked go ahead and this is a rehearsed question-and-answer which Tom and I contrived at lunch over a glass of wonderful red wine I had to restrain him from ordering the whole bottle we financed the company and went on the board jointly an international semiconductor expert very proud and fairly successful and we made what we thought was a fair deal the company made some progress and had to raise money once again and the founder president had an idea of what the valuation would be and it was rare for both of us to be knocked out of our chairs by the number of proposed tongue not to be outbid said that's impossible he's always been in favor of strong verbal support and I was stunned by the dialog developing Tom not to be outdone said you raised a consequential nut amount of money at that price will build a statue to you in the courtyard or the company I knew I was in deep water now Tom's only operates on a grand scale so I sort of chipped in and said he'll do the statue I'll supply the gilding and we'll have a gold statue of you your story well he did it so you did it so I went to Chinatown and this individual I think we can say his name wolf Corrigan great great entrepreneur but he was kind of bald and he had a tummy and he looked a little bit like a Buddha so I bought I bought the biggest ugliest Buddha I could find in Chinatown and then spray-painted gold and we presented it to will who at the time didn't think it was very funny now I think he thinks it's hilarious so I want to I want to talk a little bit about board meetings so Tom your former colleague Minoo Khosla was up here earlier today and he said that and I'm paraphrasing this slightly that 90% of investors don't really add value especially at board meetings and he said he doesn't even go to board meetings are very often because he just finds them a waste of time for the entrepreneur you have both been pretty instrumental on number of very well-known successful company boards and I'm really curious to hear your perspective on what you guys have added value at the board level well I think we both have opinions and I don't know if we'll agree on this we never discussed this I I think in the beginning the board should be very small and in Silicon Valley typically the chairman of the board is the is the venture capitalist so at one time I was chairman of 14 boards at the same time three of them on the New York Stock Exchange but as the company grows you you need more insight you want more insight into let's say Europe or the consumer market or something you really don't know much about and I was very lucky for example to get Walter Wriston former chairman of Citibank and George Shultz former Secretary of State and Defense Department director onto the tandem board and and they made an enormous contribution so I would disagree with the node on that point but Don I'm sure you have insight here despite the opportunity to disagree with Vinod which is always a distinct pleasure I would rather tell bosal I would rather tell you a real happening which is highly unlikely Atari was right up there among our early and first investments and it was started and run by an extremely unusual and aggressive founder these were electronic games and the thing that was distinct about our board meetings they were conducted in a hot tub with all the directors dressed appropriately for a hot tub where was this hot shot was it advertised it was in Nolan's house and he was a very thoughtful founder he had some bad wine floating around hot tub and case refreshment was required so this is a world that had a lot of humor involved and opportunities to do things differently and since I've always believed that the key to making great investments is to assume that the past is wrong and to do something that's not part of the past to do something entirely differently and the last thing I'll tell you on this broad point is when I hired or participated in recruiting people John morgridge the example the president for a long time at Cisco I asked him a question that I had asked prior candidates I asked what was the most outrageous thing you've ever done knowing in my heart of hearts that whoever was the most outrageous I would choose several people said well I've never done anything outrageous they were shown the door quickly I didn't want them drinking my wine and wasting my time do you feel that VC's should be operators I mean you both came from entrepreneurial and operating backgrounds do you feel that in order to be good B C's you have to have founded a company been in the trenches yes yes what makes it good BC judgment which comes from experience having been through tough things and saw and gotten through them and solve the problem daring and tremendous ambition I think it's tough for a company if the CEO is not as ambitious as the venture capital backers at the risk of being repetitious I will not be for me it's the one thing that I would add to Tom's list is the ability and willingness to be different great companies are built with different products by different people people who and I've been asked to get this plug in the last person those of you in the audience that are founders and entrepreneurs you want to hire the last person is the HR person they are the Destroyers of companies they are the ones that write the binders and tell you what the rules are and how much everybody gets paid in grade 7 if they attempt to be employed by a grade company was in the act of Apple attempted at one point in time to be employed by hewlett-packard well was didn't present the way you'll attack a person looked and he was therefore unemployable I would I would just add start the company if you're the CEO started by yourself don't try to build a complete team first because you're not gonna get great people to work for a high-risk startup so get it going your self with the help of a good venture capitalist like your see here before you and then build your team and you'll be for example when we started Compaq Computer the president wanted to he had a marketing candidate in mind and we said forget it let's get it going and then we'll hire the vice president of marketing of IBM which is what we did so that's a tip well great advice to any entrepreneur there thank you so much Donna Thomas

Channel: TechCrunch

Views: 10,971

Rating: 4.9117646 out of 5

Keywords: disrupt san francisco 2013, techcrunch disrupt sf 2013, techcrunch hackathon 2013, techcrunch startup alley

Id: z3MJWqyqwMI

Length: 23min 31sec (1411 seconds)

Published: Wed Sep 11 2013