Valley Boy: Part 1 of an Interview with VC Pioneer Thomas J. Perkins

Thomas J. Perkins is a Silicon Valley legend. In 1972, Perkins, a former Hewlett-Packard executive, and Eugene Kleiner, a founder of Fairchild Semiconductor, created one of America’s landmark venture capital firms, Kleiner, Perkins. The partnership made its mark with two blockbuster investments: Tandem Computers and Genentech, the first successful biotechnology company. As chairman of both companies, Perkins played a huge rule in developing each of these groundbreaking, multi-billion dollar businesses.

Today, Perkins is more well-known for his role in helping to expose the spying scandal at Hewlett-Packard, where he was a director of the company. I got to know Perkins when I interviewed him several times for my book. In November, Perkins dropped by the BusinessWeek office to plug his new memoir, Valley Boy. Although he is not actively investing today, Perkins was as forthright and insightful as ever, looking trim and dapper in a blue, peak-lapel suit.

In the first part of this two-part interview, Perkins discusses the state of venture capital, his views on various technologies, why Microsoft doesn’t scare him as much, and the future of Silicon Valley. (Yes, he think we’re seeing some signs of a bubble.) In the second part of our interview, which we’ll publish on Monday, Perkins offers his candid comments on Hewlett-Packard and how he helped to turn around the company.

Is Kleiner Perkins not funding Web 2.0 companies anymore? There was some discussion of that in the blogosphere recently, with valuations for Facebook and other Web 2.0 companies getting really, really high.
I’m not aware of that. A lot has been done but we haven’t made it an official policy. I love bubbles. We made a lot of money in bubbles.

Every time Google passes one of the century marks, 100 to 200 to 300, everybody said, “My god.” If you bought Google on the offering you would have made about 10 to 1. Is the market always right? No. Is it always wrong? No. You don’t get rich by betting against the market.

Is there too much venture capital floating around?
There’s always been too much money in venture capital. It doesn’t mean you can’t make too much money in venture capital.

What’s the worst investment you ever made?
There are so many. Hundreds of them. In all of these things if you put the risk up-front and use your initial money to try to reduce the risk, you won’t lose that much money. But one Google covers an awful lot of early stage losses. That’s just the way the business works. When you write the check you think it’s going to be a home run. You’d never knowingly say this one isn’t quite as good. If you think that, don’t write the check.

Speaking of Google, what do you make of all this talk about platforms?
I am on the board of News Corp. so I am delighted to see MySpace participate in this war. The growth is just incredible and the involvement everyone has with these platforms. Five years ago I never heard of Google. Now I use it constantly

Did Rupert Murdoch bring the MySpace acquisition to the News Corp board?
Yes. And he discussed it with me a little bit ahead of that. I was very enthusiastic about. He discussed another one with me, which I won’t mention, that I was unenthusiastic about. It was acquired by somebody else and it has fizzled. For a long time I was Rupert’s listening post in Silicon Valley.

Why were you enthusiastic about it? A lot of people thought he was kind of crazy.
Because of Google. And because these things can take off. I thought it was a good bet. The people were impressive.

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What do you think about this whole movement to open the wireless world?
The phone companies scare me. The size, the power, the investment. They have the customers. They’ve got everything except for the last quarter mile. So they’re tough but they don’t move very quickly. An agile group like Google can do pretty well.

Does Microsoft scare you?
Not as much as it used to. They are a great company. We’ve always used them as a partner and as a target. I think that will continue.

Will Kleiner Perkins be around another 30 years? Succession has always been a challenge.
We are in our 35th year. We are on the threshold of another fund next year, which I think will be number 13. So we’re doing pretty well. We’ve lost some partners, but never in an angry or competitive way. We’ve had more retirements than the competition. We have a very good management structure: Ray Lane, John Doerr and Brook Byers are the three managing general partners. They are all pretty comfortable in the saddle. None of them want to quit. And we’ve got some pretty interesting folks coming up behind them. I think it depends on the bets we make, rather than who is in the pipeline.

Are you still bullish on green technology?
Yeah, there’s so much momentum. There’s fresh technologies and new things to be done.

It’s not trendy?
Sure, it’s trendy but you can’t ignore trends.

Will the credit crunch affect Silicon Valley earnings? Anything to worry about there?
No. There’s far more than adequate capital, as we’ve said earlier. It’s always a good time to be in venture capital. If the markets come off a bit, the prices come down. You can’t look at the stock market and decide whether or not to invest in a startup venture. You have to totally ignore that. You have to assume sooner or later there will be a market for liquidity. After all, the growth of technology has been just about the only constant in our economy for a very long time.

Do all these proposed tax increases on venture capital concern you?
Yes. I would hope that there’s an adequate distinction between a venture capital fund, which has a very long time scale, and something that’s measured in months, as in the hedge fund world. And maybe the tax code has to recognize that.

Historically, Congress has been pretty good in understanding what venture capital has been all about. When I was chairman of the National Venture Capital Association I lobbied to reduce the capital gains to 20% from 28%. President Carter vetoed that. But [Congress] overrode the veto. So Congress understood the importance of venture capital. I used to say venture capital was like a pilot light. But now it’s like a roaring glass furnace.

Do you worry about liquidity, in terms of how companies can sell out
If you have a good business there is always liquidity. The value has to be there. It has to be a decent business. It used to be in earnings per share, and now it’s in market share or growth rate. It can’t be smoke and mirrors.

Doesn’t that sound a little bit like the thinking of the bust?
Yeah but we can’t ignore that. It’s value. If you’re like us and get in on the ground floor, it’s always OK.

Where would you be if you were just getting into the Valley today?
Always as an entrepreneur. Never as a venture capitalist. My advice: You can go to Wall Street and get in on the ground floor of the next scandal. And there will be one. You can become a venture capitalist, and you might do alright. But if you really want to have some fun, make an contribution, and maybe make money, you become an entrepreneur. It’s a buyer’s market for entrepreneurs. There is so much venture capital out there. As I said in my book, money is the least differentiated of all commodities. And venture capitalists are in the business of selling money.

Do you sense that Silicon Valley is doing well today?
It’s better. The Valley is a meritocracy. It’s taken for granted. But it is a true meritocracy But it’s tough, too. An entrepreneur can fail and still get backing for the next deal, if we think he failed for the right reasons. We have primarily invested around the Valley and now we are branching out into China and far afield.

Now that you are going overseas, how will globalization impact America as money starts going overseas?
It’s not our primary focus. It’s still experimental. We don’t know how it’s going to play out. We are moving carefully and deliberately. I am very optimistic about the Chinese-American relationship. Always have been. I’m not concerned about co-habiting with the enemy or anything like that.

Do you think about investments differently there?
Oh yes. Historically, we never went very far from Silicon Valley because we couldn’t drive there and check on [the investments]. China is quite far away but we have a partner who commutes to China every couple weeks. We don’t know the [Chinese] as well but they come to us as well. There’s a lot of interaction. We think we’re doing it in a cautious careful way.

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Tags: Eugene Kleiner, Facebook, Fairchild Semiconductor, Genentech, Google, green technology, Kleiner, MySpace, News Corp., Perkins, Rupert Murdoch, Tandem Computers, Tom Perkins, Valley Boy