What Arthur Rock Looked for in Entrepreneurs

Here’s a story published recently in Investor’s Business Daily about legendary investor Arthur Rock. One of the pioneers of the venture capital industry, Rock famously put together the deals to found Fairchild Semiconductor and Intel, two of the most important startups in the history of Silicon Valley. Rock later invested in Apple, capping off his incredibly successful career. The investment landed him on the cover of Time magazine, a story that I discuss at length in my book. In fact, Rock was a student of Georges Doriot at Harvard Business School.

Rock and Doriot actually had many things in common. They were both investment bankers who became successful venture capitalists. They both understood the importance of technology. And they both believed that people, more than ideas or markets, were the most important ingredient of success in a business venture. Doriot’s famous saying was, “I’ll take an Grade A individual with a B idea over a Grade B individual with an A idea.”

The writer Reinhardt Krause interviewed me for the profile and kindly included a quote from me in the story. It’s an interesting profile that tries to explain Rock’s investing philosophy. Among the most important traits Rock looked for in an entrepreneur? Intellectual honesty. Rock knew that a new business would face many challenges and that in order to succeed entrepreneurs needed to be honest about the state of their business. Or as Rock rhetorically asked: “Do they see things the way they are, and not they way they want them to be?”

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Silicon Valley Rallies Behind Obama’s CTO Pick

Over the weekend I did some more reporting about the new U.S. chief technology officer Aneesh Chopra. Here’s my revised story showing that Silicon Valley is rallying behind this Easy Coast outsider.

Silicon Valley Rallies Behind Obama’s CTO Pick
As secretary of technology, Aneesh Chopra expanded Virginia’s high-speed Internet. He now stands to become U.S. Chief Technology Officer

By Spencer E. Ante

For all of its attributes as the world’s epicenter of innovation, Silicon Valley remains an insular region in some ways. But that hasn’t stopped many technology leaders from rallying behind President Barack Obama’s surprising choice for the nation’s first Chief Technology Officer: Virginia Secretary of Technology Aneesh Chopra.

Chopra was educated on the East Coast and has never worked for a California tech stalwart or startup. But giants such as Google, industry trade groups such as TechNet, and top Valley luminaries such as Intel Chairman Craig Barrett and prominent blogger Tim O’Reilly are applauding the 37-year-old Indian-American as a superb choice for the nation’s top technology czar. Chopra has the chops, say Valley veterans, to have an impact.

“Aneesh Chopra is one of technology’s leading lights and we are lucky to have him as our nation’s Chief Technology Officer,” said Intel’s Barrett in a written statement. “Aneesh demonstrated outstanding leadership as Virginia’s secretary of technology and believes to his core that innovation and technology are the backbone of our economy.”

Click here to read the rest of the story.

Allegis Capital: A New Venture Capital Model for Today’s IPO-Free Market

When you’ve been covering a beat for 15 years you think you know pretty much everyone you need to know. But one of the great things about Silicon Valley is the technology industry’s depth of talent. There are so many high quality people and it’s a blast when you make a new connection.

So it was a real pleasure when recently met Robert Ackerman, the co-founder of venture capital firm Allegis Capital. Check out this story I wrote this week about Bob and his venture firm, which is doing some real innovative work on the venture scene. As an extra bonus for my blog readers, I also added a two-minute video I shot with Bob at the office that wasn’t included in the BW article.

Can Venture Capital Come in from the Cold?
Allegis Capital and a handful of boutique firms are eyeing new investments amid a crisis of confidence among Silicon Valley VCs

By Spencer E. Ante

These days, many venture capitalists resemble mice, afraid to invest in the rough economy. But a few firms remain upbeat and aggressive, ready to pounce like a tiger.

One is Allegis Capital, a 12-year-old Silicon Valley VC firm that’s smelling opportunity amid a fearful market. Allegis doesn’t have a marquee name, but it’s put together one of the most impressive track records of any venture firm in recent memory.

Last July, Allegis sold Ribbit, a telecommunications provider it backed, to BT Group (BT) for $105 million. In 2007, it sold computer security company IronPort Systems to Cisco Systems (CSCO) for $830 million. Over the past four years, six companies in which Allegis has invested have sold for a total of $2.1 billion. “Venture capital is not broken,” says Allegis Managing Director and co-founder Robert R. Ackerman Jr. “Innovation is alive and well.”

That’s not the conventional wisdom in venture investing. The market for taking startup companies public has ground to a halt. The value of startups has fallen. And avenues for selling companies to corporate acquirers have narrowed while fundraising is scarce. Some investors have asked whether the venture capital playbook of raising large sums of cash and betting on a few home-run deals is in need of revision.

Yet smaller funds such as First Round Capital, Maples Investments, and angel investor Ron Conway’s Baseline Ventures continue to invest amid the economic downturn.

Read the rest of the story here.

Michael Moritz: Lessons from a Long-Ball Hitter

Yesterday, BusinessWeek published my profile/Q&A with venture capitalist Michael Moritz. The news cycle is insane these days, so I am reposting the top of the piece here as well as a link to the rest of the interview. Plus, Moritz doesn’t give many interviews, so it’s worth spreading the thoughts of perhaps Silicon Valley’s most successful investor.

Michael Moritz: Lessons from a Long-Ball Hitter
The journalist-turned-venture capitalist was early to ring the alarm bells about the weakening economy, but he remains optimistic

In 1984 a young British journalist named Michael Moritz wrote a short piece in Time magazine about the legendary venture capitalist Arthur Rock with the title “The Best Long-Ball Hitter Around.”” Today, the 54-year-old Moritz is the guy who swats investing home runs as a partner with the Silicon Valley venture capital firm Sequoia Capital. Moritz joined the firm in 1986 after leaving Time (TWX) and writing a book about Apple (AAPL), The Little Kingdom: the Private Story of Apple Computer.

The deal that made Moritz’s reputation as one of the top venture capitalists in the business came in 1999. That year he pushed Sequoia to make a $25 million co-investment with Kleiner Perkins in a little search company called Google (GOOG). When Google went public five years later in 2004, Sequoia’s $12.5 million investment was worth just over $2 billion—160 times its original bet. Before then, Moritz had put himself on the map with investments in Yahoo (YHOO), eToys, and Flextronics (FLEX), among other successful Web startups. Since the Google deal, Moritz has maintained his slugging percentage, scoring another big win with his investment in PayPal, which eBay (EBAY) bought in 2002 for $1.5 billion.

Moritz typically shuns publicity. But in early February I met him at his office on Sand Hill Road, in the last office park on the lane that serves as home to the kingpins of venture capital. A secretary ushered me into a conference room, but when Moritz showed up he invited me to sit in his office.

Efficiency, Even While Eating
Moritz wore the standard business casual uniform of the Valley: striped dress shirt and slacks, with a sport coat hanging on the wall. He has a small and simple office, with a desk and a table with a few chairs, and a window overlooking the woods. An old and weathered notebook case rested on the table. On his desk sat an Apple (AAPL) iMac computer, an Apple laptop, and a BlackBerry (RIMM), all plugged into the wall. Having visited China seven times last year, Moritz needs to recharge his batteries when he returns to the Valley.

When reporters interview people over lunch, they often can’t find enough time to eat. But Moritz was extremely efficient, downing a fruit plate and Cobb salad, even while picking out the eggs and bacon to set them to the side of the plate. As we discussed the history of Sequoia Capital, the state of Silicon Valley, and the future of investing, Moritz would stab a fork into a group of berries, stick them into his mouth, and gaze off into the distance, before offering up some quip or bit of insight.

Moritz’s presence belies his firm’s reputation for toughness. While Sequoia has made many bold bets over its 36-year history, it has also gained a reputation in some quarters for walking away from portfolio companies that fail to perform. As one head of an investment firm that invests in venture firms put it: “They take the portfolio out back and shoot it. They stop funding companies quickly if they are not working.” Moritz calls the criticism “unfounded” and says there are several instances when Sequoia and its startups “soldiered forward together when times were very bleak.”

Pivotal PowerPoint Presentation
Sequoia’s hard-nosed nature was accidentally put on display last year when Moritz’s firm put together a PowerPoint presentation detailing the coming economic downturn in stark terms. The 56-slide presentation advised companies to cut costs and become cash-flow-positive more quickly in order to avoid falling into a death spiral. Although the presentation leaked out on the Web, Moritz swears the leak was not intentional. “A couple of the CEOs asked us to send them the presentation to help them convince their management teams that this was the deal,” says Moritz. “It was not a cynical attempt to spread the Sequoia name.”

Even though Sequoia was early to ring the alarm bells about the weakening economy, Moritz says he remains optimistic. He is particularly excited about two recent investments he led. One was in digital camcorder maker Pure Digital Technologies, which he claims is the world’s leading maker of digital camcorders, having shipped 1.5 million units last year. He is also bullish about another investment in Green Dot, which he says is a leader in prepaid credit cards. And contrary to word on the street, Moritz says Sequoia still invests in young seed-stage companies from time to time.

The day I met him, in fact, he said he was talking to a 20-year-old about investing $500,000 in an embryonic idea. (He wouldn’t discuss the venture in detail.) “It’s as easy for me to be excited today by the unknown 23-year-olds as I was in the past,” he says. “Those sorts of encounters lift your spirits in imagining what is possible.”

Here’s an edited version of my interview with Moritz:

Can great companies be built in bad times?
Some of that is true. In bitter and cold times only the brave are going to venture out into the cold and the lily-livered posers are going to stay tucked into their bed clothes. It makes life easier for us. The people we are meeting are the genuine article as opposed to the pretenders. The only people who venture out are on a mission, which is what you need.

Click here to read the rest of the interview.

Startups in a Downturn

Today, BusinessWeek published my feature story, “Startups in a Downturn.”

It’s about the idea that great companies can be built during bad times–an idea I’ve been talking about a lot lately on my book tour. It seems to have struck a bit of a nerve. It was the most emailed story on the site and the third most read story. This historical oddity occurred to me during the research for my book when I realized that American Research and Development invested $70,000 in the 1957 recession in Digital Equipment Corp., which turned out to be its best investment ever.

Here’s the top of the story:
Startups in a Downturn
Entrepreneurs who helped build their startups into tech stalwarts—companies like Cisco, Oracle, and Google—share lessons on how to thrive during tough times

December 1987 was no time to be raising money for a startup. Computer engineer Len Bosack was trying to attract funding for a young enterprise called Cisco Systems (CSCO). But the stock market had just crashed and the Dow Jones industrial average had plummeted 40% since October. Gun-shy venture capitalists either didn’t get the newfangled technology or deemed it too risky.

Making matters worse, Bosack was running low on the savings he had used to bootstrap the business, and competition was gaining steam. It wasn’t until this 75th meeting that he found a receptive audience. The willing financier was Donald Valentine of Sequoia Capital, a venture capital firm in Silicon Valley. On Dec. 14, two months after Black Monday, Sequoia invested $2.5 million in Cisco. “Valentine’s reasoning was pretty simple,” recalls Bosack, now CEO of telecom gear-maker XKL. “It doesn’t matter what they are. They are selling stuff in a bad market. With a little bit of capital and more experienced help they should be able to do better.”

Better is just what Cisco did. By the time of its initial share sale three years later, in February 1990—during a recession—the maker of telecom networking equipment was worth $224 million. Within a decade, Cisco Systems had become one of the world’s most valuable companies.

GREATNESS CAN EMERGE FROM A SLUMP
Today, some of America’s sharpest financiers and entrepreneurs say Cisco’s story holds a profound lesson easily forgotten amid financial turmoil: Great companies can be built during tough times. “For us, Cisco is always the company we think of when we think about bad times,” says Michael Moritz, a general partner with Sequoia Capital who was a young associate when the firm made its investment.

Cisco is just one example. In the history of technology, many other great companies either were founded during downturns or forged business models during bad times. In 1939, at the tail end of the Great Depression, two engineers started Hewlett-Packard (HPQ) in a garage in northern California. During the recession of 1957, Digital Equipment, the first computer company to challenge IBM (IBM), set up shop in a Civil War-era wool mill, sparking a high-tech boom in Massachusetts. “It makes sense to do research and development counter-cyclically,” says Tom Nicholas, associate professor in the Entrepreneurial Management Group of Harvard Business School. “Recessions can be really useful strategic opportunities.”

Click here to read the rest of the piece.

Signs of a Downturn in Silicon Valley: Traffic and Andy Warhol

Hey folks. Apologies for not posting over the last few days. I’ve been in Northern California since Monday, shuttling back and forth between San Francisco and Silicon Valley. I know the blog beast is hungry and must be fed.

A few quick observations and thoughts:

1. The recession is definitely having an impact on the Valley. I know this because I took a reading of one of my most reliable indicators of the area’s economic health: traffic patterns on Route 101.

Yesterday, I left Palo Alto at 5pm to head back to SF. I was dreading the ride home because typically, during this rush hour time, with numerous bottlenecks slowing traffic down to a crawl, it takes about 75 to 90 minutes to reach the city. But miraculously I cruised up the highway and made it to SF in just under an hour. Clearly, economic activity has dropped. And faster commutes is one of the silver linings.

2. Culture thrives during a downturn. Last night, I attended a film screening and music performance at the San Francisco Palace of Fine Arts called “13 Most Beautiful . . . Songs for Andy Warhol’s Screen Tests.” The program featured 13 screen tests from Andy Warhol of various groupies and a few celebrities, including Dennis Hopper, Lou Reed and Nico.

Dean Wareham and Britta Phillips, formerly of Luna and currently with Dean & Britta, performed music they composed for a selection of Warhol’s four-minute, silent film portraits.

The concert/performance sold out on a Tuesday night. I didn’t have a ticket but got one after they released a few tix before show time. One fun factoid: The image above is of Mary Woronov, a Factory girl who ended playing the principal in the cult classic movie Rock ‘N Roll High School!

It was a pretty cool performance. The music was great and provided a creative counterpoint to the film images appearing behind the musicians. I think the films show Warhol’s talent for making celebrities out of ordinary things and people. i.e. a Campbell’s soup can.

FYI: I am also gearing up for my big Stanford talk today. Hope to see you tonight!

Has Silicon Valley Lost its Mojo?

My colleague Steve Hamm just wrote a provocative cover story in this week’s issue of BusinessWeek called: “What’s Wrong with Silicon Valley?

I don’t agree with Steve that Silicon Valley has lost its mojo. If you look at the history of the Valley (which I did extensively in my book), it has always generated game-changing innovations. Every ten years or so, for the last 40 years, the Valley has cranked out a world-changing innovation (Video games and biotech in the 70s, the PC revolution in the early 1980s, and the Internet in the mid to late 90s). And quite often, those innovations are impossible or very hard to see until they are unleashed on the world.

Think Netscape. Hardly anyone knew what the Internet was until the Web brower was created. And then boom! The Internet revolution was launched during the summer of 1994.

Given the large amount of capital and smart people continuing to work on technology issues, and America’s world-class universities, I think this historical trend will continue. Even in a flat world, the Valley continues to hold a regional advantage.

Looking ahead, investments in green technology hold the most promise to change our world for the better and create enormous wealth. But there are a lot of other powerful technologies being developed.

Despite our differences, I do think Steve did a great job at pointing out several very important areas of concern–problems that could fester into more serious issues if they don’t receive the proper attention. And I couldn’t agree more with his call for entrepreneurs and financiers to think more boldly.

Among the areas of concern are, says Steve:

“Federal funding of advanced computer science and electrical engineering research has dropped off sharply since the late 1990s, as has the number of Americans pursuing computer science degrees. And large technology companies are putting less emphasis on basic research in favor of development work with quicker payoffs. “We’re off-balance. Everybody is thinking short-term,” warns Judy Estrin, former chief technology officer at networking giant Cisco Systems (CSCO). She just came out with a book, Closing the Innovation Gap, that’s a call to arms for the U.S. technology sector.”

What do you think? Has the Valley lost its mojo?

OMG: New York Times Reviews Creative Capital

As a writer, there are certain things you dream about but don’t think will ever happen. One of those long-held fantasies just became a reality today.

The New York Times reviewed my book.

The review, titled “Venture Capital, Before High Tech,” is on page 6 of the Business section, and includes a nice color photo of Creative Capital.

Reviewer Stephen Kotkin called it “a sometimes slow but ultimately satisfying biography of Georges F. Doriot, the transplanted Frenchman who is often called the father of V.C.”

He continues: “Silicon Valley was decades in the future when, as Mr. Ante writes, “Doriot learned how to become a venture capitalist” during World War II. Mr. Ante, an editor at BusinessWeek, explores the Army-business connections, a remarkable trans-Atlantic extended family of colleagues, the rise of high technology and a love story.” Later in the 1020-word review, Kotkin writes that “as the book advances it gathers poignancy.” Yes!

I still can’t believe it even though my publicist at Harvard Business Press gave me the head’s up on Thursday that it was slated to be reviewed in the Sunday paper. I was ecstatic that the book had already received positive reviews in numerous other prestigious publications, such as the Financial Times, Forbes and the Wall Street Journal. But the Times review still carries a special cachet–signaling that the book has crossed over to a truly broad and mainstream audience.

That is all I could ask for. When I set out to do this project, I wanted to restore and revive Doriot’s reputation as one of the 20th century’s most visionary and important characters. With all the attention the book is receiving, I feel as if I have accomplished this goal and it’s very gratifying.

So thanks to everyone–friends, family, colleagues, strangers–who helped me get the word out. All that hard work is paying off in spades!

BusinessWeek Online Publishes Web Video Interview About Me & Creative Capital

Hey folks, some more good news on the book front. My marketing juggernaut continues to chug along. Today, BusinessWeek Online published a video interview of me talking about my book and Georges Doriot. My colleague Catherine Holahan conducted the interview. Thanks BW!

In the interview, I talk about what inspired me to write the book, how World War II spurred the creation of venture capital, how Boston gave birth to the VC movement, the special relationship between Georges Doriot and DEC co-founder Ken Olsen, and the future of the VC industry. Hope you enjoy it.

Fred Wilson Blogs About Creative Capital

Fred Wilson, the co-founder of the New York venture capital firm Union Square Ventures (and an all-around nice and really smart guy), was kind enough to blog about my book this morning on his popular blog, A VC.

Fred, I know you have not received your book yet. But when you do I would be honored to sign it any time you want!

Says Fred:

“Who is the father of modern venture capital? Surely someone from Silicon Valley in the late 60s and early 70s, right? Wrong.

The father of modern venture capital is General Georges Doriot who helped to form and run American Research and Development, the first modern venture capital firm in Boston right after World War II. Doriot also taught at Harvard Business School and was a mentor and teacher to the first generation of Boston VCs who operated in the 60s and 70s.

With all the focus on the bay area and its history as the center of innovation in information technology, Doriot’s contributions are often overlooked. But now we have a new book and a blog, courtesy of Spencer Ante of Business Week.

Ante’s Creative Capital is about Doriot and the start of the venture capital business here in America post world war II. I haven’t read it yet, but I just ordered it on Amazon. Here’s a short excerpt from the Harvard Business School blog. I suspect the readers of this blog are the perfect audience for this book so you should all go check it out.”