Regional Oral History Office University of California the Bancroft Library Berkeley, California

Regional Oral History Office University of California The Bancroft Library Berkeley, California

William R. Hambrecht

EARLY BAY AREA VENTURE CAPITALISTS: SHAPING THE ECONOMIC AND BUSINESS LANDSCAPE

Interviews conducted by Sally Smith Hughes in 2010

Since 1954 the Regional Oral History Office has been interviewing leading participants in or well-placed witnesses to major events in the development of Northern California, the West, and the nation. Oral History is a method of collecting historical information through tape-recorded interviews between a narrator with firsthand knowledge of historically significant events and a well-informed interviewer, with the goal of preserving substantive additions to the historical record. The tape recording is transcribed, lightly edited for continuity and clarity, and reviewed by the interviewee. The corrected manuscript is bound with photographs and illustrative materials and placed in The Bancroft Library at the University of California, Berkeley, and in other research collections for scholarly use. Because it is primary material, oral history is not intended to present the final, verified, or complete narrative of events. It is a spoken account, offered by the interviewee in response to questioning, and as such it is reflective, partisan, deeply involved, and irreplaceable.

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All uses of this manuscript are covered by a legal agreement between The Regents of the University of California and William R. Hambrecht dated January 10, 2011. The manuscript is thereby made available for research purposes. All literary rights in the manuscript, including the right to publish, are reserved to The Bancroft Library of the University of California, Berkeley. Excerpts up to 1000 words from this interview may be quoted for publication without seeking permission as long as the use is non-commercial and properly cited.

Requests for permission to quote for publication should be addressed to The Bancroft Library, Head of Public Services, Mail Code 6000, University of California, Berkeley, 94720-6000, and should follow instructions available online at http://bancroft.berkeley.edu/ROHO/collections/cite.html

It is recommended that this oral history be cited as follows:

William R. Hambrecht, “Early Bay Area Venture Capitalists: Shaping the Economic and Business Landscape ,” conducted by Sally Smith Hughes in 2010, Regional Oral History Office, The Bancroft Library, University of California, Berkeley, 2011.

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William Hambrecht, August 2010 Photo courtesy WR Hambrecht & Co. iv

Project Overview

Early Bay Area Venture Capitalists: Shaping the Business and Industrial Landscape documents through videotaped interview with the first generation of venture capitalists the origins and evolution of venture capital in California. The project explores and explains through the words of participants how venture capital in the state originated in the 1960s and 1970s, its intersection with national legislation and policy, the significance of its location, and its role in creating new companies, new technologies, and new individual and institutional wealth.

The Project

Venture capital was not a term when these narrators began to practice “risk investment” in the late 1960s and early 1970s. The oral histories describe the evolution of the field into the industry of today, focusing on its earliest emergence in Northern California. The narrators describe their circuitous routes into venture capital, their individual approaches to its practice, illustrative investments in key companies, the significance of its location in the Golden State, and its contributions to creating, financing, and building new companies, nationally and, increasingly, internationally.

Conceived and generously funded by Paul “Pete” Bancroft III, the project in its second year has interviewed twelve individuals. In the third and final year, the project scope expands to include interviews with representative investment bankers, attorneys, and early venture-backed entrepreneurs, as well as with additional venture capitalists. Completed oral histories, including those donated by related projects, are available at: http://bancroft.berkeley.edu/ROHO/projects/vc/

An advisory board meets periodically to select individuals for interviews and advise on general direction.

Members: Paul Bancroft III, William Bowes Jr., William Draper III, Jerome Engel, Charles Faulhaber, Franklin Pitcher Johnson, and Alan Mendelson.

Project Director and Interviewer: Sally Smith Hughes

Videographers: Julie Allen, Caroline Crawford, and Linda Norton

Transcriber: Katherine Zvanovec v

William R. Hambrecht

Bill Hambrecht, 74, is Chairman and CEO of WR Hambrecht + Co, a disruptive investment firm headquartered in San Francisco that he founded in January 1998. Bill resigned as Chairman of Hambrecht & Quist in December 1997, the investment banking firm he co-founded with the late George Quist in 1968.

Using impartial internet-based auctions that allow the market to determine pricing and allocation, WR Hambrecht + Co is dramatically changing the financial services landscape. With the intent of leveling the playing field for investors in initial public offerings, the firm’s earliest and best- known innovation is OpenIPO®. OpenIPO allows all investors, individuals and institutions, to bid online for shares of an IPO. All investors end up paying the same price; a price determined by the auction. OpenBookSM, an auction for corporate debt offerings, is the second proprietary auction WR Hambrecht + Co has developed. OpenBook is the only system that offers all institutional investors real-time price discovery and open access to all offerings. OpenFollowOnSM is an Internet-based platform for auctioning follow-on offerings to both individual and institutional investors. OpenFollowOn creates a transparent new issue market and offers all bidders equal access. The firm will continue to develop auction products for other capital markets.

Besides San Francisco, WR Hambrecht + Co has offices in New York and Philadelphia.

Excluding a tour of duty in the military, Bill has been in the investment banking and brokerage business since graduating from Princeton University in 1957. He began his business career in underwriting and sales with Securities Associates, Inc., a securities firm in Winter Park, Florida. In 1961 Securities Associates was acquired by AC Allyn & Co., which eventually became a part of F.I. du Pont & Co. In 1965, Bill managed the San Francisco office for F. I. du Pont, becoming Vice President and Manager of its West Coast Corporate Finance operation in 1967. It was through his corporate finance activities that he met George Quist who was the Head of Small Business Lending at Bank of America. Both men perceived a demand for a strong regional investment bank based in San Francisco that could offer a high level of service to the small, rapidly growing companies in nearby Silicon Valley. During the seventies, the firm built up a unique brokerage and research capability focused on high technology companies that typically traded in the OTC market and were often ignored by the larger brokerage firms. This strategy paid off in the early 1980s when skyrocketing prices from high-tech stocks gave H&Q national prominence as an investment banker and “bulge bracket” underwriter of emerging growth stocks.

In the early 1970s Bill became directly involved in the then fledgling venture capital business as a result of H&Q’s investment banking expertise and network of clients. This was an obvious extension of its existing business, since many investment banking clients required both capital and strategic assistance prior to becoming publicly listed. Bill developed this side of H&Q’s business personally, ultimately overseeing the management of over $1 billion invested in close to 700 companies. A few of the companies in the H&Q portfolio, past and present, include Adobe Systems, Advanced Fiber Communications, Apollo Computer, Convergent Technologies, Evans vi

& Sutherland, Genentech, People Express Airlines, Read-Rite, Sybase, VLSI Technologies and Xilinx. Bill continues to invest in venture capital and small-cap companies.

Bill currently serves as a Director for Motorola Inc., AOL Inc. and is on the Board of Trustees for The American University of Beirut. He also serves on the Advisory Council to The J. David Gladstone Institutes. Bill founded the United Football League, a new professional football league that is in its second year.

Bill is also in the wine business. In addition to owning several hundred acres of vineyards in Sonoma County, Hambrecht Wine Group owns C Donatiello Winery in Healdsburg, CA.

Bill and his wife, Sally, have been married for almost 50 years. They have five children and nine grandchildren.

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Table of Contents—William R. Hambrecht

Interview 1: June 8, 2010

[Audiofile 1] 1

Family roots in Brooklyn and south shore of Long Island—middle class upbringing, interest in athletics, father worked for Standard Oil Company of New York—attending Princeton on a football scholarship, graduation in 1957—family orientation toward business: “I grew up assuming I’d have to work for a living”— six months in the army, decision to go to business school at Wharton—three years in Cape Canaveral, Florida, exposure to early high tech and missile development—move to Chicago, then return to New York, completing some business school coursework at University of Chicago—early computers, Charlie West, understanding the technology, importance of mentors—1965 job offer in San Francisco with du Pont—investment with Farinon Electric, contact with Fairchild group—meeting accountant/businessman George Quist, Quist’s San Francisco connections—Quist and Hambrecht bring complementary talents: business and high tech savvy—sparse early Silicon Valley business climate, limited to H-P and Sylvania—1967-1969 early venture capital: Hambrecht & Quist; Draper, Gaither & Anderson; Intel; Arthur Rock—difficulty in interesting investors in small and high tech companies—advantages of integrating venture capital and investment banking: greater familiarity with companies and benefits to shareholders—learning IPOs: “the trick in being an IPO underwriter is the judgment call of who do you take public”—hiring engineers to vet promising technology lends tech advantage until 1980—co-managing Apple and Genentech with Morgan Stanley and Paine Webber—memories of the road trip with Bob Swanson and Herb Boyer—agonizing over Genentech IPO stock price— investment by Robert Firmenich and Firmenich and Company—epiphany: “If we were willing to put up our own money, well, then be willing to sell it to the public.”—H&Q rapid expansion after Genentech and Apple IPOs in late 1980, quality screening oversights—mid 1980s software investment, working with Dave Evans of Adobe, investing in Sybase, Mercury, AOL, Netscape—emerging competitors: Sandy Robertson, Montgomery Securities, Alex Brown & Sons, Unterberg—relationship with Dick Fisher of Morgan Stanley, changing East Coast finance and investment culture—creating markets and underwriting— changing H&Q composition, hiring analysts with financial orientation—growing, losing “startup culture”—relations with venture firms in 1970s—market changes: high-tech companies needing to raise less money to go public than in pre-Internet days—growth of angel culture—keeping the balance between work and life during the H&Q years.

[Audiofile 2] 24

Merrill Lynch offer to buy Hambrecht & Quist in 1987, Hambrecht steps down as co-CEO with Dan Case, becomes chairman—Hambrecht leaves H&Q in 1998, company is bought by Chase in 1999—resisting the trend to be big—Clayton M. viii

Christiensen—disruptive innovation—the unique economics of IPOs: “like a graduation or a wedding”—building W.R. Hambrecht, contrasting W.R. Hambrecht with Hambrecht & Quist—selling H&Q, Dutch or descending price auction, working with SEC—traditional IPO as insider’s game—the Google IPO puts W.R. Hambrecht on the map—Morningstar IPO—bringing daughter in as co- CEO, importance of partnerships—thoughts on Bay Area’s pro-tech climate: exceptional education institutions; infrastructure of lawyers, etc; tolerance for startups; credit to Fairchild; government and legislative encouragement—worries about declining educational quality—philanthropy: Summer Search, SF Friends School.

Interview #1: June 8, 2010 Begin Audio File Hambrecht 1 06-08-2010.mp3

01-00:00:01 Hughes: All right. It’s June 8, 2010, and we’re in the office of W.R. Hambrecht on Pier One in San Francisco. I’m talking with W.R. Hambrecht, William Hambrecht. Let’s start with your family of origin and your early education and how you eventually got into what you’re doing now.

01-00:00:42 Hambrecht: Okay. Well, I was brought up on the South Shore of Long Island. My family was from Brooklyn and the South Shore of Long Island. My dad Henry W. Hambrecht was with Mobil Oil Company. Socony [Standard Oil Company of New York], I guess it was called at that time. And I grew up in a typical middle-class town and environment, became very interested in athletics as a kid, and ended up going to Princeton, effectively on a football scholarship. I graduated from Princeton in 1957.

01-00:01:25 Hughes: In history, I notice.

01-00:01:26 Hambrecht: History major, that’s correct. Went into the army for six months on an ROTC program and went back to New York and got a job on Wall Street as a part- time thing before I went off to business school.

01-00:01:44 Hughes: Why were you oriented towards business school?

01-00:01:55 Hambrecht: My dad and my uncles, everybody was in some form of business, and I grew up assuming I’d have to work for a living. [chuckling] There were a fair number of people who worked on Wall Street that lived in this Brooklyn/South Shore of Long Island kind of thing. So I was exposed to it as a kid. I always thought it was kind of intriguing. I never quite understood what made a market work, but it was interesting to try and figure it out—and decided that I would try and go to business school. I was supposed to go off to Wharton in the fall, and I’d gotten very interested in the marketplace.

A close friend of mine, Dennis Delafield from college, who had also been in the army with me down at [Fort] Benning, had gone down to Florida to join an investment firm that his uncle had started years ago. And he kept in touch with me and said, “Hey, why don’t you come on down and take a look at this, and let’s do it together.” So I decided, rather than go back to business school, I would go down to Florida and join Dennis in his small firm. It was in central Florida, and I was, in effect, assigned the east coast of central Florida, which was Cape Canaveral, which was the start of the technology world. So I spent three years down there, helped finance three or four of the early digital technology companies that had sprung up around Cape Canaveral.

01-00:03:48 Hughes: Could you call this venture capital that you were doing?

01-00:03:52 Hambrecht: No. Well, yes and no. There were a couple of private placements. It was also taking some of these smaller companies public, doing some IPO work. So it was a combination of private and public. And then our firm was acquired by a Chicago firm, and they moved me back to Chicago. Then that firm was acquired by a New York firm, the F.I. du Pont Company, and so I ended up in New York. During that time I had built a portfolio of investments in some of these digital companies, for the firms I was with. Then one of them, Modular Computer, worked out very well—no, it wasn’t Module—Systems Engineering Labs was the first one. And I developed a reputation, in theory, of understanding the early computer business. I would be the first to admit I still don’t understand the science, but I did make some wonderful friendships and contacts in Florida with some of the early scientific people that had developed the whole missile program.

01-00:05:05 Hughes: So this was your graduate education in technology and in finance, was it not?

01-00:05:14 Hambrecht: Well, that’s true, although when I was in Chicago I did go to the University of Chicago business school at night.

01-00:05:17 Hughes: Oh, you did.

01-00:05:18 Hambrecht: I didn’t finish because I got merged out of Chicago, but I did get some financial training there which was very good.

01-00:05:25 Hughes: A history major, I would think, would not be the immediate background for what you were doing.

01-00:05:44 Hambrecht: No, no. But the whole scientific development around the missile program I thought was fascinating. I met some really interesting people. Several of them became real mentors, almost through my whole life, and I was just very fortunate to be exposed to that kind of program and those kind of people.

01-00:06:08 Hughes: Were they looking upon you as something unusual as well in what you were trying to do? Or was this rather an established way of financing at that time?

01-00:06:22 Hambrecht: Well, you see, everything was so new. And it was very clear that Wall Street didn’t understand, really, what was happening. Nor did they particularly want to, because it was very small. These companies were half a dozen people

getting together. Wall Street, particularly in the fifties, was quite conservative. The premium was always on the very large, established companies. There were very few early-stage investors. Rockefeller was probably the first and the best, but there really weren’t many. So it was probably inadvertent, but yes, I was there really to learn what the technology people were doing and then see if I could relate it to Wall Street and find them some money. I was basically a fundraiser, which I’ve been all my life! [laughter]

01-00:07:25 Hughes: Was the technology the original hook? What got you captivated?

01-00:07:33 Hambrecht: Well, yes. The first computers were built down there to track the missiles, and there was a little company called Soroban Engineering that was started by Charlie [Charles F.] West. Charlie had actually been at Berkeley as a student and then at MIT, and he was one of the five or six scientists the government selected and sent down to Florida to try and develop the missile program.

01-00:08:02 Hughes: And this is late fifties?

01-00:08:05 Hambrecht: Yes.

01-00:08:08 Hughes: That seems really early to me.

01-00:08:08 Hambrecht: And early sixties. Oh yes, it was very early. The first computer I ever saw had all the vacuum tubes, and it used to run for about a minute, and then it would crash. [laughter]

01-00:08:19 Hughes: Did it fill a room?

01-00:08:21 Hambrecht: Oh yes! It was huge. And I remember Charlie’s role was to develop the peripherals that would feed in and out of the computer. So he developed the first paper tape punch and that type of thing.

01-00:08:34 Hughes: You didn’t have any specific technical background.

01-00:08:40 Hambrecht: No.

01-00:08:40 Hughes: But you could get enough of it to do what you needed to do? Because I would think at some level you had to assess the technology, at least at a superficial level.

01-00:08:55 Hambrecht: You know, I’ve often tried to think—okay, did I really understand it or didn’t I? And I think somehow or other, intuitively, it all sort of made sense to me. It was very logical that if you could do things in this kind of sequence, you would be doing them faster and better, and it would lead to something productive. I never quite understood the physics, although it was explained to me a lot. But I was fortunate in being able to see concrete examples, and if I hadn’t seen those I’m sure I wouldn’t have gotten excited about it. But yes, I ultimately saw how you could move data. You could collect it; you could analyze it; you could make things better with it. So yes, I think I probably understood the application of it reasonably well because I had some very good teachers. I had really good mentors.

01-00:09:58 Hughes: Well, that’s what was going through my mind. You were impressed also with the people.

01-00:10:01 Hambrecht: Oh absolutely. Yes.

01-00:10:03 Hughes: Does that become a theme?

01-00:10:06 Hambrecht: Oh sure. The most of the early pioneers in technology were for the most part out of the academic environment initially. They were very focused. Of course, they were very bright, but also very charismatic in their way. It was hard not to get excited about it.

01-00:10:34 Hughes: I can imagine just from the way you’re describing it. Okay. So then the firm’s bought up, and you’re essentially out of a job.

01-00:10:44 Hambrecht: I was in New York, and I was there to help integrate the firms. Once that was over, yes, they offered me the San Francisco office of du Pont, on the idea that Silicon Valley was starting—that I could go out and help develop the banking business on the Peninsula.

01-00:11:09 Hughes: Had the office already been established?

01-00:11:13 Hambrecht: Oh yes. They’d been here a long time.

01-00:11:15 Hughes: So were they early on in recognizing the potential of Silicon Valley, which wasn’t even called Silicon Valley at that point?

01-00:11:22 Hambrecht: To be honest, no. I think it was more just trying to find an excuse to get me out of New York! [laughter] Find a place for me. And du Pont, at that time was the third largest brokerage firm in the country, and the Allyn family, who had been the first acquirers, they were the ones that were willing to invest in venture stuff. But the du Ponts were never really—

01-00:11:51 Hughes: So this is the du Ponts of the du Pont de Nemours?

01-00:11:59 Hambrecht: Yes, in theory it was too bad, because they were one of the first of the venture capitalists. They put up the money to start General Motors. But they were much more conservative in their investment stance when I got there. And of course, they were very much focused on chemicals and heavy industry and were not oriented towards the technology.

01-00:12:20 Hughes: So when did you arrive on the West Coast?

01-00:12:24 Hambrecht: In 1965.

01-00:12:25 Hughes: And what did you find?

01-00:12:28 Hambrecht: Well, first we had a brokerage office out here that I had to sort through, which I did. But then, oh, I just quickly gravitated down towards the Peninsula. The first company I remember calling on was Farinon Electric, Bill [William B.] Farinon. He had been actually a roommate of John Allyn in college back East, and so I followed up on that. He had a small telephone equipment supplier company. We ultimately made an investment there, and I got to know some of the people who were in the telephone equipment business, and then that drew me towards the original Fairchild [Semiconductor] group where people like Bob [Robert N.] Noyce and the rest of them broke out.

01-00:13:27 Hughes: And you invested there as well?

01-00:13:30 Hambrecht: We had a small investment in Intel, yes. Unfortunately, we didn’t have much money, so it wasn’t a big one. It was small.

01-00:13:39 Hughes: But you’re doing venture capital, aren’t you?

01-00:13:40 Hambrecht: Well, when I got to San Francisco, after I started digging around and seeing what was out here, I ran into George Quist. George had been one of the early entrepreneurs out here in San Francisco. He had started a company—or I

guess he had been put into a company called Mandrel Industries, which was a electronic sorting-machine company that had merged into Ampex. He got to know Henry McMicking, who was, I think, the largest shareholder of Ampex at that point. So anyway, when this company was sold to Ampex, George didn’t have anything to do, so he joined the Bank of America, and they started a Small Business Investment Company, and he started investing with the bank’s SBIC. I got together with him, and we kind of saw eye to eye on how to do it, and we went out and did a few things together.

01-00:14:41 Hughes: And he had been here longer, right?

01-00:14:45 Hambrecht: Oh right. He was a native.

01-00:14:48 Hughes: So he had some connections that maybe you didn’t?

01-00:14:49 Hambrecht: He had all the connections in San Francisco, yes.

01-00:14:52 Hughes: Did he have a different way of looking at investment? Or were you pretty much in sync?

01-00:14:56 Hambrecht: No, he was actually an accountant by training.

01-00:15:00 Hughes: Was he!

01-00:15:01 Hambrecht: Yes, and was a very sound business guy, just understood balance sheets very well. It was a really good grounding. Never was really, terribly comfortable with some of the technology, because so much of the assets in technology are not financial.

01-00:15:22 Hughes: Yes, and were you feeling comfortable, or more comfortable anyway, with the technology?

01-00:15:29 Hambrecht: Well, yes, I had realized at least in the seven years or so before in some of the investments I made that your intellectual assets were really the real assets, and they don’t get carried on a balance sheet, or at least weren’t at that point. So I think we made a good mix. He grounded me pretty much financially, and I think I drove him more towards the technology. But it was a good mix.

01-00:16:01 Hughes: What was happening in the Valley at that point?

01-00:16:07 Hambrecht: Very little. The major technology centers were Hewlett-Packard, of course, Sylvania—they were some of the big government contractors. Very few small companies.

01-00:16:19 Hughes: And no venture capital partnerships yet, are there?

01-00:16:24 Hambrecht: Not really. Well, I don’t know when exactly Sutter Hill started.

01-00:16:31 Hughes: That was a little bit later. Draper, Gaither & Anderson is ’68-’69, something like that. There were people doing what we now call venture capital, but in a very personal way.

01-00:16:46 Hambrecht: Well, for example, when we started Hambrecht & Quist at the end of 1967, we went to Henry McMicking, who was probably the most well-known venture guy because of Ampex; Prentis [C.] Hale who had invested aggressively in a lot of this; John Bryan, who had been with Blyth and then started a specialty of investing in some of these companies; Bill Edwards—so they were just starting. Arthur Rock had just come out. Intel was started in, I believe it was, May of 1968. That was the exact month that Hambrecht & Quist got started. I really always thought that that was what really started it, when they broke out of Fairchild and set up Intel. That put in motion a kind of a pattern that went way beyond our wildest dreams.

01-00:17:45 Hughes: Right, that other people began to mimic. They opened the door to possibilities.

01-00:17:50 Hambrecht: Right, right. So it was really the late sixties. Arthur Rock had been involved in one of the smaller computer companies, too, SDS [Scientific Data Systems], I think it was, before Intel. But he was the one who, I think, raised the most money for Intel. He was out of New York, I think, at that time, and then he just came out to the West Coast.

01-00:18:18 Hughes: So what are the ingredients here? There’s technology burgeoning, but you’re also showing that big money can be made. Or is it big yet?

01-00:18:33 Hambrecht: It wasn’t big, and that’s why I left to start Hambrecht & Quist with George, because I could never get anybody in New York interested in small offerings. The first offering we did at Hambrecht & Quist was Spectra-Physics.

01-00:18:49 Hughes: Oh really!

01-00:18:51 Hambrecht: Yes, they were the leading laser company. It was a $600,000 offering. And no one wanted to bother. No one wanted to bother.

01-00:18:58 Hughes: Too small.

01-00:19:01 Hambrecht: It was just too small. And the Intels of the world didn’t have the physical assets that would attract a conventional investor. Virtually, it was very difficult to get anybody interested in those kind of things.

01-00:19:15 Hughes: Why did you think you could do it?

01-00:19:18 Hambrecht: Well, when we started Hambrecht & Quist, we really felt that we had to bring something else to the party to get accepted into the group, so to speak. And because I’d had experience in public offerings, we went out to the venture capital guys and said, “Look, we have a venture capital fund here; we’re going to invest some money. When we get to know these companies we’ll be able to bring them public for you.”

01-00:19:49 Hughes: I see. And they didn’t know how to do that?

01-00:19:51 Hambrecht: They didn’t know how to do that, and the big firms didn’t want to do it. And there was really only one firm in New York, [C.E.] Unterberg, Towbin that used to do that back there. And we said, “Hey, we’ll do it for you here.” And nobody ever asked me, “Well, why do you think you could do it?” We just said we could! [laughter] And we went out and we found out by doing some of these—yes, there was a market for it. So that was really how we developed the business. It was more to be included in the venture capital community than any other reason.

01-00:20:24 Hughes: Hambrecht & Quist was both a venture capital firm and an investment banking firm.

01-00:20:47 Hambrecht: It was, yes.

01-00:20:48 Hughes: Are you looking at those two aspects as very synergistic? Because at one level I see those two things as possibly in conflict.

01-00:21:08 Hambrecht: Well, actually, when we started, we did integrate both venture capital and investment banking.

01-00:21:13 Hughes: From the start.

01-00:21:14 Hambrecht: From the start. For example, in Spectra-Physics, which we brought public, we had actually made an investment in the company the year before. And yes, there were a lot of people that thought that might be a conflict of interest. Our theory was that, number one, if you lived with a company before you took them public, your odds of having good companies to take public improved, because you’d live with them for a while, you knew what you were dealing with, and you got a feel for their technology and how good they were. Secondly, small companies were not very attractive financings from an economical point of view. But if we were a shareholder, and we could benefit as a shareholder, we thought, okay, that would be a good business model. And as it turned out, if you go back for the thirty years H&Q was in the business, about 40 percent of the profits came from the venture and 60 percent from investment banking. And the great companies that we underwrote, Genentech, Apple, Netscape—all of those—we were shareholders when they were private.

01-00:22:24 Hughes: Was that a criterion for your participation?

01-00:22:31 Hambrecht: We started out that way, but we didn’t have enough money to do it all the time. And then the underwriting business developed a business of its own, and we had investment bankers join the firm. So ultimately it became more of an independent business than it was in the beginning.

01-00:22:47 Hughes: Now, were you the first to do that? To combine those two entities?

01-00:22:51 Hambrecht: Pretty much so, yes. Steve [Steven N.] Machtinger ended up as counsel for Hambrecht & Quist for many, many years. Steve was a young lawyer with the SEC [Securities & Exchange] office in San Francisco, and he spent a year investigating us, trying to decide whether this was really a conflict of interest or not! [laughter] And he finally decided it wasn’t and then ultimately became our counsel.

01-00:23:23 Hughes: Which some people could have looked at as a conflict of interest right there!

01-00:23:26 Hambrecht: Well, maybe, but he was confident.

01-00:23:30 Hughes: Well, that’s interesting isn’t it? One thing was feeding another, wasn’t it?

01-00:23:33 Hambrecht: Yes.

01-00:23:34 Hughes: The money that you were making as a shareholder then fueled your venture capital?

01-00:23:40 Hambrecht: Well, it made a business model that was much more attractive, and we could attract capital, and we could build the firm, yes.

01-00:23:46 Hughes: You said you had experience in taking companies public, beginning in Florida, right? But I’m imagining that there was a steep learning curve when this really became a major part of your business. I only have a vague idea of the intricacies of taking a company public, but I know it’s no easy thing: figuring out what the SEC requires and then getting the company itself in line.

01-00:24:23 Hambrecht: Well, I never thought that there was very much to that, to be honest.

01-00:24:28 Hughes: Oh really?

01-00:24:28 Hambrecht: To me the trick in being an IPO underwriter is the judgment call of who do you take public.

01-00:24:37 Hughes: Okay, well, please talk about that.

01-00:24:38 Hambrecht: Both George and I were not technology based. We were both, in effect, financial. And so the first person we hired, I remember, was a physics major, John Chulick from [Admiral Hyman G.] Rickover’s submarine program. His job was to sort out the technology for us and try and identify what we thought were the most promising technologies, and then the most promising companies within those technologies. So that’s what we did very differently, I think, for the first twelve years we were in business. We basically had engineers instead of financial people. And it gave us a great advantage for quite a while until Wall Street caught on, and then they started hiring all their people from IBM. But it lasted, really, through the early eighties.

01-00:25:37 Hughes: And then what changed?

01-00:25:38 Hambrecht: Well, in 1980, up until then we had done smaller technology companies. We’d built a nice firm; we were making a nice living. But then we had made an investment in Apple Computer and in Genentech. And in 1980, in a ninety- day period, those two companies went public, and we were the co-manager of

both. In the case of Apple, it was the first time Morgan Stanley had ever co- managed with anybody.

01-00:26:11 Hughes: Really! Wasn’t there a lead underwriter in Genentech?

01-00:26:20 Hambrecht: It was Paine Webber.

01-00:26:22 Hughes: Paine Webber, that’s right.

01-00:26:23 Hambrecht: Paine Webber was the co-manager of Genentech. And we had owned shares in both companies. We were the co-manager. I remember Fortune magazine then wrote an article, and Fortune at that time was enormously influential, and I remember they titled it “The Folks Who Brought You Apple.” And that’s what changed us from kind of a local, little firm into all of a sudden we were raising money in Europe and life was beautiful. So—but that changed it very dramatically and propelled the investment banking business to the front of the firm rather than the venture.

01-00:27:03 Hughes: I know something about the Genentech IPO. I interviewed [Robert] Swanson, luckily while he was still well. And of course, as you probably remember, that was a precedent-setting IPO.

01-00:27:22 Hambrecht: Oh yes, yes.

01-00:27:23 Hughes: Did you go on the road trip?

01-00:27:25 Hambrecht: Yes. I was with Bob through the whole thing.

01-00:27:32 Hughes: Can you tell me some of your memories of how that went?

01-00:27:37 Hambrecht: Well, first of all, being an investor in Genentech as we were— I guess we went in it in 1976, so this was four years [later]. I remember George Quist kidding me when we first made the investment that Watson & Crick sounded like a vaudeville team. Nobody really understood what Herb [Herbert W.] Boyer and Bob were saying. But Bob had a way of making it very understandable.

01-00:28:11 Hughes: He was a good translator.

01-00:28:12 Hambrecht: He was a very good translator. And he would put it in terms that a non- technology person could understand what they were driving at. And so by the time we went public, I was pretty familiar with everything that Bob and Herb were doing, so I was pretty comfortable with it. The memories of it, though, that come back hard— Well, first of all, just some of the funny personal stuff. I’m trying to remember, somebody—was it Bob and Judy?—might almost made a honeymoon out of it.

01-00:28:45 Hughes: They did. The IPO was delayed. There had been an extension of the quiet period because the SEC was worried about some publicity. Bob apparently thought he had planned his wedding date so that the IPO would be completely over. [Hambrecht laughs] Uh-uh. [laughter] So he told a very funny story of Snow White and the Seven Dwarfs. Snow White was his wife and then he had all these dwarfs—

01-00:29:25 Hambrecht: Well, I was one of the seven dwarfs!

01-00:29:25 Hughes: --trailing around on their honeymoon!

01-00:29:27 Hambrecht: Well, I remember being one of the seven dwarfs, along with Tom Perkins. Tom and I were there. It was fun. I remember some really funny, wonderful evenings in Scotland and London. After the pricing, we went to New York, and Paine Webber was a very conservative, very good firm. I forget exactly how we arrived at the pricing. It was around $30 or $35. Was it $35?

01-00:30:02 Hughes: It ended up being $35. Initially shares were priced from $25 to $30, I think, and then they realized how great the demand was.

01-00:30:10 Hambrecht: Well, they did and they didn’t. They were scared to death of it, because I remember they were just agonizing over whether they could go up to $35, you know.

01-00:30:18 Hughes: Paine Webber was?

01-00:30:19 Hambrecht: Yes, yes. And so we had the long negotiation about gee, could we really do it at that price, and would it fall apart? And then it opened [on the stock exchange] at $85. I remembered thinking—hey, those guys don’t know anything more about the market than I do! [chuckling] They were just being conservative; they didn’t understand what was happening.

And to me what had happened with Genentech— When we first made the investment, we had a small venture capital fund funded primarily in Europe. One of the shareholders was the Firmenich Company, which was a very large, private Swiss company that made essence of perfume, a very high-end specialty chemical company. And Robert Firmenich, who was the chairman, took a liking to our fund, and he used to come to the meetings. He used to scare me to death, but he was really smart. I used to try and prepare because I knew he’d ask the questions. I went in, and I started explaining Genentech when we did it, and he said, “Hey, wait a second.” He just jumped on it and understood it so much better than I did, and immediately. They made an investment in it later and did very, very well.

01-00:31:40 Hughes: Did he have a background in biology?

01-00:31:42 Hambrecht: Yes. And so to me what that said is, hey, the industry knew a lot more about it than the financial people. And that was, I think, what happened in the IPO. They were smart people that figured out this was a really fundamental revolution, and that this was something very special. The financial people were so used to looking at earning and balance sheets and everything. And you know, Genentech didn’t have a dime of revenue. It was zero revenue.

01-00:32:13 Hughes: It didn’t have any products. And that was a new thing for investors, was it not?

01-00:32:17 Hambrecht: Oh yes. And I still remember the road show, where Bob was basically not promising, but telling people, we thought we’d have insulin within a year, a year and a half. It took four years [to market]. I remember when it was over Bob sat me down and said, “You know, you’re going to have to help me try and figure out—this is going to take a long time—how do we keep people interested in this company?” And he did a great job. He really did. He always had the enthusiasm; he communicated well. And so nobody ever lost faith with Bob, even though it took longer. I thought he did a great job.

01-00:32:55 Hughes: Do you think in his secret moments he had doubts?

01-00:32:57 Hambrecht: Probably. We all did! [chuckling]

01-00:32:59 Hughes: But he certainly didn’t let it out even to you.

01-00:33:01 Hambrecht: He didn’t let it out; he didn’t let it out. No, I’m sure he always believed in it. But look, it was a long, arduous process, and it didn’t happen overnight. They very much earned their success, I think.

01-00:33:18 Hughes: Did you go on to invest in other biology-based companies?

01-00:33:22 Hambrecht: Yes. I guess we invested in Biogen and two or three others. And then the analyst at Paine Webber, a fellow by the name of David [H.] MacCallum that I had gotten to know on the offering, I thought was very smart and very bright. So we induced him to join Hambrecht & Quist, and he basically developed the Hambrecht & Quist healthcare group.

01-00:33:51 Hughes: Ah, I see. So when would that have been?

01-00:33:54 Hambrecht: In the early eighties. David did a great job, brought on some very bright people.

01-00:34:00 Hughes: When you saw a need for expertise in a certain area, you just hired it?

01-00:34:11 Hambrecht: Well, we really looked for partners. How shall I put it? I think both George and I realized that there were things that he and I didn’t really understand, and if we could find the right people to become partners with us, that would really help us enormously, because it was clear that you needed more than a financial knowledge in these companies. You had to make judgments based on science, on people, and the numbers were the last thing you looked at.

01-00:34:49 Hughes: Right. Which, I would think was very different than the way the East Coast was operating.

01-00:34:54 Hambrecht: Absolutely.

01-00:34:55 Hughes: First of all, they probably were not heavily invested in technology to begin with. But it was all pretty much a financial game, wasn’t it, as far as they were concerned?

01-00:35:07 Hambrecht: Oh yes.

01-00:35:08 Hughes: So again you were doing something new, weren’t you?

01-00:35:10 Hambrecht: Yes. I still remember the epiphany I had on that. It was before we started Hambrecht & Quist, and it was with Farinon Electric. I went out to to see Bill Farinon one day. This company, I don’t know, they were maybe $2 to $3 million in revenue and were profitable, but it was a small, little company. His

father-in-law, who had put up the money— I don’t know whether he needed some money or they had to get some liquidity. John Allyn, his old college roommate, was a partner of DuPont, so they sent me down, and he said, “Can I go public?” And I remember saying [to Bill], “Look, to go public you have to have five years of earnings; you have to have $1 million of after-tax earnings;” you’ve got to have this, you’ve got to have that. I gave him the four or five guidelines that we used on Wall Street. And he looked at me, and he said, “Who set up those rules?” [laughter] I said, “I don’t know. They’re just the rules. I don’t know.” And he jumped at me, and he said, “Look, those goddamn rules. They were set up for you guys! So you could make a lot of money. They have nothing to do with me. How about looking at this from my point of view. I want my company to stay independent. I need some money.”

Then on the way out, as I walked out the door, and of course he blistered me on the way out, he finally looked at me and he said, “Do you think I have a good company here?” And I said, “Oh yes. I think you really do.” And he said, “Would you put in some of your own money?” And I said, “Absolutely, I would love to buy stock.” And he looked at me and he said, “If you’re willing to buy stock for yourself, why aren’t you willing to sell it to the public?” And that became the credo of Hambrecht & Quist. If we were willing to put up our own [personal] money, well, then be willing to sell it to the public. It’s still not a bad rule.

01-00:37:15 Hughes: I’m imagining that after Genentech and Apple, two big hits, one right after another—Genentech went public in October 1980 and Apple in December. And as you’ve said, then Hambrecht & Quist was on everybody’s mind. Were you expanding at a rapid rate at that point?

01-00:37:45 Hambrecht: We did. And too quickly. We had a small organization. I think we had seventy-five people in the firm when this all happened. And probably three- quarters of them were non-professional process type—so very few people. The opportunity was to underwrite anybody. We thought we were maintaining our quality screen, but we really didn’t.

01-00:38:20 Hughes: Because you just couldn’t spend the time?

01-00:38:23 Hambrecht: Well, we should have but we didn’t. You know you go through a period like that and you start believing your own press clippings a little bit, and we brought in some new people who we didn’t have a lot of experience. So we made some decisions that brought us back to earth pretty quickly. By the mid- eighties we were sort of like the other guys. But we were still there, and we still had a good firm, and we’d learned a lot, and I think we’d started recovering. I think the eighties, where we were really fortunate, was we were very early on software. A couple of people—David [C.] Evans, who was a

real mentor to me, who had been the head of Computer Science at Berkeley and then at Utah, Ben Wegbreit who came out from MIT—they both realized the future was going to be in software and that the hardware business was going to become a commodity.

01-00:39:40 Hughes: I see. And they were telling you that?

01-00:39:42 Hambrecht: Yes.

01-00:39:43 Hughes: And these were just acquaintances?

01-00:39:45 Hambrecht: Well, no. I was on Dave’s board, Evans & Sutherland.

01-00:39:48 Hughes: So you had insider knowledge.

01-00:39:51 Hambrecht: And I was an investor in Convergent [Technologies], which was Ben’s company. And then when that sold out, Ben joined us as a partner. So we became real partners.

01-00:40:01 Hughes: So networking is a big part of this, isn’t it, these interpersonal connections?

01-00:40:08 Hambrecht: Oh sure. Well, Dave Evans, for example—his postdoc group. John Warnock, who started Adobe, was a postdoc with Dave. Jim Clark; Jim was a postdoc. Many of the guys with Steve Jobs in Pixar, they all came out of there. Yes, you’ll find common heritage or bonds for a lot of these people.

I was just reminded of it, looking at a story the other day. The first software company to go public was Cullinet, and Hambrecht & Quist brought them public in about the mid-eighties, ’85, ’86, something like that. We started Adobe in ’82, Sybase, Mercury, AOL. We were start-up investor in a lot of those. So even though we weren’t nearly as hot publicly, and we looked more like a conventional firm, probably the best investments we made were in the post-Apple era where we invested heavily in software. And then the first place I ever heard the word Internet was at Adobe, and so that ultimately led to Netscape and a bunch of other Internet things.

01-00:41:29 Hughes: You were making mistakes, but you were still doing all right. [chuckling]

01-00:41:33 Hambrecht: Actually, privately, we were doing a lot better than probably the world thought. And we didn’t really realize how well until the nineties when the bubble happened.

01-00:41:43 Hughes: Were you still the company to come to when a tech company wanted to go public?

01-00:41:47 Hambrecht: Well, by then Robertson [Stephens] had developed as a competitor.

01-00:41:52 Hughes: Was that fierce?

01-00:41:55 Hambrecht: We got along pretty well. Sandy [Robertson] and I always were reasonably friendly. Competitive but friendly, and we did a number of things together.

01-00:42:05 Hughes: Who else was out there?

01-00:42:08 Hambrecht: Montgomery Securities. They were a little more competitive. But they were a little more different; they were more trading oriented, looking at the bigger companies. Alex Brown [& Sons] and Unterberg were still out there. So yes, there were four or five firms.

01-00:42:24 Hughes: But there was enough business that you weren’t really worried about your competitors?

01-00:42:27 Hambrecht: We managed to keep our share or better. Part of it was the relationship we had with Morgan Stanley. We had been the first person to co-manage with them. We had a very special relationship there because one of my closest friends, a guy I went to college with, was Dick [Richard B.] Fisher, who ended up running Morgan Stanley. So we had a very special relationship lasting up until the day Dick retired in the mid-nineties. That helped—

01-00:42:58 Hughes: If you were going to penetrate that East Coast mentality, it would be very helpful to have a friend who had faith in you. But another question along those lines is, is East Coast mentality changing? They’re seeing this thing happening out West—

01-00:43:28 Hambrecht: Sure.

01-00:43:29 Hughes: --that is obviously being very successful, making money, bringing new technology to the public. How can they ignore that?

01-00:43:39 Hambrecht: Well, it was interesting. Dick and I were good friends, and he was just very supportive throughout the whole thing, but he was also very smart and a tough guy. First of all, when we sort of sprang to prominence after the Apple and Genentech thing, all the investment bankers from the East Coast showed up and said, “Okay. We want to work with you.” And I’d say, “Well, what companies are you interested in?” And they’d all start with the biggest. And when I asked Dick, he started with the best technical companies. So I thought, boy, he’s figured it out already. Somehow or other they sorted it out, and they targeted on the really good technology companies.

01-00:44:29 Hughes: He had enough pull that he could pull his whole company along with him?

01-00:44:32 Hambrecht: He actually took over Morgan Stanley in 1982.

01-00:44:40 Hughes: That’s handy for you! [chuckling]

01-00:44:41 Hambrecht: Oh yes. Well, the Apple deal would have never happened without him. He was the one who did the Apple deal. He was extraordinarily important. But he was smart about it, and we had a fifty-fifty deal, which of course all those people hated because Morgan Stanley never went fifty-fifty with anybody. He told me later, he said, “Look, sure I wanted to help, and we have a good relation, and I wanted to keep it going, but I also thought that almost all the companies we were going to underwrite probably would never really need money again.” Which is true. The Apples, the Adobes—those companies never needed money again, so they weren’t particularly good investment banking clients. And what he said was, “You know, what they’re really going to do is they’re going to create a lot of wealth. And we have a good system of managing wealth.” And he knew we didn’t. So he said, “Okay, we’ll do fifty- fifty in the underwriting, and we’ll get all the other business.” And that’s exactly what happened.

01-00:45:41 Hughes: So everybody was happy.

01-00:45:43 Hambrecht: Everybody was happy. We probably should have figured that out too, but we didn’t.

01-00:45:47 Hughes: It worked out.

01-00:45:48 Hambrecht: It worked out. Well, look, I’d never second guess my relationship with Dick. He was wonderful.

01-00:45:55 Hughes: Well, you were fortunate there, weren’t you.

01-00:45:56 Hambrecht: Oh yes. Very.

01-00:45:57 Hughes: What is Hambrecht & Quist consisting of in the eighties? I read about trading floors and all of that. Were you large enough to have that kind of thing going on?

01-00:46:12 Hambrecht: We were an active market maker in the companies that we underwrote, and that became a very important part of our business.

01-00:46:19 Hughes: I don’t really understand what that means.

01-00:46:23 Hambrecht: Well, in the eighties and the nineties, when companies went public, they were normally initially traded in the NASDAQ market. And the NASDAQ market is a dealer market. It’s not a specialist exchange market; it wasn’t then. So there would be us and maybe another half-dozen firms competing in a computerized system, but to make a market. And what that says is you offer a bid and an offer, so that there’s always a continuous market. And that became a very profitable business for us, and we continued that up until when the firm was finally sold to Chase [Manhattan Corporation].

01-00:47:06 Hughes: Was that an obvious way of going?

01-00:47:07 Hambrecht: Well, first of all it was thought to be a responsibility of the underwriter initially.

01-00:47:13 Hughes: Who? You mean the people who were coming to you?

01-00:47:18 Hambrecht: In other words, if you brought a company public, then you took on the obligation to make a market in the aftermarket. Now the reality was it was so profitable that other firms figured it out and said okay! [laughter] So it became competitive. And then rather than an obligation, it became a very nice part of the business.

01-00:47:36 Hughes: But Hambrecht & Quist was the first to do that?

01-00:47:38 Hambrecht: No. Well, there were always dealer shops, but I think we were probably one of the first of the specialty underwriters to realize that gee, this is a good business. And so that generated the revenue where we could build up our research department and reach out and build up the services.

01-00:47:58 Hughes: None of which you had in the beginning?

01-00:47:59 Hambrecht: Very little.

01-00:48:02 Hughes: So it was really Hambrecht & Quist going out and using their networking skills and their other skills.

01-00:48:07 Hambrecht: In the research department when the Apple and Genentech deal came along, if I remember correctly, I think we had one corporate finance banker, and we had five analysts. But the five analysts worked on deals, which again is frowned on now. But it was the idea that if you’re going to bring a company public and it’s a software company, you probably want to have a software engineer explain it to somebody. So we had a couple of software engineers there; we had people with different backgrounds, but they were technology- based people. And then after that, we started hiring more financially oriented analysts, more Wall Street types, and also more bankers, to deal with the—

01-00:49:03 Hughes: So you’re getting a little bit closer to the East Coast counterparts.

01-00:49:05 Hambrecht: We looked more like an East Coast model ten years later than we did in 1981 or ’82.

01-00:49:11 Hughes: And was that kind of inevitable?

01-00:49:15 Hambrecht: Looking back I think, yes, if you’re going to run a business to optimize its profitability and its scale, yes, probably. I didn’t like it as well.

01-00:49:31 Hughes: Yes, I’ll bet you didn’t. It’s not as exciting, is it? [laughing]

01-00:49:34 Hambrecht: I needed both models. I didn’t think we were doing as high-quality work as we did in the beginning. In the beginning we could be more selective. We didn’t have an overhead we had to cover every day, so we could kind of sit back and wait. Business-model pressures force you into more of a day-to-day business. Look, we tried to keep certain principles intact, and we had some

really good people. A lot of good people joined us. It was a good firm. I thought Hambrecht & Quist was a very good firm. But it changed.

01-00:50:22 Hughes: I’m not a business historian, but I have thought about how success itself brings problems, in a certain way.

01-00:50:36 Hambrecht: Oh yes.

01-00:50:36 Hughes: I’m thinking of the start-up firm with that culture that is so much talked about, that is so difficult to preserve when you become big and hopefully successful.

01-00:50:48 Hambrecht: Right.

01-00:50:49 Hughes: It seems to me that something kind of similar is going on. You’re forced to change from what made you great in the beginning.

01-00:50:57 Hambrecht: Yes. Even if you try and fight it, you do change, because you do have to bring in more people; you bring in a bigger mix of talents, and it’s different.

01-00:51:11 Hughes: But it also means that people like you who were there in the beginning for a reason, because that’s what you were good at and probably found exciting, maybe had more problems later on.

01-00:51:22 Hambrecht: Yes. Well, that’s why I ultimately went back to the same model which I used at Hambrecht & Quist.

01-00:51:27 Hughes: Shall we talk about that? Are we there?

01-00:51:30 Hambrecht: Sure.

01-00:51:31 Hughes: Let me ask you a few more words about venture capital before we leave Hambrecht & Quist. Your curriculum vitae says that you became directly involved in the venture capital business in the 1970s, very soon after you came out west. And I presume you mean as Hambrecht & Quist, right?

01-00:52:01 Hambrecht: As Hambrecht & Quist.

01-00:52:01 Hughes: By the early seventies there are people that are doing what we would now call venture capital. I’m thinking of Kleiner & Perkins and Sutter Hill and Draper,

Gaither [& Anderson]. Is there any sort of resentment that here you, an investment banking firm, are getting involved in their territory? Was there some tension between you and the people who were just venture capitalists?

01-00:52:52 Hambrecht: Maybe a little. Not the guys who were really there in the beginning because we all sort of started at the same time. For example, like Tom Perkins. We knew Tom because when he was at Hewlett-Packard he’d made an investment in a little laser company. And we helped merge them into Spectra-Physics and worked with Tom on it. As a matter of fact, we asked Tom to join our firm to run the venture capital! [laughter]

01-00:53:26 Hughes: Oh really!

01-00:53:26 Hambrecht: And he got together with Gene Kleiner, and they decided to do it themselves. But we always had, I think, a really good relationship with Tom and Gene. So with those people, no. But yes, maybe [some resentment by other venture capitalists]. But we were co-investors with a fair number of some of the early Kleiner stuff. I think where we actually became more independent as venture capitalists was when we essentially made our bet on software. I think we were early there, and so no one was really fighting us. I remember the first Adobe deal. We really had trouble putting it together.

01-00:54:07 Hughes: Really, because people just didn’t—

01-00:54:10 Hambrecht: People just didn’t know. And at that point the Apples and the hardware companies, the Digital Equipments, and the peripheral disk drive companies, they were the ones that had everyone’s attention.

01-00:54:21 Hughes: Do you think because you had a slightly different background and outlook than the venture capital partnerships per se that you might look at a deal with slightly different eyes?

01-00:54:37 Hambrecht: I don’t think so. I think it was just having a couple of technology people that were a little ahead of the curve, to be honest.

01-00:54:49 Hughes: So you were on a level playing field.

01-00:54:54 Hambrecht: It was all a level playing field, and I think Dave Evans and Ben Wegbreit and a couple of those guys were just ahead of the curve.

01-00:54:59 Hughes: To drive home a point: all this is totally contingent on having venture capital available. Is it not? To get these companies up and going and financed so that they get to a point where they can even consider becoming a public company.

01-00:55:30 Hambrecht: That’s correct, yes. Less so today than it used to be, because again, software and the Internet changed everything. I forget how much Apple raised, but it was quite a bit of money before they got public. And the typical semiconductor company that got started in those days would take $30, $40, $50 million, which doesn’t sound like a lot now. But you know, we started Adobe with $2 million, and we only used $1.2 million of it. And the pure software or intellectual property companies that have been so successful in software and on the Internet really don’t need much money, so there’s more of an angel culture out there now. Google didn’t really get any venture money until they were well on the way. They were basically funded by individuals down at Stanford, and once the product was up then they brought in Kleiner and Sequoia. And that’s kind of the pattern you see a lot now, because you don’t need the big money. Of course, most of the venture funds that have been successful have raised a lot of money, so they have to put a lot of money to work.

01-00:56:55 Hughes: Which is a problem in itself, isn’t it?

01-00:56:58 Hambrecht: Very much so, very much so, I think.

01-00:57:03 Hughes: Well, anything you want to say about that pre-W.R. Hambrecht & Company period?

01-00:57:10 Hambrecht: No, other than it was a very fortunate and wonderful experience in that I think it was an opportunity to try out some new ideas; it was an opportunity to try and be a little different. And I think the reality of it is we rode the wave. I wish I could have honestly told you we saw the wave coming, but at least we got on the top of it for a while and rode it! [laughing]

01-00:57:45 Hughes: Did you have any personal life at this time?

01-00:57:52 Hambrecht: Oh yes. Oh sure.

01-00:57:55 Hughes: You could put all this within some boundaries?

01-00:58:00 Hambrecht: Look, I was very different personally than my partner George Quist. He was a very flamboyant, very unusual guy. But I think one of the things that brought us together was we didn’t take each other too seriously, and we enjoyed life. He had a family, and he loved to go out, and he loved to play golf, and he loved to do a lot of things, and so did I. So our culture was never the 4:30 in the morning till midnight kind of stuff. We just never did that, and we spent weekends at home. I had five kids and a great wife Sally [Sarah P. Hambrecht]. She became part of it and liked to travel with me and do some of this stuff. So yes.

I early in the game decided in this business sooner or later you’re judged on results, and the results are almost always conditioned by your judgment and not appearing to work harder than anybody else. I find in this business it’s good to take time away and keep a little bit of distance between some of these things so that you can think them through.

01-00:59:26 Hughes: How did you get that mentality? I can imagine in the whirl of Silicon Valley culture that it wouldn’t be that difficult to get caught up.

01-00:59:40 Hambrecht: Well, some of the intense software development cycles people get caught up in. But I find the Valley has a nice way of life. A lot of people develop very nice balanced lives down there. I don’t think it’s like a law firm in New York or a Goldman Sachs kind of environment. I don’t think it’s that way at all.

[End Audio File 1]

Begin Audio File 2 Hambrecht 06-08-2010.mp3

02-00:00:02 Hughes: In 1998 you sold Hambrecht & Quist?

02-00:00:11 Hambrecht: No, I left Hambrecht & Quist in 1998. The firm was sold in 1999 to Chase. What happened was in late ’87, early ’88 I think it was, Merrill Lynch came in and made an offer to buy Hambrecht & Quist. At that point I had stepped down as co-CEO. I had been CEO, then co-CEO with Dan [Daniel H.] Case [III], and then I believe in ’87 or so I stepped back and became chairman and Dan was CEO, a very brilliant, very bright guy. He had been with us forever, and he was really great. Merrill Lynch came in, and I think Dan had decided that for us to really succeed as we had before, we had to team up with somebody with a big balance sheet and a big structure. And he was capable of running a big firm. He was really a strong manager. I wasn’t. I didn’t want to. So he was oriented very much to doing the Merrill Lynch thing.

It was at this point that I had come to the conclusion that instead of merging with somebody, we should try and do it differently. The patterns that had

developed in the IPO business and in the investment business—I just wasn’t comfortable with a lot of it. And so I said, “Hey, we do have to change. But let’s differentiate ourselves by doing it differently as opposed to linking up with someone.” But I also said, “Hey, it’s really your call with the rest of the partners. I’ll do whatever everybody else agrees on.”

So they got to the point with Merrill Lynch where there was a deal on the table, and at the last minute I sort of became an issue because they wanted to sign me up along with everybody else, and I just didn’t want to do it. I said I’ll be fine with the sale but I’m going to move on. And then the deal fell apart for other reasons. So I went to Dan and said, “I probably shouldn’t be here now. You’re going to go in this direction; it’s going to happen; I don’t want to be an issue.” I wanted to start this smaller firm to go back to doing some of the things that I like to do, and I wanted to try an auction and a few other things, so it was agreed that I would leave. I kept my shares. It was very friendly and everything, at least initially. And then when we started doing some deals that he liked, then it got a little more competitive. But it was done in the spirit of a partnership. And then a year later they did make a deal to sell to Chase.

02-00:03:18 Hughes: And this merging was happening to others?

02-00:03:22 Hambrecht: Oh yes, we were the last one. Yes, Robertson sold out, Unterberg had, Alex Brown had, Montgomery had. Everybody’d sold out.

02-00:03:31 Hughes: Why was it all of a sudden important to be big?

02-00:03:35 Hambrecht: Well, that was my point. You know, I didn’t think a balance sheet meant anything in the IPO market. It really doesn’t. You don’t need a lot of capital. What the bigger firms do is they say that they can use their balance sheet to help these companies finance, and they do in some of the bigger companies, like in buyouts or mergers and acquisitions, where someone has to go in and buy a piece of stock or put up money in front of a bank to get a bank to put a loan together. Yes, then it works. But mergers and acquisitions were almost no part of the technology world. The great companies grew organically; they didn’t acquire anybody. So in our business I didn’t think it mattered. In the more conventional business it mattered a lot. And Dan was attracted to the more conventional business. If Dan had lived, he was capable of building and growing a large, diversified investment bank. So he was, like so many other people that succeed a founder, his ambitions were broader, which is perfectly natural.

02-00:04:48 Hughes: But you had something that you wanted to do. Had you been thinking about this other idea all along? Or were you forced into thinking, okay, I’m not going to be here at Hambrecht & Quist. What am I going to do?

02-00:05:11 Hambrecht: Well, no. Originally when I first came to Dan and said, “You know, I really think we should go back to doing the small technology-based deals that we did in the beginning. We’re all caught up in the big stuff.” What we did is we set up a subsidiary of Hambrecht & Quist to do smaller offerings. Dan named it RVR, Risk Versus Reward. The idea was we were going to beat the Christensen game. Are you familiar with Clay [Clayton M.] Christensen’s work?

02-00:05:41 Hughes: Well, only from what I’ve read on your Website. [chuckling]

02-00:05:52 Hambrecht: Disruption? Well, he’s a fascinating guy. He, I guess as a postdoc, took up the question of why did the three most successful and admired technology companies in America, namely AT&T, IBM, and Digital Equipment— They had the best technology; they had the best balance sheets; they hired the best engineers, and were generally accredited to be the best-managed companies in America. Why were all three brought to the verge of bankruptcy by new technologies? And his theory is that every now and then someone comes up with a business model that’s dramatically different, usually empowered by technology, but there has to be a dramatically different business model.

The numbers I use, Clay doesn’t exactly agree, but basically you’ve got to develop a business that gives the customer about 80 percent of what he wants for 20 percent or less of the cost. That’s the kind of business model that the incumbent can’t adjust to; he just can’t bring his costs down. And even if he can, philosophically he won’t, and he’ll move up market, and he’ll leave the market to you. And that’s what happened to every one of them. And so my theory was, why don’t we do the same thing in the underwriting market?

02-00:07:21 Hughes: You’d read, or had you encountered Christensen?

02-00:07:27 Hambrecht: I’d read his The Innovator’s Dilemma, and so forth, and then actually got to know him, and he actually joined our board at W.R. Hambrecht.

02-00:07:33 Hughes: You were impressed!

02-00:07:35 Hambrecht: Yes, yes. Because I remember when I first read the book I thought, yes, intuitively that’s what I always thought had happened. I just had never thought it through to the point of being able to articulate it that way.

02-00:07:51 Hughes: Put it in so many words.

02-00:07:52 Hambrecht: Put it in those terms and make it so clear. Because I remember we started both Adobe and Sybase, almost in the same month, in 1982. And they were both very successful, but they turned out very differently. Adobe is still just as disruptive because they basically disrupted the printing industry. Sybase had very good technology. Most people thought they had better technology than Adobe, but they had to compete with Larry Ellison at Oracle, and even though they had a better product, Larry could keep adjusting. So Sybase built a decent business because they never really had the dramatic difference in business model.

02-00:08:49 Hughes: It’s that term disruptive technology which Christensen’s changed to destructive innovation?

02-00:08:59 Hambrecht: Disruptive innovation or disruptive business model is really what it is.

Well, as I said, to me it made a lot of sense, and we developed our model at W.R. Hambrecht on that basis. And it has been a lot harder than I thought it would be, because first of all, the IPO market has not been very good for the last seven or eight years, so it has been a hard place to get any real traction. But secondly, we probably should have targeted a different market, because there’s something cultural about going public. It’s almost like a graduation or a wedding or something that.

02-00:09:59 Hughes: For a company, it is, isn’t it!

02-00:10:02 Hambrecht: Yes, it is. And so people don’t deal with the economics of it the same way they would any other business transaction. And they don’t really care about it until it’s all over. And what we found was countless people that came back later and said, “Gee, I wish we’d done it your way!” [chuckling] Brand is so important, and boy the idea of Goldman Sachs being your underwriter, wow. And of course, Hambrecht & Quist—that’s what we built our business on, a reputation that said, “Oh boy. This is the Good Housekeeping Seal of Approval kind of thing.

02-00:10:37 Hughes: Well, go back step by step and say how you did build this new company. Who was there aside from you? Did you take some of the people from Hambrecht & Quist?

02-00:10:49 Hambrecht: No, and the few I did was a mistake because it was so dramatically different, and it became very clear that anybody who’d been really with Hambrecht & Quist loved it and said why do it different? “Look at all the money we made, look at how successful we were.” The firm sold for $1.3 billion. Everybody wants to replicate the H&Q model, and this was very different.

02-00:11:19 Hughes: How exactly did you put in material form this disruptive innovation business model?

02-00:11:36 Hambrecht: Well, we started with a small group of people, a couple of young people that I knew that were intrigued with the idea of doing it different, hired my chief technology officer Alan Katz from Texas Instruments, because we had done a joint venture with him at Hambrecht & Quist that had done very, very well, and I thought he was just one of the smartest guys I’d run into. And so, we said, okay, let’s do this different. You know what technology’s out there; let’s apply it differently. He was great.

We went out there. I think we had a dozen people when we did our first offering, using the Internet to distribute and going out through Fidelity. Fidelity became an investor, a few other people, so we used everyone else’s distribution. The original premise was that if we couldn’t figure out how to do something dramatically better with technology, don’t change it, just do something else, and focus all our energy and efforts on what we felt we could be doing. So we originally focused our efforts on the auction process. It took about a year. Most of it was dealing with the SEC, to develop a rule set that they were willing to live with. We patented it, which was very fortunate.

02-00:13:01 Hughes: Was the SEC initially skeptical?

02-00:13:05 Hambrecht: I wouldn’t say skeptical. They were very careful about it because they wanted to make sure it wasn’t a system that could be gamed. But I think over a period of time the SEC has been very constructive with us. It basically brings transparency and economic benefit, and what it really does is it takes away the power of allocation from the underwriter. And that’s at the very heart of an underwriter’s leverage, the idea that he can either give you shares or not give you shares that are typically underpriced. I remember reading in one of the history books how J.D. Rockefeller used to get mad at J.P. Morgan because he never thought he got the proper allocation for the offering. [laughter] And I thought, boy, they were playing the game even back then!

02-00:14:07 Hughes: The older system is hardly democratic, is it?

02-00:14:12 Hambrecht: Oh no. It’s basically an insider’s game, totally. And the underwriter keeps all that leverage as they price it so advantageously so that their customer are essentially guaranteed a profit on the first day.

02-00:14:26 Hughes: And H&Q was doing the same thing probably.

02-00:14:29 Hambrecht: Sure, absolutely. I could take you through the whole history of it. Initially I think traditionally the idea of discounting a public offering, in other words, selling it at a price a little bit below where you thought the market was going to open, was really a good thing, because what it did was you started out as a winner. For example, when we were doing our early deals at H&Q, if you sold a deal to a mutual fund at say $10, and the stock went to $12 or $13, and you came back to the market a year later to raise more money, they were more than happy to put more money in because you were a winner in their portfolio. And you know, they’re in the business of advertising winners. If you were a loser, they’d sell you and stay out. So that’s really why it developed that way.

Well, what happened in the nineties was, as it became clear or it was really clear that there would always be a discount, the big commission generators, like the big mutual funds, monetized it. So essentially what happened is that if you delivered a ten-point premium in the marketplace—let’s say you sold a million shares of a company at $10 and it went to $20 (and that’s what was happening in the nineties on)—you were creating $10 million of aftermarket profit for the buyers. That stock was placed with the big commission generators, and what was happening was anywhere from a third to a half of that dollar amount came back to the managing underwriter that week in commission flow. It’s basically a kickback. So to me, that was a process that had been taken over by the agenda of the underwriter. The underwriter’s agenda said, how do I get maximum profitability for me out of this system? And it did not place the stock with the right long-term players.

02-00:16:44 Hughes: It was a money game, wasn’t it.

02-00:16:47 Hambrecht: It was a money game. It was purely and simply a money game. So that’s why I wanted to try it differently. We tried at Hambrecht & Quist to discipline the buyers. If we knew somebody was flipping it the next day, we wouldn’t put them in the next deal. It was a mess. You could never do it. The institutions had too much buying power. So that’s when I decided the only way you could ever change it is in a totally new firm.

02-00:17:13 Hughes: Well, please explain how the auction system works.

02-00:17:22 Hambrecht: Well, it’s called a Dutch auction. It’s not really. I remember going to the flower market in Amsterdam one time, and I think I probably misunderstood what they were telling me, because ultimately it was Sergey Brin [Google co- founder] who said, “Hey, that’s not a Dutch auction. It’s a descending price auction.” And what it is, is if you want to sell a million shares, everybody bids; you start with the highest bid, and you count down the number of shares till you get to the last share you want to sell, to the millionth share. And the price that that millionth share is bid becomes the clearing price for the whole auction. So anybody who bid that price or higher gets the stock. Anybody who bid below that gets nothing. And of course, that’s what the bankers hate because they can no longer allocate to their best customers.

02-00:18:16 Hughes: Where do the fees come in?

02-00:18:22 Hambrecht: Well, we basically get paid a commission for selling the offering.

02-00:18:26 Hughes: At the same rate that you did at Hambrecht & Quist?

02-00:18:28 Hambrecht: No, because we use electronic distribution, our costs are so much lower, we actually do it at lower spreads. So for example Google, when they went public—the traditional spread is 7 percent, a 7 percent commission, which is kind of crazy, a big deal, because you don’t do anything to earn it. We bid 2 percent, and because we bid 2 percent, they negotiated 2.86 with everyone else. Well, for a big deal our fee will generally be 1.5 to 2 percent; for a smaller it may go as high as 3. But hey, that’s plenty of commission. That works.

02-00:19:07 Hughes: I read, though, that Google in the end didn’t go entirely with the auction system. What was the story there?

02-00:19:15 Hambrecht: Well, they did. No, they did. The compromise with Google was that two bulge firms ran the process.

02-00:19:26 Hughes: Now, why?

02-00:19:29 Hambrecht: Because this was the biggest, most sought after deal in fifty years, and they couldn’t very well give it to a dinky little firm like ours, although I wish they had! [laughter] Eric Schmidt just wrote a really interesting article for the

Harvard Business Review on the Google offering—five years later, five-year anniversary. And we both think that Google didn’t get the optimum price, but Google didn’t really care. What Google cared about was did all of their users have the opportunity to bid and get stock if they wished?

02-00:20:12 Hughes: And they did.

02-00:20:13 Hambrecht: And they did. And they did.

02-00:20:15 Hughes: So there’s Google being Google again.

02-00:20:18 Hambrecht: Google being Google. That’s exactly right. It’s a company with real principles, and they applied them to that underwriting process.

02-00:20:25 Hughes: Yes, now did you go after them? Or did they recognize that you were doing something different and come to you?

02-00:20:32 Hambrecht: Well, a little of both. I had known Eric Schmidt before, and then it turned out that Sergey Brin had an account with E*TRADE, which is one of our distribution partners, and he had bid on a number of our auctions. And don’t forget, the basis of Google’s economic model is an auction. So we didn’t have to convince Sergey; we didn’t have to convince him that an auction was a good thing.

02-00:21:03 Hughes: Was that Google deal kind of like the Genentech and Apple deals? That here’s this company that you’ve had a part in bringing to the public in a very different way.

02-00:21:21 Hambrecht: Right. It certainly—yes. Was it this dramatic turning point that everybody went to us? No. It’s a tough business to crack. But yes, that was the one that really changed things. After that, the Morningstar IPO happened, and right after it—

02-00:21:37 Hughes: Because of Google?

02-00:21:39 Hambrecht: Yes.

02-00:21:40 Hughes: Because they were impressed.

02-00:21:41 Hambrecht: Joe Mansueto called—he was already on file with Morgan Stanley—and he said, “Can I do a Google thing?”

02-00:21:51 Hughes: It can’t be just ethics: let’s be fair and give everybody a chance. What are they seeing is the financial upside of all this?

02-00:22:08 Hambrecht: Well, it depends on the deal. For example, at Morningstar, I can take you through the whole numbers, but we delivered a check for $150 million to Softbank, the selling shareholder, instead of $100 million. It was a huge, $50 million difference.

02-00:22:27 Hughes: Is that because the fees are less?

02-00:22:33 Hambrecht: Well, partially, but the lion’s share is in the pricing. See, the conventional underwriter will say, “You have to discount underneath where we think the market’s going to be.” And they will always be very conservative about where they think the market will be. So the discounts become very deep.

02-00:22:52 Hughes: Yet, the people bidding—

02-00:22:55 Hambrecht: The people bidding—it’s the market. Look, our auction is no different than opening a stock every morning on the New York Stock Exchange. You find the proper clearing price. So the price discovery is very accurate, very effective, and you don’t have to discount it, so it’s a big difference.

02-00:23:12 Hughes: How is Wall Street accepting this today?

02-00:23:17 Hambrecht: They still hate it, because as a result of the bubble and all the hearings with the SEC, the kickback portion from mutual funds, I think, has pretty much gone away. If it’s still there, it’s very subtle. But the hedge funds have become so important, and hedge funds are driven almost totally by performance. So to me, it’s no accident that the three strongest IPO brokers are also the three strongest prime brokers for hedge funds. And see, hedge funds don’t have to report—nobody—so they still discount the price, and their inside buyers, largely the hedge funds, still get the benefit of it. And they get the benefit of commission flow and everything else from the hedge funds. So it’s still the same thing; it’s just not as obvious. [chuckling]

02-00:24:17 Hughes: Are you happier now that you’re back, not quite where you started, but doing something closer to that?

02-00:24:25 Hambrecht: You know, I started this thing on the idea that maybe in a year or two I’d turn it over to the young guys and move on, and it just turned out to be a lot harder and a lot longer than I thought. And I just felt I had to see it through. We’re almost to the point now where we’re getting acceptance. It’s been a slow market but things are starting to happen. We’ve developed a very good electronic trading business, because we don’t do any proprietary trading; we’re a pure agency shop. We’ve applied the same principles to electronic trading. So yes, we have a nice business building here now, and my daughter’s here now as a co-CEO. I’ve got a really good one in New York. So we’re developing a team now, and I’m hopeful over the next year or so I’ll fade away.

02-00:25:15 Hughes: And your daughter Betsy [Elizabeth Hambrecht Eu] will take over?

02-00:25:17 Hambrecht: Yes. And her partner or two. I’ve always believed in a partnership structure. I decided early in the game, I never really liked to work for anybody. I like to work with people, and to me that’s why partnerships are so great. So we have a partnership here, and they need me less and less now. I think over the next year, because there’s enough momentum going I will be needed even less, but hope to stay active when they need me.

02-00:25:44 Hughes: And do you think your daughter will carry on with your philosophy? Or is the world changing, and she’s part of a younger generation, and it will evolve differently.

02-00:25:58 Hambrecht: Well, she’s been very successful on her own. She went out to Hong Kong after college and worked for Barings and then Goldman Sachs and was very successful. Then she started an Internet portal out there, and then when she came back here she ran Salon.com. She can do things a lot better than I can! [laughter]

02-00:26:21 Hughes: Well, in certain areas, let’s say!

02-00:26:24 Hambrecht: She can be successful at whatever she chooses to do.

02-00:26:28 Hughes: She doesn’t need Dad, you’re saying.

02-00:26:30 Hambrecht: She doesn’t need me. Yes, I think we share a lot of the same philosophy and sense of how to do business and why to do business, but it’s going to be up to her.

02-00:26:46 Hughes: But it must make you feel good to have somebody so close to you carry on.

02-00:26:54 Hambrecht: Well, she’s earned it. It’s always hard with families and everything, but it’s a lot easier with Betsy. I remember Dan Case used to say all the time saying, “Can’t you get Betsy to come back?” [chuckling] Because she was doing great. I said, “Well, we can’t afford her. Goldman pays too much.” But, anyway, very lucky.

02-00:27:22 Hughes: I’d like to hear a little bit about what I just call the larger context, meaning what is there about this region that has nurtured so many wonderful high-tech companies and continues to despite the recession.

02-00:27:55 Hambrecht: Well, as you know, that debate is raised for a long time. I personally have always thought that the intellectual climate of the Bay Area has been what’s really done it. Having several great educational institutions and several big early technology pools of intellectual capability made it very unique. And when you really look at what’s happened, so many of the people came out of those kind of sources. And then, you know, an infrastructure did develop where you can find lawyers that know what to do; you can find people who can raise you the money; you can bootstrap all kinds of things; and there’s a tolerance for startups here that allows you to get going.

So what came first? I don’t know. The technology world has been driven by what I would call intellectual property, and so whatever attracted it here in the first place is what caused it. People will say, we were just lucky to get [Sherman] Fairchild. Probably. For some reason or other he brought thirteen of the smartest people out here, and they populated the whole area!

02-00:29:30 Hughes: That’s a different slant on intellectual property. It’s human minds rather than the patent document.

02-00:29:44 Hambrecht: Right. Exactly.

02-00:29:44 Hughes: What about the governmental/legislative environment as it has changed over— You came in the late fifties?

02-00:30:11 Hambrecht: Right.

02-00:30:11 Hughes: Sixty years or so. Is there anything that pops out in your mind as being particularly helpful or not to the growth of this region and what you were doing specifically?

02-00:30:33 Hambrecht: Well, on the positive side, I think we’ve been very fortunate that we’ve had some political leaders that have understood what has really been happening in Silicon Valley and have adjusted to it. For example, Nancy Pelosi— Paul Pelosi is a good friend, and we’ve known him forever. She really made a real attempt to understand what was happening down there and has been great. So many of our elected people really get it. So it isn’t like you’re dealing with somebody who’s still locked into the way things were done fifty years ago, or defending an old, dying industry or anything like that. So I think we’ve been lucky that way.

On the negative side, I think some of the conservatism that’s set into this state has hurt the educational system. And I think that’s really tragic. I find, for example, it almost unbelievable that Berkeley and UCLA and places like that have been able to maintain their excellence in the face of what’s happened. So I just hope that ultimately we get back to— When I came out here in the fifties, I thought this was probably the best educational system in the country, from grade school on up through postdoc. It was, and it isn’t anymore.

02-00:32:11 Hughes: No, it’s not. And there’s our future.

02-00:32:17 Hambrecht: The economy that we’ve developed out here requires educated people.

02-00:32:24 Hughes: We’re running out of time. Do you care to say anything about philanthropy?

02-00:32:48 Hambrecht: Okay. Well, first of all, I think inherited wealth is probably not a great thing.

02-00:33:02 Hughes: That’s your observation when it comes down to individuals?

02-00:33:08 Hambrecht: Yes, I think it hurts individuals. And by the same token, a financial capability to go out to develop on your own and do what you want, that’s good too. But seeing what Bill Gates and Warren Buffet have done, I think is a great thing. So what my wife and I decided to do, early, was try and think it through a little bit more. I was busy so I said, “You do it.” And she’s gotten very good at it. She started Summer Search, along with two other people, which has been a very successful program to take inner-city kids and put them in a different environment over the summer. They’ve had a great, great experience there.

02-00:33:58 Hughes: Really! What kind of environment?

02-00:34:02 Hambrecht: They’ll go on outdoor-type stuff. It’s been quite a successful program. High nineties graduation rate from college for kids from totally dysfunctional, tough, inner-city backgrounds.

02-00:34:19 Hughes: Fabulous.

02-00:34:23 Hambrecht: We also founded the San Francisco Friends School. So it has been really schools.

02-00:34:32 Hughes: Are you a Quaker?

02-00:34:33 Hambrecht: Yes. And we’ve been reasonably aggressive about college scholarships and stuff like that. That’s where I got my break.

02-00:34:46 Hughes: Very good. Is there any ending comment that you care to make?

02-00:34:57 Hambrecht: No, except I wish I were twenty years younger! [laughter]

02-00:35:02 Hughes: So you could start all sorts of enterprises?

02-00:35:06 Hambrecht: Yes, I think right now there’s just a tremendous opportunity to do the H&Q thing all over again. All these good companies down there, and no one wants to underwrite them because they’re too small. But that’s something you don’t get. [laughter] We haven’t figured that one out.

02-00:35:22 Hughes: Well, I really appreciate your time, and I thank you very much.

02-00:35:32 Hambrecht: Thank you. Thank you.

[End of Interview]