Regional Oral History Office University of California The Bancroft Library Berkeley, California DONALD T. VALENTINE EARLY BAY AREA VENTURE CAPITALISTS: SHAPING THE ECONOMIC AND BUSINESS LANDSCAPE Interviews conducted by Sally Smith Hughes, PhD in 2009 Copyright © 2010 by The Regents of the University of California ii 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. ********************************* All uses of this manuscript are covered by a legal agreement between The Regents of the University of California and Donald Valentine, March 8, 2010. 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. No part of the manuscript may be quoted for publication without the written permission of the Director of The Bancroft Library of the University of California, Berkeley. Requests for permission to quote for publication should be addressed to the Regional Oral History Office, The Bancroft Library, Mail Code 6000, University of California, Berkeley, 94720-6000, and should include identification of the specific passages to be quoted, anticipated use of the passages, and identification of the user. It is recommended that this oral history be cited as follows: Donald T. Valentine, “Early Bay Area Venture Capitalists: Shaping the Economic and Business Landscape,” an oral history conducted by Sally Smith Hughes in 2009, Regional Oral History Office, The Bancroft Library, University of California, Berkeley, 2010. iii Donald Valentine, 2002 Photo courtesy Sequoia Capital v 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: Kathleen Zvanovec vi Donald T. Valentine Biography Mr. Valentine is a venture capitalist at Sequoia Capital focusing on semiconductor, systems and software investments. Don founded Sequoia Capital in 1972 and was one of the original investors in Apple Computer (AAPL), Atari, Cisco Systems (CSCO), LSI Logic (LSI), Oracle (ORCL) and Electronic Arts (ERTS). Prior to starting Sequoia Capital, Don was a founder of National Semiconductor and a senior sales and marketing executive with Fairchild Semiconductor. vii Discursive Table of Contents—Donald Valentine Interview #1: October 20, 2009 [Audio File 1] 1 Born back east, moved to CA to get away from the snow—Catholic school education—nuns “not especially well-educated, very passionate about their faith, and very adept at beating you” attempted to break young Valentine of left-handed writing—high school instruction by Marist brothers who favored Socratic method—Jesuit-led college at Fordham University—Catholic schooling encourages inquisitiveness and skepticism—parents—Danish grandfather’s membership and ambivalence towards the Teamsters—inclination toward technical subjects at Fordham because instructor quality was relatively high—drafted in 1954, navy service in Huntington Beach, CA, playing water polo—taking sales and marketing classes at UCLA—work at Sylvania with hopes of relocation to CA with its leading edge opportunity and fine weather—taking business classes at UCLA but no interest in business degree: “I was not interested in learning to raise money, I was interested in building great companies”—the decision to specialize in marketing—education at Fairchild in Mountain View, CA—thoughts on semiconductors, silicon vs. germanium—the early days at Fairchild, 1959-1960—marketing a new product—sales conferences—the beginning of personal investment while at Fairchild. [Audio File 2] 20 Decision to leave Fairchild in 1967—National Semiconductors, inventing a different marketing structure—being recruited to manage startup fund (later Sequoia)—1970s reluctance to invest in “risky” stocks—Roger Kennedy reinterprets Prudent Man Rule and universities begin aggressive investment strategies—venture capital pioneers take advantage of SBIC program, Valentine prefers not to deal with the government—brief thoughts on George Doriot—decision to leave semiconductor business—Capital Research and Management’s interest in Valentine’s private investing, and offer to start Sequoia—considering Sequoia opportunity, Valentine’s standing in the high tech business community—Valentine’s position a unique intersection of semiconductor and microprocessor knowledge and marketing experience—Sequoia’s first investment: Atari in 1975—process of deciding on games as focus—more on important of geography, California’s unique advantages—difficulty in explaining Silicon Valley phenomenon: other areas have silicon and excellent universities—the importance of pragmatism, discerning relevant from irrelevant: e.g., Steve Jobs’ unprofessional attire—comparisons with Seattle—preponderance of Asian immigrants in Silicon Valley—more on unwillingness to do business with the government—the process of taking on partners—working with different types of partners: “some are more needy than others”—two visionaries: Steve Jobs and Bob Noyce. viii Interview #2: December 4, 2009 39 [Audio File 3] Recap on life from university to Sequoia: 1954-1970s—background on Fairchild Semiconductor, joined in 1960 in LA, creative investment by Arthur Rock through Fairchild Camera and Instrument—growth from $1 million in sales to $100 million by 1964—military experience providing high tech training, unique technical skill set—more on the difficulty of explaining Silicon Valley phenomenon, comparisons to other technological revolutions: Detroit and autos—importance of immigrants, UCB and Stanford—role of lawyer Lerach—obsolescence of paper filing with the advent of electronic records—more on Lerach, insurance against repeated lawsuits: “I’m the only person not getting paid!”—Lerach chooses his prison—1967, Valentine begins a more derivative approach to engineering decisions—commitment to hands-on investing, staying on the West Coast—paucity of funds available to venture capital in 1960s and 1970s. [Audio File 4] 54 Starting Sequoia in the conservative climate of 1970s East Coast finance—raising $5m to invest in tech companies—interest in building companies, not investment business—tempting tax-exempt funds such as university endowments and pensions with promises of doubled returns—encounter with Salomon Brothers in NYC, Harvard Business School chauvinism—more on “Fairchild Semiconductor School of Business”—thoughts on lawyers—estimating costs at the outset of a project—comparisons with Harvard Business School alum colleagues—managing change—Walkman example—leading a company to embrace and harness change—victims