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Would you Invest $50K in this Man?

In 1976, If Steve Jobs had offered to sell you 30% of Apple computer for $50,000, would you have taken it?

His boss at the time, Atari CEO Nolan Bushnell, said no. “Big mistake,” says Bushnell. “Big mistake.”

This is just one of many gems in the new movie “Something Ventured,” a documentary about the founding of the Venture Capital business in California in the 1960s and 1970s. This is a “must-see” for anyone in the innovation business.

The Fairchild Eight

Amazingly, the entire VC business got its start with eight disgruntled innovators at Fairchild Semiconductor, in Mountain View, CA. They were known as the “Fairchild Eight.” If Fairchild had just taken better care of its innovation team and invested in their ideas, it might easily be the world’s biggest, most successful company today. The Fairchild Eight went on to start and fund over 400 new companies, including Intel, Apple, Genentech, Cisco Systems and Google.

Kleiner Perkins and Tandem

Eugene Kleiner was one of the Fairchild Eight. He teamed with former HP manager Tom Perkins to form Kleiner Perkins, which today is the world’s largest VC firm.

The key to their success: Calculated risk-taking. In 1974 Kleiner Perkins had a small fund of only a few million dollars. They risked most of it on an idea from 33-year-old Jimmy Treyberg. Treyberg was building transactional computers for banking (Tandem Computers).

“Tandem Computers was a huge risk for us. If it had not been successful there would be no Kleiner Perkins,” said Perkins. “But we knew we could create a big company.” After sweating out several months of zero revenue and questioning their future, Tandem finally made a sale to Citibank, and in less than a decade revenues exploded to over $1 Billion. The company was sold for $3 Billion.

Inside Intel

Having faith in ideas and people also keyed Intel’s success. In 1968 Robert Noyce and Gordon Moore, two of the Fairchild Eight, approached Investor Arthur Rock for funding to start Intel. They had a one-page business plan. “It wasn’t even very well written,” said Rock. But Rock believed in the team and their ideas and Intel was born with an investment of $2 million. In 1971 Intel launched the first microprocessor, and in 1972 the company went public.

Atari and Pong

Even though he turned down Steve Jobs, Nolan Bushnell was a great entrepreneur. His gaming company, Atari, was funded by Fairchild Eight member Don Valentine, who started Sequoia Capital with an initial fund of $8 million. Today Sequoia is one of the leading VC firms, and Atari was their first big bet.

Even though they had the leading game, “Pong,” Atari nearly went bankrupt due to the capital requirements for building coin operated gaming machines for arcades. In 1973 they attempted to change the business model by making the first home videogame console. But Toys R Us and the other toy retailers were not interested. Finally, a friend of Valentine’s got a meeting with Sears stores, and Sears took it on for the 1974 holiday season. Atari’s gaming console – and its one game, “Pong” – were the hit of the holiday season, turning around Atari and Sequoia. And the home videogame was born.

Genentech

Genentech, the first genetic engineering company, provides a great example of “managing downside risk.” Founded in 1976 by University of California Biochemist Dr. Herbert Boyer and VC Robert Swanson, the company almost didn’t make it to its second round of funding. “They needed $3 million to test their concept,” said Perkins. “It was too much. No one wanted to invest.” By creatively rethinking their test protocol, Perkins worked with Boyer to develop a lower cost test – which got them funded.

“Genentech was the most important thing I’ve ever done,” said Perkins. “It was such a breakthrough in science, and it created treatments that have saved countless lives. Isn’t it great if you can make money and change the world for the better at the same time?”
Sandy Lerner and Cisco Systems

Not all of these businesses had such smooth sailing. Networking giant Cisco Systems was founded in 1984 by Stanford Computer Scientist Sandy Lerner with her then-boyfriend Len Bosak in her home and funded by Sequoia Capital. As the company grew there were disagreements between Lerner and the outside managers. “We fought a lot,” said Lerner. After several such blow-ups, a teary-eyed Lerner was fired by Sequoia. She walked away with $85 million and moved on to start the Urban Decay Cosmetics company.

Apple and Steve Jobs

This brings us back to Steve Jobs and Apple. Jobs was 19, unshaven and working as a technician at Atari. He and tech geek Steve Wozniak had developed a prototype of the first Apple Computer.

Not only did Bushnell not fund them, they were turned down by virtually every VC fund. Finally Jobs met with Valentine at Sequoia. “Steve was in his Fu Manchu look,” said Valentine. “His question for me was: ‘Tell me what I have to do to have you finance me.’ I said, ‘You have to have someone in the company who has some sense of management and marketing and channels of distribution.’ He said, ‘Send me three people,’ and I did.”

Of the three, the first candidate did not like Steve. Steve didn’t like the second candidate. The third candidate was ex-Fairchild Manager Mike Markkula. Markkula met with

Jobs and Wozniak. “They were bearded and they dressed funny and they didn’t smell too good,” said Markkula. “But Woz had designed a really wonderful computer.” Markkula invested his own money in Apple, and the rest – as they say – is history.

“Something Ventured” from Zeitgeist Films premiered at the San Francisco Film Festival last month and is available on DVD. For more information visit www.somethingventuredthemovie.com

GameChanger Consulting helps companies large and small fulfill their greatest innovation dreams.