John Doerr's Top 10 (or so) List

By Elizabeth Corcoran 10.30.08, 9:09 AM ET

Burlingame, Calif. -

'Tis the season of fear and inspiration in Silicon Valley.

Earlier this month, leading venture investing firm Sequoia Capital shocked Silicon Valley by blasting its entrepreneurs with a slide show featuring a slaughtered pig and a dead clear message: the fun and games are over. The slides were almost instantly shared throughout the Valley.

Then, Oct. 28, other leading Silicon Valley investors, including the oracle John Doerr of Kleiner Perkins Byers and Caufield, offered tempered cautions--along with a twist of optimism. "The world has really changed," Doerr said, noting that public equities have plunged by 40% in the past month. But the epicenter of this crisis is not the technology world.

"We have a crisis of confidence--in government, in our money," said Doerr.

In the spirit of putting a calm hand on the start-up tiller, Doerr compiled 10 or so ideas for keeping businesses healthy during a downturn.

He presented the ideas at a forum convened by VentureBeat. Joining Doerr on stage were investors Ram Shriram, an early investor in Google; Matt Cohler, formerly at Facebook and now with Benchmark Capitol; Kittu Kolluri, a partner at New Enterprise Associates; and Ron Conway, a prolific early-stage investor.

Many of Doerr's principles amount to a head-clearing dose of common sense after a time of unbridled market enthusiasm. Act with speed, Doerr urged. Use a scalpel--not an ax--to protect a company's key assets. Have 18 months of cash--or more--available. Put off spending on capital equipment or facilities. (Google's online documents and spreadsheets are saving customers money, he noted.)

Reprioritize your research and development. Recognize that everything is negotiable, including big contracts such as your lease. Everyone in a company--from the receptionist to the engineers--should be selling your products. Offer equity instead of cash to anyone, from the landlord to other creditors.

Put your own cash into "safe" places. Doerr noted that he's been nudging firms to put money into Treasury-backed securities. Identify "leading indicators" that can give you a sense of how your business is going. And "overcommunicate" with your shareholders and employees about how the market and company are doing.

The other panelists chimed in: Avoid long-term spending commitments, urged Cohler. Renegotiate your building's lease, Conway reiterated. Use equity, not cash, added Shiriam. NEA's Kolluri said he expects to see consumers flock to brands they trust.

Conway added that the companies he's supporting have tightened their spending. In the year 2000, the average burn rate for one of Conway's investments was $750,000 a month. Now his portfolio companies have trimmed their costs to a svelte $200,000 monthly, he asserts.

And he still sees the same number of proposals from entrepreneurs that he did six months ago. "There's a lot of cash and a lot of great ideas out there," concurred Conway. "Innovation isn't slowing."

http://www.forbes.com/2008/10/30/investors-doerr-sequoia-tech-personal-cx_ec_1030doerr.html

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CALIF. magazine: history of venture capitalism

WHAT: Venture Capital WHO: William Draper, Eugene Kleiner, Armas Clifford Markkula, Jr., Tom Perkins, Arthur Rock, Don Valentine Connecting dots and dollars Elizabeth Corcoran Mark Matcho Venture capital took root in Northern California thanks to one thing: connections. That web of connections has turned out to be the most powerful renewable resource that California has ever had, spawning a business phenomenon in the late 1980s that relied on private investment and merchant banks, that at its height in 2002 produced 7,812 deals worth $104 billion and made Sand Hill Road in Menlo Park America’s most important startup hub. In the late 1950s, East Coast banks were flirting with the idea of making investments—not just loans—in new companies. (Digital Equipment Corporation got started with a $70,000 investment in 1957.) Meanwhile in California, a group of blisteringly smart young scientists needed $750,000 to launch a company in the new area of semiconductor electronics. Where to find the money? One of the group—Eugene Kleiner—knew his father had an account with a solid investment firm in New York City. Kleiner wrote a polite letter to the banker who managed his father’s money, describing his friends’ diverse experiences in electronics, metallurgy, and chemistry, and asking for help in securing funding. In 1972, Kleiner and Perkins raised the largest venture investment fund the world had ever seen: a whopping $8 million. Amazon, Sun, Genentech, Intuit, Verisign, Google all owe their starts to KP. The letter wound up on the desk of a colleague, Arthur Rock, a recent Harvard MBA with a keen interest in technology. He flew to California to meet the group. During the summer of 1957, Rock and his colleagues called nearly three dozen companies to try to raise more than $1 million to launch the firm. They were stonewalled. At last, they met millionaire Sherman Fairchild, the single largest shareholder of IBM Corp. With his support, the group started Fairchild Semiconductor Corp., as a division of Fairchild Camera and Instrument, in September 1957. Within 18 months, Fairchild would file for a patent on the integrated circuit. Fairchild marked the beginning of Silicon Valley, and the first venture deal in Northern California. "If there hadn’t been this deal, I think the [men] would have gone their separate ways and ... I don’t think there would have been any silicon in Silicon Valley," Rock recalled during a 2002 symposium at the Computer History Museum. The Fairchild incubator would give birth to virtual dynasties of silicon companies and investment firms. Among them: Don Valentine, who worked at Fairchild for seven years, helped start National Semiconductor—and later became one of the Valley’s leading venture capitalists by placing early bets on Apple, Atari, Cisco, Oracle, and Electronic Arts. Eugene Kleiner teamed up with a Hewlett Packard manager, Tom Perkins, to start the venture capital firm Kleiner Perkins. In 1972, Kleiner and Perkins raised the largest venture investment fund the world had ever seen: a whopping $8 million. Amazon, Sun, Genentech, Intuit, Verisign, and Google all owe their starts to KP. When Berkeley grad Gordon Moore and Robert Noyce, two of the cornerstones of Fairchild, decided to quit in 1968, they called Rock. This time, it took Rock fewer than 48 hours to raise $2.5 million to fund Noyce and Moore’s new company, which they eventually named Intel. In the 1990s, Kleiner Perkins began promoting the Japanese concept of keiretsu, an interlocking network of companies funded by KP venture capitalists, which share experiences, insights, knowledge, and information. That concept took hold as the zeitgeist of Silicon Valley, as more and more companies were created to complement each other. The populizer of the idea was John Doerr—who got his start at Intel. Not all webs are perfect, however. Tom Perkins once skipped a meeting with an unknown entrepreneur who seemed to be promoting a "computer kit." Venture capitalist William Draper sent a colleague to check out the same entrepreneur—and was told that the young man was "arrogant" and late for the meeting. Draper passed on the investment. Instead, it fell to another Fairchild alumnus-turned venture investor— Armas Clifford ("Mike") Markkula, Jr.— to have the pleasure and the profits of making the pivotal investment in Apple Computer and Steve Jobs.

http://www.alumni.berkeley.edu/calmag/200701/id_venturecapital.asp

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