Technology and venture capitalism

Tom Perkins is a founding father of Silicon Valley, a legendary venture capitalist and a yacht-racing playboy, known for his idiosyncratic ideas and golden touch.

He designed lasers in his early career, took a pioneering role as the first head of Hewlett Packard’s computer division, and was then a founding partner of venture capitalists Kleiner Perkins Caufield and Byers. There, he helped launch Compaq, Genentech, Google, Amazon.com and other companies that would shape the technology industry.

Mr Perkins attracted further attention when he resigned from Hewlett Packard’s board in 2006, in protest against the “questionable ethics and dubious legality” of their chairman’s now infamous leak investigation.

These events, and episodes from his life personal life - such as his love of fast cars, his quest to build the world’s most advanced sailing yacht and his fleeting marriage to the romantic novelist Danielle Steele – are recounted in his autobiography, Valley Boy: The Education of Tom Perkins, reviewed by the FT here.

So what has a lifetime in business taught Mr Perkins? What does it take to be successful? What does the future hold for the technology industry? And how will venture capitalists weather the credit squeeze? Mr Perkins answered your questions on Tuesday December 18

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What are the differences in the role of venture capitalists now compared to when and you started funding companies? Do you think there need to be more funds set up to address early stage companies?
Abid Azam, Berkeley and India

Tom Perkins: For KPC&B, we do not see our role changing. We continue to practice the business more or less as we always have. But, there is so much money now available in so many inexperienced hands, that I think it will end in tears for many, many players.

The new giant funds inflate prices (because they have so much pressure to invest) and it will, at some point, lead to another bubble. I think that there are already sufficient funds aimed at the early stage. But, of course, that’s the most difficult stage, and many will fail. The trick is to put ”the risk up front” so that when failure happens, not much capital is lost. The entrepreneurs may learn enough from the experience to succeed on the next start-up.

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The US continues to be the hub for innovation and wealth creation. But which other geographic markets excite you and which technologies and markets are European entrepreneurs well placed to build into world-leading companies?
Stephen Upstone

Tom Perkins: I like China, India and Holland as locations. The technical side of your question is important, but too hard to answer in this kind of forum.

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In your opinion, is it possible to imbibe a sense of the Silicon Valley mindset (dynamic innovation, love of rapid change, willingness to embrace new ideas) into a $2bn middle-of-America manufacturing company? If so, what are some of your suggestions to begin?
John Kresse, Indiana, US

Tom Perkins: The mindset must start at the CEO level. It certainly is possible (look at HP), but it is rare. It’s impossible, in my opinion, for the ideas to bubble up from lower levels and survive if the CEO is neutral and not a champion for change. Also committees are doomed in the process. Successful VC is very rare within companies.

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Given the vast amount of money looking for investment opportunities (including pension funds, hedge funds, endowments, venture funds, foreign government investment companies), what is the next bubble? The burst of the internet bubble in 2000 was, in part, a contributing factor to the real estate bubble. Now that the real estate bubble has burst, what is the next area at risk of a bubble?
Walter O’Haire, San Francisco

Tom Perkins: I am not sure. But the struggle between fear and greed will never end its cycles. I personally have both benefited and suffered from a number of bubbles over the decades: Lasers, mini-computers, bioengineering, internet, etc. etc. I hope the cycle never ends!

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Do all successful venture capital businesses require new technology or a new application of existing technology as their core?
Taymour Ezzat, London

Tom Perkins: Well, I think they require a new idea which is not already in every one’s mind. Our backing of Amazon.com was in this category. The technology was not the key, rather a new concept in marketing was.

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Can the venture capital process advance projects according to their net worth to society in terms of social, ecological, aesthetic, and moral improvements over the long term, or are those advances which I desire fundamentally opposed to a VC picking for rapid financial gain?
Dan Kitcher, Melbourne

Tom Perkins: In my opinion, freedom for capital to make profit as it sees best, leads to the other benefits for society, which we all hope for. Ironically, it is government sponsored programs aimed at specific targets, which usually fail to hit the target, and invariably fail to return anything but grief to the long suffering taxpayers.

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First let me congratulate you for being an inspiration for all of us who are in the business of innovation. For emerging markets, such as India, which sectors do you foresee getting significant attention from venture capital industry?
Charan J. Singh, Pennsylvania

Tom Perkins: KPC&B is beginning to be active in China, mostly in systems software. If we had the resources, I would like us to explore opportunities in India as well.

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Is the role of the VC changing with new class of funds entering the market? Right now, both hedge funds and private equity firms are much larger than before and are entering into each others space and even dabbling into traditional VC type deals.
Abid Azam, Berkeley and India

Tom Perkins: The traditional role of, for example KPC&B, is not changing, but the enormous amount of money available in the hands of new players, will lead both to inflated prices and, probably, tears in the end.

Wall St can usually be depended upon to upset the applecart eventually.

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Congratulations on the book. I knew you were a great VC, but had no idea you were having so much fun and could write. It seems to me that the biggest opportunity in computing today is for software tools to put multiple processors effectively to work in mainstream applications, but this is a really challenging technical and business problem. The big players such as Microsoft, Intel and HP can fund R&D and hire luminaries but can’t seem to create the right entrepreneurial environment. Smaller players might succeed by focusing on solving the problem for significant niches, but would need patient capital and face difficulty protecting their intellectual property. Taking this problem as an example, what are your thoughts about the effectiveness of the current VC environment for addressing big technical challenges?
John Hendricks, Sarasota, Florida

Tom Perkins: Thanks for the kind words.

Your question is a tough one because the costs of developing a new operating system for new computer hardware is truly enormous. Until some breakthrough technology appears to make new computer systems ”self organising” comes, I think only the giants will even try to do it; and I don’t see much momentum there either

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What is the fundamental difference between the US and Europe in producing disruptive ventures? Why can Europe not produce companies like Google, Apple, or Amazon?
Bottir Gafurov, London

Tom Perkins: I think the basic difference is in mental attitude. In the Valley everyone knows someone who has been a success in a tech company. The idea of success is in the air. It just takes a long time for that sense of the possible to develop elsewhere.

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What does it take to be a successful venture capitalist? What career path can one take to get into the industry?
Ajay Mattoo, Bangalore India

Tom Perkins: I believe the best venture capitalists start with working experience in a rapidly growing company. Then, perhaps they become an entrepreneur - finally they have the experience for being a VC.

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How will the unfolding global asset deflation hurt Silicon Valley venture capital investments in infrastructure (telecom/networking) which in turn had only begun to bounce back after a long downturn?
Athar Mian, Palo Alto, CA

Tom Perkins: I think there will be little or no effect. The VC cycle is not linked to these markets, and there is plenty of VC capital available.

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What is the best piece of advice that you’ve received during your career? And what advice would you provide now to entrepreneurs trying to succeed in Silicon Valley today?
Jon Purdy, Atlanta, Georgia

Tom Perkins: I can’t boil it down to a single piece of advice, rather the best thing for me was to work for Dave Packard, and study his style and ideas. He was my mentor, and without the benefit of working for him, nothing I have done in VC would have been possible.

So, my advice is to find another Packard (they are out there) and beg to work in his company, and watch closely. Good luck to you, Jon.

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What is the impact of state venture funds such as the one in Russia on the economy?
Bottir Gafurov, London

Tom Perkins: I am not expert in this area, so I offer opinion and not specific knowledge. But, I believe that only free capital, aimed at making a profit can succeed. Other goals, like helping society in general, are the by-product of free capital.

Committees invariably fail at doing venture capital, at either the corporate or the government level. Committees are too cautious, and too constrained by other goals. Low taxes and minimum regulation are the key. (That’s what you would expect someone like me to say - but it doesn’t make it wrong.)

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How do you concentrate and successfully manage KPCB’s wide variety of interests and holdings?
Stephen Lim, Singapore

Tom Perkins: Honestly, I hate to be self promoting, but my book Valley Boy discusses this at length.

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