Valley Boy | Tom Perkins | Talks at Google

Mr. Perkins has always been one of the business world's most intriguing figures. In this insightful memoir, Mr. Perkins recalls many fascinating episodes of his life, both personal and professional, including his involvement in the creation of American industries no one could have dreamed of a century ago. He also discusses his marriage to Danielle Steele, his notorious vintage car collection, he, his yacht, the largest privately owned sailboat in the world, his race across the ocean, his being tried of manslaughter in a backwater French town, and the toughest assignment he's ever had as a trustee emeritus at the San Francisco Ballet. He was recently featured on the news show 60 Minutes this past Sunday. It really is an honor to have Mr. Perkins here. Please join me in welcoming Mr. Tom Perkins.

Well, it's great to be here. Truly feel very much at home. I've probably raised the average age in this room by a couple of years just by walking in. You know, when it comes to shameless self promotion, I yield the arena to almost no one. Although Paris Hilton has been sort of gaining on me lately, so. But it's good to be with this young group. And I'll try to give you just some idea of what this book is about, but I think mostly you might have some questions for me, which I'd be delighted to answer. I just got back from interview at the New York Times where they mostly wanted to talk about why I didn't think raising taxes was a good idea anyway. Unbelievable. I decided to write this book because I thought I could share some of my experiences. And the book is not in chronological order particularly, and it sort of skips around and they're like stories that I would tell if I were with you for dinner and we were swapping yarns and probably to settle a few scores, if the truth be known. And along that line, the publishers wanted me. And I start the book with the discussion of the Hewlett Packard scandal of a year or so ago. And it's still kind of interesting because what went on at Hewlett Packard sort of epitomized different kinds of directions a board of directors can go. And Google has a very good board of directors, a very active, very involved board of directors. That's the kind of board I think every company should have, the directors should direct. But there's the idea out there that directors should be more sort of compliance officers and check the boxes of the Sarbanes, Oxley and so forth. And after the firing of Carly Fiorina, which was done to try to regain the momentum that Hewlett Packard was losing in the Marketplace against Dell and IBM and the hiring of our new president, Mark Herd, who was, who was just a great guy. But there was a difference on the board as to, all right, what kind of board are we going to have? And I was chairman of the nominating and governance committee, sort of the guy who decides what the board does and what it works on and who should be on the board. And Patricia Dunn was the chairman of the board and her view was quite different from mine. And it was kind of oil and water. It was sort of Godzilla against Bambi. I was Bambi, of course, but we really couldn't agree on much. And I was having trouble bringing on the kind of directors to the board from Silicon Valley entrepreneurs, people that would understand the technology cycle of the Valley. It's, you know, 18 months. You miss a cycle, you're in real trouble. And Dell and IBM are not pushovers. They were beating us up very seriously in the marketplace. And I felt the board had to be more involved. And I think Patricia Dunn resented that, didn't like that, felt that I was trying to pack the board with cronies and that we were not the sort of directors that Wall street would like, namely compliance experts. This all came to a head in the notorious spying episode of the company. And in my view, and, well, even no less authority than Carly Fiorina has said that the spying investigation was a tool used to hopefully get me off the board and maybe some of the other cronies and move on to a more Wall street compliant type of board. Well, of course, when I found out that the company, which I had helped put in the computer business, I was the first general manager of the computer business at Hewlett Packard back in the 60s, and it did pretty well. And I thought that Dave Packard and Bill Hewlett were my mentors, and they indeed were. And I'll get into that a little bit, maybe in a few minutes. Anyway, I felt that HP was an icon of Silicon Valley and that this idea of spying upon your own board members and secretly and using that as a tool to rearrange the board was terrible. And also the director that was the focus of this, unfortunately for Patty, it wasn't me that was the leaker, but the leaker hadn't really leaked anything. It had been a very positive spin, no new information revealed. And the only mistake was that he didn't just put his name on it and that would have been that. So I was extremely upset and I resigned after about a 90 minute, very heated discussion. Now, maybe if I'd stayed On maybe I made a mistake. I regret not being on the board. I love the company and I think I made a contribution and I miss it. And if I'd stayed on the board, perhaps I could have fixed it internally, but probably not. And probably if it happened again tomorrow, I'd do the same thing. But I tried to keep it out of the news, and I tried to get the company to investigate itself and stop doing this and probably get a different chairman. And I got stonewalled on that. Nothing happened for over three months, and my phone calls weren't answered, which I'm not used to, and my emails were not responded to. Finally my lawyer said, look, Tom, you were in charge of governance. If this ever comes out, they're going to hang it on you and you have to tell the sec, which I did. The SEC then went public with it and it just exploded in a media scandal which was extremely embarrassing to the company. But fortunately, The bad stuff attached to the board and not to the company itself. The company just soldiered on beautifully. And since then, Mark heard our great new president has restructured the board. So I think HP is doing very well. But it was a big deal for me. And the reason is that Dave Packard was my mentor. And I hope you're all lucky enough to have a mentor, a good one. And I had, I think, the best could have ever been. I was going to graduate from Harvard Business School. I was looking for a job. I knew about the Hewlett Packard Company, which was a very small company, 20 million a year at that time. And I wrote Packard and I came down to New York and he and Bill were setting up their booth for the electrical engineers convention. I helped him set it up. And by, you know, I guess I was a good carpenter. Anyway, they offered me a job. And so my, my first job out of business school was at hp. Packard wasn't so sure that they really needed or wanted MBAs, so he made me work in the machine shop for six months, which is pretty interesting. But anyway, I was very fortunate to have lots of different jobs at the company. And I learned everything that I know about entrepreneurship from David Packard, and that includes venture capital, because Packard was, and so was Hewlett, just brilliant entrepreneurs. And they kept pushing the company into new areas. And they worked Hewlett Packard the way we copied it, Kleiner Perkins by funding new technologies, bringing the people in, getting the risk out up front, then pouring the money in and developing it. And I was, as I said, very lucky that Packard let me participate in that. But the really Extraordinary thing was I had an idea for a way to make the laser. In those days, it was a new. They were great big things. I had an idea how to make it as practical as a light bulb. And I. But I didn't want to leave hp, so I went to Dave Packard. I sketched out my idea and said, you know, I'd like to. Like to do this. Would it be okay if I worked on it on nights and weekends? Now, very, very few bosses would have said, sure, but he liked it. And he said, okay, just don't, you know, don't let it get in the way of hp. And he let me do it. And I was able to talk my wife into taking her life savings, all $15,000 of it, and putting it into the laser company. And it was a success. It boomed. I sold it for millions of dollars early on and still worked at hp, so it was an extraordinary experience. Then Packard went back to Washington, and he became Deputy Director of Defense under the Nixon administration. And while he was in Washington, Bill Hewlett asked me to become his assistant and help run the company as his staff assistant. Hewlett had not ever really run anything before. Packard always did that. So it was an interesting time and a time, a great change in the company. And we made the transition from, at that time, a few hundred million in revenue up into the billion category. Then Packard came back from Washington and complimented me on what I'd been doing. But he said, I. I help Hewlett. That's what I do. So they were looking for something else for me to run, and I decided to go into the venture capital business because I had essentially been a venture capitalist in doing the laser thing. You know, I'd put up the money, I'd run it, but I didn't work there full time. And that's what a venture capitalist does. So I met Eugene Kleiner, who had a very similar background to my own. He was. Well, he was a technologist, was one of the founders of Fairchild Semiconductor, a terrific guy. And we set out to raise a pool of venture capital. And it took us about two months, I guess. We wanted to raise $10 million, and we couldn't. We only got as far as $8 million. And that $8 million fund was the largest pool of venture capital in the world. And everybody said, what are they going to do with all that money? And they were right. We only invested 4 million of it. But we sort of hung out our shingle and nothing happened. Nobody. I mean, there weren't any business plans. There weren't really any entrepreneurs in those days. This is back in 1972. So we decided, okay, we'll do it ourselves. And we did. Two companies in that first partnership that became hugely successful. The first one was Tandem Computers, which for many years was independent. It was the first fault tolerant computer company with a system architecture operating system that was also fault tolerant. It's still going. It was acquired. The company was ultimately acquired after it was in the billion dollar category by a compact computer, which was a Kleiner Perkins company, and then subsequently acquired, of course, by Hewlett Packard. And it's still going. It's still at the top of the food chain of giant computers. It runs like tandem systems, run 80% of all the stock exchanges around the world and the credit card networks and the filling station pumps and all of that stuff. The second company we started is in some ways more famous, and that was Genentech. And at the time we started Genentech, there was no such thing as genetic engineering, gene splicing, any of that, not even at the university level. And it wasn't clear to me whether Darwin, or for that matter, God would permit you to make a new form of life that you had programmed to make something that you wanted. And our case, we decided to make human insulin, true human insulin, using a bacteria as the host. So it was basic technology really. And you know, a venture capitalist shouldn't knowingly fund basic technology. Sometimes you do it by accident. But anyway, we got it going. It was a huge success. And Kleiner and Perkins had invested a grand total of $250,000 into the company for a third of the ownership. The other two thirds were owned by the other two founders. Bob Swanson, who unfortunately died at a very young age, and Herb Boyer, who is still out there, should win the Nobel Prize. But they don't like to give it to billionaires anyway, those two companies, and I don't think I'm being immodest to say that they laid the foundation for high technology venture capital in what has become Silicon Valley. So as I said on 60 Minutes the other night, you can blame the conversion of all those orchards into parking lots back there in Silicon Valley on those two companies and Kleiner and Perkins. So we proved that lots of money could be made in venture capital. And that did not go unnoticed. We raised more money ourselves and lots of competitors entered the field. And I think if I have a heritage, it was the establishment of not just Kleiner Perkins, but the way that high tech venture capital is done in the United States. Eugene and I were Very naive. We were early, the hedge fund guys and the buyout guys came along later where they pay themselves fees for putting the fund together, fees for making an investment, fees every time there's something sold. And whether the investors get their money back or not, they've been compensated extremely well. Those managers, we didn't do that. We just thought, gee, the investors ought to get their money back before we get a nickel and we ought to treat the entrepreneurs fairly or they won't come to us. And that way, which we still do at Kleiner Perkins, Garfield and Byers became the way of Silicon Valley. And I'm proud of that. The other day I went on Google and I typed in Wall street scandal and I got I think two and a half million responses. And then I typed in venture capital scandal. I get about 100,000. And most of those had to do with the pricing problems of stock options, which isn't strictly venture capital. In other words, with maybe 20 to 1 capital in high technology venture capital compared to the capital in the investment banking firms with a 21, 20 to 1 difference in capital, there's a 10 to 1 or more difference in scandal. So I'm kind of proud of that. Now that's Google research. So, you know, it's perfect. Okay, I'm going to skip ahead a little bit. The book isn't just about business. It I talk about my car collection, which I had a lot of fun building and turned out to be an extremely valuable thing. I had never planned to make money on it, but it became an investment bubble in the late 80s and I sold it just before the bottom fell out. There's a chapter on I was a director of the San Francisco Ballet during a period of crisis and I ended up running the ballet. That is a perfect example of don't go to a meeting and sit in the front of the audience unless you're prepared to get involved. And for somebody who knew nothing whatsoever about ballet, still don't. I ended up with a. With no ballet director, threatened strike by the dancers. All the good people in the world signed up for years into the future. And it was, it was a pretty interesting thing because everything I did was reported by my search committee to the newspapers and it, it was a mess and it's the most difficult assignment I ever had. Fortunately, it ended well. The director we ended up with is still there 20 years later and it's now considered maybe the best ballet company in America, or if not the world. I talked a little bit about being tried for manslaughter in a French court and being found guilty. It was an accident in a sailboat race. I was not at fault. But nevertheless, I had to stand trial. And I made the terrible mistake of hiring the best lawyer in France. But the trial was in a little town in the south of France. And my Parisian guy showed up in his robe and his powdered wig. And the judge didn't even want to hear from him. And I wasn't permitted to testify in my trial. It's really different in France. I had hired private detectives. I had about 50 photographs that showed this accident minute by minute. Because it was witnessed by thousands of people with cameras. I wasn't permitted to show that. The only good news is that everybody was found guilty and I didn't have to go to jail. I talk a little bit about being married to an extraordinary woman, Danielle Steele. Danielle and I love each other. We just proved we couldn't live together. So we're divorced, but we're pretty close, so there's a chapter on that. And then I kind of wind up the book with this discussion of my. My new toy, which is a sailboat. And I could give you lots of reasons why it had to be as big as it is, but it's just. It's really big because. Because I've got a big ego, I guess. But it is a breakthrough in technology. It's. It's a square rigger. And those were the. The highlight of the 19th century. The clipper ships set all the records, some of which still exist for sailing. But they were very crew intensive and they wouldn't go very well upwind. They were mostly useful and good in the trade winds. And in the 1960s, the German government paid for the development for commercial use on ships of a new system called the Dynarig, which is a square rigger, but designed to be completely automated. And that would go upwind very well. Nothing came of it because the fuel crisis ended and they didn't get beyond wind tunnel tests. And I bought the residual technology and started to develop this thing. And after about two years, I felt that I had the bugs out of the system. And so we decided to go full scale. The whole project took six years. The boat was finished last June. It's already sailed 30,000 miles. The system works brilliantly. We've entered races and won them, and it's pretty exciting. So I talk about that. Anyway, I think that's probably enough from me, and I. I'd just be delighted to take questions.

You evaluated all these companies for opportunities over time. What are the key predictors of success. When you're looking at a company.

Everybody heard the question, right? Okay, well, you know, you usually get asked what's more important, who you know or what you know. Or another way is, is it the person or is it the idea? And I have a very direct answer to that. It is the idea. Because I mean, good people have good ideas and I'd much rather and have frequently backed a good idea in the hands of an inexperienced executive. We at Kleiner Perkins Coffee and buyers expect and don't particularly want a fully developed business plan. We would rather work with the entrepreneurs, as we did with Google, to develop the plan, figure the strategy out, and then get rid of that early risk. Because why would the best marketing manager, or the best, whatever manager, why would such a wonderful person join a startup? It's too risky. Better to get rid of that early stage risk, then show you have a potentially great company, then you can hire the best people in the world. That's been our formula over the years. I backed a company some years ago called Accuson, which is the leader in ultrasound diagnostic imaging. It's now a division of Siemens. But the idea came, it was a technical breakthrough, came from a PhD in physics who had never had anyone work for him. Not anyone. And came up to my office and much to his amazement, we spent the first hour talking about acoustical diffraction instead of finances and numbers. But I just wanted to be sure that the idea was really solid, which it was, and I decided to do it. And as I say, he'd never had anyone working for him, but I learned a lot from him as a manager. He was brilliant and we built a great company around him. So did that answer your question? Okay. Hi. I'm just curious what you think about startups in the alternative energy space. I'm sorry, alternative energy. I still didn't get alternative energy energy. Maybe I'm sounding too close. Yeah, alternative energy, alternative energy. Well, we, we are investing in that area. We think it, it has a great future. I mean, it has a lot of attention, a lot of government money and there's a lot of focus on it. And there are all kinds of different ways, I think, to succeed in it. We are not investing directly into, you know, the production of biofuels or anything like that. We're more interested in the technology side of it, batteries, things like that. So yes, I think it's a good area. Hi.

Hi. I think it could be fair to say that Google is a lot like HP or at least strives to be a lot like HP was in the older days, very much research and technology driven and very much driven from the engineers themselves.

I would agree with that.

And HP had a fall from that. And do you have any advice for us about how we can stick to that line and try not to fall prey to marketing gimmicks and things like that?

Well, I mean, that's a great question, but my first answer is hp, as long as those founders were at the helm, didn't have a fall. They did very well. Packard and Hewlett were brilliant, absolutely brilliant. Now, the only fault I have of Dave Packard and Bill Hewlett is that they did not develop their board of directors. They put their children on the board, they put professor friends, and when they were running the show, it didn't matter what kind of board they had. But as they began to detach from the company, it really did start to matter. And I think ultimately some of the troubles the company has had stem from a weak board that didn't know what to do without Dave and Bill there. Now, I don't see that situation in Google. I think you have a very strong board. I like the board. You have young, vital founders. So three generations from now, we'll worry about that.

I was just wondering if a lot of venture capitalists have a specific time window in which they expect a return. And I was wondering if that was the case at Kleiner. And also if. If you've ever come across situations where that causes the interest of the entrepreneur and the venture capitalist to diverge, let's say, because the entrepreneur might have a moving window, whereas the VC has a fixed window.

Five years, right?

That's an interesting question. I think timing is extremely important now. We look for new technology, and that's what we love. If we're too early, we are then funding research, and it may take a long time to develop it. And in the meantime, potential competitors may get wind of it and may get up to speed so that by the time we and the entrepreneurs are ready, you know, everybody else is in the business. So that. That is a terrible thing to happen. And we all know that there are bandwagons, there are technical bandwagons, and there's the idea. If you're six months ahead of everybody else, that's all you need. I don't believe in that. I try to avoid bandwagons, but you've got to. So you have to be an early innovator, but just not too early. Now, when we set up our funds, we set them up typically for 10 years because. And Sometimes we have to extend them because we're still not fully finished with all the ventures. We've typically paid back the investors their money, but we still have the ventures in the fund. And when we invest, we do it. We invest in any market. If the stock market is bad, well, the prices will be lower. If the stock market is booming, the prices will be higher. But we'll do it in either situation. And we figure that we can't count on a strong stock market to exit, so we'll be in it for the long haul. And we also tell the entrepreneurs that it used to be a joke. You can't get rid of us by going public. And it's true because we think, I think Google is another great example. We think that we bring something to the equation and that the public issue is just an event. It's a liquidity event, just like raising money from anybody else. And we've done it over and over and over and we, we probably know how to do it better than the entrepreneur who's never done it before. So we'll try to help in that. But after it's happened, we're still there to try to do what we can and to be responsible. We don't want the entrepreneurs to think that we're, you know, we're quick, fast buck artists that will push it onto the public and exit as quickly as possible. That isn't our approach. Okay.

I was wondering if there was some areas that you felt that venture capital could be applicable outside of sort of the realm that you've been operating in. Like, it seems like some nonprofits are sort of copying this model now, like the Gates Foundation, Clinton Foundation. And I was wondering what you thought about that, whether that could be successful or if you're involved in any of that.

Well, you know, I wish I knew more about the Gates Foundation. From what I do know, I think it's marvelous. And I think he probably needed to do that to ease his conscience. But Bill Gates is the only guy I've dealt with who, when he looks at you, you can see him thinking his liver might be pretty good and the kidney looks alright. So not an easy guy to deal with. But, and I'm being glib, I think what he's doing is wonderful. And when the government's going to take 55% of it, why not give it away anyway? So. But I don't believe that they're doing anything that would impinge directly on venture capital. But perhaps I'm not familiar with it. So I don't have a good answer to that question, other than my smart ass response anymore.

Do you think the whole venture capital has been primarily funded within Silicon Valley? And then some technology innovation in the Route 128 corridor? Why do you think that is?

Why is it, if I understand why is it primarily in Silicon Valley and not elsewhere? Is that yes? Well, you know, in the beginning it was, why go elsewhere when within 30 miles of your office there's all you could ever dream of doing? But we have gone elsewhere and we've been active around the United States and we now have a new initiative in China and we have a group of men and women in China, Chinese, that we're developing ventures with and we say we provide adults supervision from Menlo park by flying over every couple of weeks to be as involved as we can. It's an experiment for us. We're going very cautiously, but we're pretty optimistic about China, whether we will do that elsewhere. India is an obvious place, but we haven't done anything there yet. Okay, thank you.