Into the valley�

We may only be in February, but Tom Perkins' 'Valley Boy' - an account of one man's life as an entrepreneur in California - could be the best business book of the year.

If you are even only a bit curious about the tensions and egos in the boardroom of a great company - Hewlett-Packard (HP), in this case - and about the adventures of a successful venture capital entrepreneur, Tom Perkins' 'Valley Boy' offers a fascinating behind the scenes glimpse at an exciting period of technological and corporate change. The author isn't only an "on and off" director of HP but a high flier in venture capital, crazy about fast cars, builder of a clipper ship, and, after a long and happy marriage, he was briefly wed to the romantic novelist Danielle Steele.

Perkins' history with HP goes back a long way. He worked for the original partners, Dave Packard and Bill Hewlett, first as a trainee, resigned three times and later rejoined as a director, first in 2001, before resigning again in 2006 in a "cold fury". He joined the board when HP acquired Compaq on whose board he sat. "The merger," he writes, "was a tough-fought battle, brilliantly waged by Carly Fiorina, HP's 'celebrity' CEO."

The merger - more correctly an acquisition since it cost HP $19bn, was the biggest so far in high-tech history. Wall Street didn't like it. Too many big mergers in high technology failed and there were doubts about synergy. Even so, where HP was strong in consumer markets Compaq scored in enterprise, although in PCs Dell was "beating the socks off both companies over the Internet".

As a boy from a modest home, Perkins was accepted by both Harvard and MIT but chose MIT as it offered the larger scholarship and a degree in electronics. His first job was with the Sperry Gyroscope Company on Long Island. At MIT he realised he just wasn't smart enough to be a theoretical physicist, his first love, but he still had an opportunity to go to Harvard where the training influenced him to become a businessman. While studying he took a part-time job at the General Radio Company (GR), where he had to check out instruments made by "an up-start" company called HP.

One of his projects at GR was to measure the quality and accuracy of competing instruments from the upstart competitor in Palo Alto. He found "the HP products exceeded specifications and, indeed, were more accurate than the lovelier GR counterparts". When it came to looking for a job after graduation, he wrote to HP and received a reply from Dave Packard inviting him to New York during the electrical engineers convention. There, he was surprised to find both Dave Packard and
Bill Hewlett personally assembling their stand. GR executives would never have dreamed of doing that.

Young Perkins helped them, was interviewed, and told he would be receiving a job offer. Packard became his mentor, the most important influence in his life, and oversaw his training when he became "a somewhat incompetent but rather well-paid machinist". The association with both HP partners continued for decades until both died.

Booz to university labs

Harvard, he admits, had not prepared him for the hurly-burly of the shop floor, like the wrath of the foreman "who gave me the dressing-down of a lifetime for forgetting to remove a lathe chuck wrench when I shut the machine down for a coffee break, which could have killed someone had I started the thing up with it still in place".

After a couple of years he got restless and "rather stupidly" quit HP to join Booz Allen Hamilton, the big consulting firm, in their San Francisco office where he earned about double his HP salary but never had to work harder in his life. Five years later, he was back at HP but also running his own successful company University Labs, with Packard's approval. This, and being in charge of the thrusting computer division, began to make him independently wealthy, especially when he merged his company into Spectra Physics.

After the success of University Labs, in which Perkins had played the role of venture capitalist from start to finish through the development, financing and ultimate liquidity of the business, he decided to try it all over again. Venture, he reckoned, would be managed like development projects in a corporation. They just needed initial funds - more than he could provide. An investment banker friend introduced him to a friend at Fairchild with the same idea, and Perkins and partner were ready to enter the multi-billion-dollar high-tech venture industry.

With a "hunting list" provided by their friendly bank manager, they were soon on target to raise half the planned $10m start-up fund. New York prospects were not impressed. The fact that both partners had run big operations and had been successful entrepreneurs and managers didn't count. They were not financiers.

They finally raised $8m - tiny by today's standards - formed a partnership - Kleiner & Perkins (K&P) - and opened offices in Manlo Park, which later became famous as the Wall Street of venture capital. They found two additional partners, a financial and a marketing whiz kid, both of whom had worked with Perkins at HP. A lot more contact work followed, but no new funds, and no venture opportunities either. The solution? They created their own start-ups.

Tandem Computers (later owned by HP) became their first venture. Local potential investors showed little interest. They were clearly concerned about mixed results of other companies in the field and little understanding of the technical breakthrough. So the partners staked significant parts of their own funds. Ironically, investors who bought shares on the strength of the Tandem IPO (initial public offering) in 1977 and held on, eventually made 20 to one on their investment.

After decades of dealing with investment bankers, Perkins decided they were exceptionally short-term oriented, their focus entirely on the transaction of that instant and their fee for that transaction. Their initial IPO was a success and put K&P on the map. It put them off investment bankers, but they couldn't do without them "because they are the SEC-licensed gatekeepers to assessing the public market for capital - a necessary evil". Or, as a K&P partner put it: "They have all the self-restraint of lobotomised sharks."

Yet, by the late 1970s, K&P was the front-running venture partnership in America behind such successful companies as Home Health Care of America, and later Google, Microsystems, Netscape and Amazon. They courted academics with bright ideas. Hands-on-management became their trademark, and their success lay in choosing companies likely to be revolutionary in their own fields like Amazon, Tandem and Genentech in its treatment of heart attacks and cancer.


But there were disappointments, too. None as painful as the case of Jan Sloot, introduced by an old friend from the Dutch Phillips on whose board Perkins had served for two years.

Sloot, a spare-time inventor, had spent most of his life as a television repair technician and the last 15 years on his invention. The inventor's idea involved a revolutionary concept - putting two hours of video, including sound, on a smart card. It seemed loony, yet looked like the idea of a lifetime. The demonstration left Perkins, the man with hundreds of deals behind him, excited, unable to sleep that night, and eager to discuss the next step.

He phoned his friend early the next day. "After you left," the friend said, "the inventor collapsed, we rushed him to hospital and he died."

"But we are still doing the deal," said Perkins.

"Yes, we own the technology," he was told, "but we have to find the compiler. Without it the system doesn't work."

It never showed up. After 15 years of work and the sudden prospect of acknowledgement and reward, poor Jan Sloot died - in a brief state of ecstasy, his life fulfilled. And so ended the "deal of a lifetime".

'Valley Boy' is the story of an amazing life, probably the most readable and enjoyable business book we are likely to see this year. The author, Tom Perkins, started on the ground floor of Silicon Valley, became a venture capital pioneer who launched or financed many now leading companies and was briefly wed to a romantic novelist.

'Valley Boy' is part autobiography, not a history of Silicon Valley. "If we were together over a few dinners," he writes, "or were travelling on a voyage, when it was my turn, these are the stories I would tell."

He was lucky to start his education at MIT and continue at Harvard. Luck and judgement led to his first job at Hewlett-Packard, his long friendship with his mentor, Dave Packard, and, in recent years, to work with the formidable Carly Fiorina.

'Valley Boy', by Tom Perkins, is published by Nicholas Brealey, £12.99

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