The Pied Piper Of Sunnyvale

Tweet

Two bearded tinkerers with electronic gadgets getting together to discuss the future is not, by Silicon Valley standards, extraordinary. So when entrepreneur Nolan Bushnell, founder of Atari Inc. and creator of the world's first coin-operated video game (see INC., August 1979, page 42), sat down with engineer John Vurich, inventor of the world's first computerized pinball machine, northern California's blase technology community took small notice. Nor was anyone surprised when, in March 1980, the two game makers opened a new garage shop in Sunnyvale, even though the enterprise was auspiciously located only a few feet down the street from where Atari had started eight years before.

Yet the co-venture, Axlon Inc., is apt to be pivotal in the annals of high-tech finance. It was Bushnell's first start-up since he sold Atari for $28 million to Warner Communications Inc. (along with Pizza Time Theatre, a division Bushnell later bought back) in 1976. Now barely three years old, Axlon bears the distinctive marks of its progenitor. It has no fewer than nine computer-peripheral products up and selling. One is a mass-marketed, handheld terminal that plugs into telephones, another, a small, OEM-vended, solid-state device that expands microcomputer memories. Both are offspring of Bushnell's hyperactive and playful imagination, one avenue of which aspires to the ultimate peripheral -- a shirtpocket, intelligent terminal.

The undertaking has sparked even wider aspirations Bushnell seeded two additional companies -- Magnum Microwave Corp., a manufacturer of microwave components and systems for satellite communication, and Compower Corp., maker of switching-power supplies for computers Both, like Axlon, are fully operational. And in December 1981, Bushnell formally became sole proprietor of Catalyst Technologies, a holding company of some half-dozen additional Bushnell start-ups huddled like newborn rabbits in his Sunnyvale warren. "Investing in companies only 50 feet away," reflects Bushnell on the new brood, in which he reportedly has sunk nearly $10 million, "is very handy."

Bushnell conceives, bankrolls, staffs, and guides the enterprises from scratch, one by one. As it is born, each company is housed in a room or two at 1287 Lawrence Station Rd. in Sunnyvale, the incubator established especially for properly breeding little companies and sending them out to face the rigors of the marketplace. The expertise force-fed by Catalyst's brain trust, the thinking goes, will prevent these companies from making typical start-up mistakes and bring them to profitability all the sooner.

Predictably, the Catalyst companies are mainly in such consumer markets as home robots, electronic shop-at-home systems, a computer camp for children, and high-resolution television. Like any bettor on a roll, Utah-raised Bushnell (who worked his way through college playing poker until he lost his entire tuition in one game and swore off gambling) is in the process of confidently compounding his gains. And the increment of the $15 million nest egg with which he left Atari may turn out to be geometric. Still-private Axlon, for example, is already profitable, with sales that multiplied eightfold, from $500,000 in 1981 to an estimated $4 million in 1982.

In Catalyst's sparsely appointed building, the prototypical company represents a Bushnell whim given flesh. And that whim -- a sense of market-cum-technology that, Bushnell admits, is as much intuitive as studied -- comes only in extra-large size. Bushnell's musings dauntlessly roam not simply to niches but to entire new industries. For that reason, he is a magnet for an array of bright engineers and executives eager to leave comfortable jobs and homes for the chance to be in on the launching of an engaging and often playful adventure. "Nolan senses where the technology is going and how it can be taken advantage of," says Catalyst's president Lawrence Calof, the attorney who renegotiated Bushnell's employment agreement with Atari. A commanding figure with a ready smile, Bushnell exudes a sort of Pied Piper of Sunnyvale attractiveness. "I've never met a person who has more ideas than [Nolan] does," enthuses John B. Anderson, executive vice-president and a former Atari vice-president fo administration. "He attracts a lot of people, and they have ideas of their own." Bushnell doesn't invest just in businesses: He recently brought in a "very, very bright kid" he had run across in Los Angeles. Eventually, Bushnell says, he will find something for the young man to do. And on the side, Bushnell set up for his father-in-law an elite (except for some video games near the bar) Valley restaurant, which has become an area mecca for forging high-tech business deals over lunch.

At first, Bushnell intended to make Catalyst a public company based on 1980's so-called Heizer Act, which made nonprivate investment corporations more feasible. But, dismayed by the subsequently poor showing of Heizer stock on the American Stock Exchange, management concluded that the public wasn't patient enough to wait the usual five years or so for a venture capital deal to produce returns. Besides, Bushnell's concept of pursuing offbeat technologies and squeezing them into novel packages was apt to seem dubious in the public eye. "This," admits Calof, "is truly risk capital -- as risky as you can get." Even so, he anticipates return on investment from seed money in as little as three years, and at multiples of as much as 1,000 times the original investment. That is a rate of return that more than a few public investors would be willing to take a chance on. But they won't get the opportunity until a Catalyst company goes public further down the road -- if, indeed, any does.

Given a Bushnell inspiration, Catalyst sets up a company (usually a Subchapter S corporation) with a handful of people deemed capable of converting imagination to reality. The brainpower comes mostly from people Bushnell knows down in the Valley. Many are restive employees of other companies who would like to work in a small group (and the opportunity to strike it rich through stock options and the like). "They come knocking on our door," says Anderson, "and we offer them the opportunity to do something new and exciting." Bushnell's vision for consumer robots (he foresees 1% of American households having one by 1985 and a vast market by 1990) took shape in a suite of Catalyst offices in October 1981, with five staffers -- all engineers. Not until the project was approaching prototype stage a year later were a marketer and operating officer hired and supplied with a rudimentary business plan.

 1 | 2  NEXT