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.

By centralizing, Catalyst condenses the rote part of setting up shop -- the first several months that are bogged down in a search for space, buying furniture, evaluating telephone systems, and figuring out employee benefits. To launch its companies efficiently, Catalyst's turnkey operation supplies not only the requisite cash, but also a set of desks, a notebook with all essential organizational documents, and a core of seasoned administrators and advisers. A company that taps this pool is charged accordingly but doesn't have to carry more G&A than it needs. "Here you can have one-third of a person working for you," explains Bushnell. "On the outside, people don't come in thirds."

And the number of petty details that tend to irritate infant businesses are kept to a minimum. Bushnell is convinced, for example, that every greenhorn entrepreneur who goes to a bank will come back with the wrong kind of checkbook. Additional homespun schooling is dispensed (often via in-house video) on such quint-essential seed matters as taxes, stock options, patent law, and accounting. "I've never gotten fair value from an accounting department," Bushnell sympathizes. "It's a monkey on your back. It doesn't contribute to marketing. I'll guarantee that no Catalyst company will ever get as cheap accounting as it's getting now."

Another synergistic advantage of having everybody in one spot comes through Catalyst's frequent courtyard klatches. Among the chickens (a gift for Bushnell's 39th birthday) that roam as freely as in a Grapes of Wrath kitchen, ideas and problems are batted around by building denizens (some residents aren't Catalyst companies, but simply tenants whose rent helps cash flow). Theoretically, such elbow-rubbing enhances the pace of progress more than if each company were out on its own Management may find, for instance, that some collective purchasing items may cut costs. And typical entrepreneurial errors are kept to a minimum.

If all this doesn't do the trick, the Grand Council of the Empire, as Catalystians call it, meets every month. These executives and senior members, including Bushnell; Calof, Anderson; E. Beirne Shuffle, treasurer, and Robert Allen Jr., financial analyst, keep an eye on the nestlings and set them right when they stray. Although a founding precept is to have all operations close by initially one Bushnell ambition says Calof, is to populate Silicon Valley with Catalyst offspring.

Although a Catalyst company has all the earmarks of entrepreneurship, the difference is that nobody within it is an owner; at the start, Catalyst -- or more specifically, Bushnell -- is. If a company needs second-phase financing, outside investors may be let in later. A few months after Catalyst's 1981 seeding of Androbot Inc. with about $1 million, a sum quickly used up by the home-robot company on capital equipment and research, Androbot sold 400,000 shares of convertible preferred stock for another $1 million to an individual and was putting together a $1.5 million research and development syndication partnership to develop a robot "brain" (see box, page 64). About to be weaned from Catalyst's services and sent off on its own, Androbot is seeking another $2 million from outside investors. Catalyst expects to shorten the R&D cycle to six months to a year, and to use up $500,000 to $1 million during that phase

Even though they aren't owners, Catalyst company employees are made to feel they are. "We instill fire in their eyes," Bushnell proclaims. "The entrepreneurial flame burns as brightly as if the business were their own." And, indeed, some of it is. In addition to the autonomy granted by Catalyst (each company's management is expected to make virtually all its operating decisions, guided only by the inescapable sense that Bushnell is looking on), one poker that stokes the embers is lavish income potential. For example, both Androbot's president and chief operating officer are already major shareholders of the corporation and have bcen granted stock options that will be amply rewarding should the company take off. Says Androbot president Thomas Frisina, "Nolan conveys the impression to all the presidents that it's their baby. If we hit, we get a lot out of it; if we screw up, we'll be out of a job."

For a while, Catalyst Technologies was probably the only institution in Silicon Valley without an over-designed logo out front. Although it had existed since December 1981, it wasn't until 10 months later that anyone got around to putting up a sign. But it really didn't matter, since the shortcuts and expertise within can't be characterized anyway. Bushnell is the real catalyst. Says Axlon's Vurich: "Nolan makes new things happen. To do it efficiently, to make his ideas become reality, he put everything under one roof. If you have lots of ideas, it's the logical way."

"Nolan is the vision," Calof extols. "He's the spirit of this operation. Anybody can sit around and come up with ideas all day, but we're doing things here -- lots of different things. This place has to be flexible, or it isn't going to work."

The first all-Catalyst company to leave the premises and operate on its own will be Androbot, due to depart this spring, a scant 18 months after it was started. "Two weeks after we're gone," Frisina notes, "one of Nolan's other ideas is going to be in this space, incubating like we did."

There is no doubt that innovative products will be waiting in line. Bushnell seems not only willing but anxious to bankroll leading-edge projects. Big companies like Warner Communications "don't have the guts" to innovate any longer, he feels. The conservative cycle that businesses are following these days is that they wait for their products to peak before daring to undertake a new venture. Bushnell is less patient. For one thing, he promises that on October 1, 1983 -- the moment his agreement not to compete with Atari expires -- "I'm going to be back in the game business " The corporate beneficiary of this reentry into video games (with three-dimensional playing fields, he hints) will probably be Pizza Time Theatre, a 1978 start-up in whose operation Bushnell is still closely involved.

"If I were still at Atari," Bushnell declares, "I'd have all these things going on at once. But now they're afraid of failure. Yet every new product runs that risk."