Peaks And Valleys

Venture capitalist Don Valentine scaled the entrepreneurial heights as a key investor in Apple Computer, Altos Computer Systems, and Tandem. Now, amidst uncertainty in Silicon Valley, he talks of opportunity, company building, investor madness, and the failings of the business press.

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He speaks like the New York street kid he used to be, but Don Valentine understands the challenges facing California's high-technology entrepreneurs better than most Californians. At 47, the feisty venture capitalist ranks high among the deans of Silicon Valley's much ballyhood investment community.

Not that this reputation has made him universally beloved. Gruff sometimes to the point of rudeness, he can be a formidable for of foolishness. As the marketing manager of the thenfledgling National Semiconductor Co., Valentine is to have scolded a subordinate so severely on one occasion that the poor fellow fainted dead away. Other victims have also felt the lash of his wit: entrepreneurs and journalists, to name a few.

Despite his prickly manner, Valentine is widely admired among those entrepreneurs who have taken his money, and, move importantly, benefited from his intimate knowledge of building companies in emerging growth industries. The son of a New York City Teamster official and a graduate of Fordham University, Valentine won his spurs in the infant integrated circuit business -- at Fairchild Camera and Instrument Corp.'s semiconductor division from 1960 to 1967, then at National Semiconductor Corp. until 1971.

He then formed his own venture capital firm, Capital Management Services Inc. (now called Sequoia Capital), which was a key early investor in more than 100 California high-technology companies, including Atari, Apple Computer, Tandem, Altos Computer Systems, LSI Logic, and Cypress Semiconductor. With these and other successes, Sequoia Capital over the past 10 years has earned its limited partners returns in excess of 60%.

For all his triumphs, Valentine insists that he doesn't back in the media's glorification of his trade. Indeed, he deplores it. And now that the press has decided to deflate the industry's once-buoyant image, he professes to be relieved. He knew failure, too, in the midst of his successes: Pizza Time Theatre was a Capital Management-launched company.

At the same time, Valentine has not lost faith in the future of U.S. entrepreneurism. Looking out of his office window at the rolling hills above Stanford University, sipping a mug of tea, he reflectsthat entrepreneurs need only remember the key qualities that have made for their success in the past -- the courage to be different, to create markets where none existed before, and to invent radically new ways of doing business. With such weapons, he argues, entrepreneurs can continue to enjoy surprising triumphs against their larger, more entrenched competitors.

INC.: What's going on in the venture capital business these day? Do you still have people pounding on your doors with new Apple Computers, or new add-ons for the IBM?

VALENTINE: Amazingly to me, yes.

INC.: What do you say?

VALENTINE: Well, the first thing I ask is, "Why, in 1985, do you want to do this? What do you see happening in the world that leads you to believe that you can make a real company, achieve whatever you want to do as an entrepreneur, and at the same time allow us to make a consequential return on the risk we take?"

INC.: And what do they reply?

VALENTINE: Unfortunately, many of them start talking about the installed base, how many are being produced -- that sort of thing. They often don't seem to have any sense that the race has been run, that there's no longer an opportunity for the modest technical contribution to the evolving family of Apple or IBM boxes.

INC.: Does that mean there's no more room for anybody in the microcomputer industry, apart from those two?

VALENTINE: Oh, I think Radio Shack is probably a well-entrenched company. They have their own distribution channel, which kind of helps them. And Commodore has staked out a very strong position in Europe and at the very low end. But I wonder if that's not it.

INC.: What about the IBM-compatibles, the Coronas or the Compaqs?

VALENTINE: I have never believed it was possible to invest and make substantial returns by being compatible with IBM -- anywhere, at any time. Not in mainframes, not in disk drives, and certainly not in personal computers.

INC.: The conventional wisdom says you have to be compatible with IBM.

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