Risky Business

Ben Rosen, one of the creators of modern venture capital, looks at risk capital in the '90s

The Manhattan office of the Sevin Rosen Management Co. is studded with announcements of initial public offerings: a framed tombstone each for Lotus Development (1983), Compaq Computer (1983), Cypress Semiconductor (1986), General Parametrics (1986), Acuson (1986), Convex Computer (1986), Silicon Graphics (1986), Pronet (1987), Landmark Graphics (1988), and Electronic Arts (1989). All of them business concepts that a few years earlier were merely hazy glints in the eyes of would-be entrepreneurs, their cumulative valuation as IPOs adds up to a robust $1.7 billion -- not to mention that on the last trading day of '89, that same stock was worth $5 billion more.

Even among the considerable triumphs of their venture capital brethren, those figures speak to a singular achievement on the part of L. J. Sevin and Benjamin M. Rosen, founding partners of the firm that backed the above-listed enterprises from scratch. And all the more so, considering that the two ex-electrical engineers, novices in the protocols of bankrolling, salted their first fund, a $25-million pool, with a meager $200,000 of their own.

As is a risk taker's due, Sevin, 59, and Rosen, 56, have become better heeled by untold multiples. So have their firm's private and institutional investors. And so has much of our native commerce itself -- the non-big-business, technologically innovative, foreigner-challenging part. Coming into the '90s, the Sevin-Rosen axis has provided both money and advice to 45 new entities, a sizzling birthing rate of five deals per annum. Thus can Rosen boast that his funds have served the nation palpably well, having created some 20,000 jobs in the nine years he's been at it. "And how many were created by economists?" Rosen likes to taunt from the cheek-by-jowl trenches of risk finance. "Zero."

Widely considered fast growth's farthest-seeing venturers, the founding partners no longer are as directly involved in pick-or-pass decisions as before. They haven't precisely withdrawn from the trade; rather, they've simply distanced themselves from the 18-hours-a-day, stay-on-top-of-everything hurly-burly that fiduciary duty -- at least as they practice it -- entails. A third Sevin-Rosen capital pool, this one for $65 million, closed in '88 with its general partner seats filled by younger associates.

Even before he left a vice-presidency at Morgan Stanley & Co. in 1980 to become a semiconductor-industries analyst on his own, the slender, soft-spoken Rosen was an indefatigable cheerleader for the future of the PC. From coast to coast, he conducted industry conferences at which there were barely more listeners than speakers, few of whom envisioned the force of the expansion to come. Indeed, the early-'80s expert view was that 64 kilobytes of internal memory would be all a microcomputer would ever need.

Some also felt that a five-inch screen was ample -- among them, apparently, one Benjamin M. Rosen. In 1981 his firm contributed to a modest equity round at Osborne Computer Corp., Sevin-Rosen's second capital foray; less than two years later, Osborne filed for Chapter 11 protection. Its first venture, Synapse Computer Corp., also fizzled. With the score threatening to become 0 to 3 against, the firm dramatically altered its passive tactics -- and to a large degree, the stand-back posture of venture capital itself. Rosen and Sevin pledged to get involved not in second or third financings, but predominantly at the start-up stage. For major investments, they demanded board membership. They went for a sizable fraction of the company and personally oversaw business details that otherwise were ignored by founder-owners.

Under that cuffed-sleeves regimen, the next two infusions took hold. Later in '81, when a young software designer sought some dollars to launch a new company, Sevin Rosen chanced a couple of million, and Rosen took on a Lotus Development Corp. directorship. At the same time, an enthusiastic band of Texans showed the partners a placemat on which was sketched a portable PC, and the venture capital firm parted with $2.5 million more. Rosen became chairman of Compaq Computer Corp., a position he still holds.

No wonder that on his desk 45 floors up in New York City's Pan Am building, where senior writer Robert A. Mamis spoke with him, Rosen houses the newest microcomputers running the latest software. He must get good discounts.

INC.: Since more than one venture capital partnership has recently disbanded, can we assume that the golden era is about over?

ROSEN: Absolutely not! It's as vigorous as ever. The fact that some prominent players have gone off to do other things is not a commentary on the industry.

INC.: It's no secret that among those prominent players are Sevin and Rosen. After Lotus and Compaq and other big scores, how can your twin retirements be read as anything but ringing down a curtain?
ROSEN: We're not quite out to pasture. We aren't as active at looking for new companies as before, but we're still involved with the portfolio companies in our first two funds, and we're on the boards of those companies. We're advisers to and investors in the third fund, and we attend their meetings.

INC.: What was life like before then?

ROSEN: I was doing 250,000 miles a year. I was traveling three or four days a week, visiting all the companies I was on the boards of, visiting new entrepreneurs, getting involved in recruiting, going to trade shows, making speeches. We have three offices, and we invest in companies all over the country. Some funds invest in only one section of the country, which cuts down on travel time -- on the other hand, it's hard to fund a Lotus or a Convex if you restrict yourself geographically.