September 17, 2015

Something Ventured

Ostensibly a documentary about venture capital, this 2011 film by Daniel Geller and Dayna Goldfine is an engaging exploration of real-world capitalism. Better, it doesn't so much tell as show you what risk-takers and brilliant minds can do when given access to capital and free markets.

Here is a system that turns the old feudal order upside down. Marx asserted that the wealthy profited off the labor of the poor. In the world of venture capital, the monied search out unmonied entrepreneurs whose only assets are their bright ideas and willingness to work hard to see them realized.

If the bright idea fails, the monied financiers end up with less money and the unmonied entrepreneurs are back to where they started.

But when they succeed, not only can the investors become fabulously rich but the wealth gets widely spread around. Here is the closest thing to creation ex nihilo since Genesis, turning common bacteria into medicine and beach sand into computer chips.

The dreams of the alchemists—to transform worthless lead into priceless gold—have come true. In 1976, a $250,000 investment created Genentech, which twenty-five years later was sold to Roche for $47 billion. When Apple went public in 1980, it immediately spawned 300 millionaires.

In Triumph of the Nerds, Bob Cringely ruefully recounts how he worked one summer for a fledgling Apple Computer and insisted on being paid in cash, not stock. That's not nearly as bad a miss as Atari president Nolan Bushnell passing on an offer to own one third of Apple Computer for $50,000.

Apple today is worth over $600 billion.

But this story is more about people than calculations of profit and loss.

William Shockley, co-inventor of the transistor, was a highly eccentric man whose dysfunctional management style eventually alienated his entire senior engineering staff. Fed up, they decamped en masse to Fairchild in a deal brokered by future venture capitalists Arthur Rock and Alfred Coyle.

Fairchild Semiconductor pioneered the planar process, shared a patent with Texas Instruments for the integrated circuit, and was the first company to introduce an IC operational amplifier. In the mid-1960s, Fairchild was one of the few profitable semiconductor manufacturers in the U.S.

Unfortunately, Fairchild's East Coast managers ran the West Coast company like a 19th century corporation. The peons were supposed to work to enrich their betters. Except when the value of an enterprise resides in the minds of its employees, those employees can walk that IP right out the front door.

Which they did in droves, founding spin-off companies known as "Fairchildren." Shockley's and Fairchild's disaffected brain trusts created today's Silicon Valley, but only because venture capitalists were willing to risk millions on cash-poor, hard-driving entrepreneurs and their outrageous ideas.

By contrast, this interview about venture capital in Japan details the difficulty the concept has overcoming age-old cultural hurdles. And note how well Steve Jobs matches the Asian ideal of a startup CEO—a charismatic leader in total control of his company—hence his iconic popularity in Japan.

Something Ventured can be viewed on Amazon Prime.

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