Monthly Archives: December 2011

Drop by Drop – Keith Raffel

Here is my promised second post of the day, and this one does not have stats, numbers. It’s about a thriller. A Silicon Valley Washington DC thriller. I discovered Keith Raffel while looking for books about Silicon Valley and he is probably the only author who has created his mysteries (at least two) around the high-tech start-up world. I already commented his dot.dead and Smasher.

Drop by Drop is (unfortunately) not about Silicon Valley and start-ups, even if it begins there. The hero is a History professor at Stanford University though. And I enjoyed reading Raffel’s new work as much as his two previous novels. Do not get me wrong. This is probably not literature compared to Cormac McCarthy‘s Suttree or even Franzen’s The Corrections, but it is entertaining, the stories are good and the personalities always interesting and well-described. It is a good thriller! Though quite different, it reminded me of The Librarian by Larry Beinhart.

There is also something unusual, a feeling I got after reading Raffel’s three books. There is a kind of sadness that all his heroes experience in their relationships with women. Even tragedy. Women are at the same time fragile and strong, fragile because often in dangerous positions. This makes the personalities really interesting.

Drop by Drop is also an ebook. It is in fact the first book I read on a screen. And I could read it! The experience is strange. No page, just chapters and digital references. I read it with white fonts on a black background. And I enjoyed it. I still prefer paper, but I also noticed that I have sold more Start-Up ebooks than paper versions in 8 out of the last 12 months…

Coming back to the story, why didn’t Raffel fly east to Boston, which is the east-coast high-tech cluster, or even to New York, where there is the real life? The answer probably comes from the fact that Raffel has worked “as counsel to the Senate Intelligence Committee overseeing the secret world of the CIA, NSA, and other clandestine three-lettered agencies” before becoming a high-tech entrepreneur. He probably needed to share some his experience. I can tell you something I knew and is confirmed here: the high-tech start-up world may be a jungle with “vulture capitalists” but it is nothing compared to politics and in particular Washington DC!

I would not say there is a lot of action. I would almost say it is a psychological thriller. There is action, but what I liked the most were the hero’s fights with himself. “Our tradition stands for justice. That’s different than vengeance”. It reminds me that even if I am fascinated by President Obama, I am not sure to understand why he said “Justice is done” last May. This is another story. Well not really. This book really adresses in its own way the question: “Does the end justifies the means?” You will need to read it to find your own answer. You will also learn a little more about the American constitution.

From time to time, Raffel remembers he lives in Palo Alto. So let me finish with some quotes:
– About bankers: “For once he had abandoned his Silicon Valley khakis in favor of investment banker pinstripes.” … “An investment banker who takes companies public. And what does that consist of? A great roadshow, generating hype. All his IPO’s, every one, go out above the predicted range. In his business you count winners by dollars, not votes.”… “Investment bankers found themselves talking to the SEC enforcement crew regularly nowadays.”
– About Palo Alto places, he seems to enjoy the Peninsula Creamery as well as the Stanford Theatre: “Since high school, I’d frequented the Stanford Theatre in downtown Palo Alto, a repertory house playing the best of Hollywood’s Golden Age.” (Without Hewlett Packard and the Packard foundation, this marvelous theatre would probably not exist anymore.)

Finally, one of his descriptions of California driving rules, “I navigated over to the carpool lane. Only in California would one driver plus one passenger equal a carpool. And only in California would such loose admission requirements still result in an almost empty lane,” reminded me of why Woody Allen hates California. “I don’t want to move to a city where the only cultural advantage is being able to make a right turn on a red light” — Alvy Singer (Woody Allen in Annie Hall). Well, I still love California! And Raffel seems to prefer it to Washington DC…

When Kleiner Perkins and Sequoia co-invest(ed).

I end 2012 with two posts related to my beloved Silicon Valley. This one is about the two great Venture Capital firms Sequoia Capital and Kleiner, Perkins, Caufield and Byers. The next one will be about Palo Alto-based author of thrillers, Keith Raffel.

I have already said a lot about these two firms. You can for example read again the following on KP:
About KP first fund (3 posts)
Tom Perkins, a Silicon Valley venture capitalist
Robert Swanson, 1947-1999
and about Sequoia:
When Valentine was talking (2 posts)

The recent IPO of Jive is the motivation for this new post because Jive has both funds as co-investors. I am obviously providing my now-usual cap. table and what you can discover here is the huge amounts of money both funds have poured in the start-up ($57M for Sequoia and $40M for KP) … is this still venture capital? I am not sure.


Click on picture to enlarge

I am not writing an article on Jive here but let me add that we have again here two founders who had each 50% of the start-up at creation and end up with 8%, the investors have 30%. What is really unusual is that the company raised money in 2007, six years after inception. A sign of a new trend in high-tech?

Now back to Sequoia and KP. When they co-invested in Google in 1999, I thought it had been a very unusual event. David Vise in his Google Story (pages 66-68; I also have mine!) explains how the start-up founders desired to have both funds to “divide and conquer”, hoping no single fund would control them. When I met Pierre Lamond, then at Sequoia, in 2006, I was surprised to learn from him that in fact the two funds has regularly co-invested together. As often in Silicon Valley, it is about co-opetition, not just competition.

So I did my short analysis. A first Internet search got me the following:
– The question on Quora “How unusual is it for both Kleiner Perkins and Sequoia to co-invest in a company?” (August 2010) gives 11 recent investments, including Jive and Google.
– Russ Garland in the Wall Street Journal adresses the topic in “Kleiner Perkins, Sequoia Combo Has Solid Track Record” (July 2010). He says: “But the two Menlo Park, Calif.-based firms have done plenty of other deals together – at least 53, according to VentureWire records. It’s been a fruitful relationship: 29 of them have gone public. They include Cypress Semiconductor Corp., Electronic Arts Inc., Flextronics International and Symantec Corp. That track record lends credibility to the excitement generated by the Jive investment. But most of those 53 deals were done prior to 2000; the two firms have been less collaborative since then. Of the handful of companies that both Kleiner Perkins and Sequoia have backed since 2000, at least one is out of business. That would be Abeona Networks, a developer of technology for Internet-based services.”
– Now in my own Equity List, I have 4 (Tandem, Cypress, EA, google) plus Jive.

So I did a more systematic analysis and found 55 companies. More than the WSJ! I will not put the full list here, but let me give more data: Kleiner has invested a total of $267M whereas Sequoia put $268M [this is strangely similar!], i.e. about $5M per start-up. On average, KP invested in round #2.07 and Sequoia in round #2.63, so a little later. Time to exit from foundation is 6.5 years. I found 27 IPOs (I miss two compared to the WSJ)

Is Garland right when he claims “But most of those 53 deals were done prior to 2000; the two firms have been less collaborative since then”? Here is my analysis:


Number of co-investments related to the start-up foundation year

If I look at the decades, it gives,
70s: 6,
80s: 30,
90s: 11,
00s: 7.
Clearly KP and Sequoia co-invested a lot in the 80s, much less in the 90s and 00s. Whereas the fields are

So what? I am not sure 🙂 . KP and Sequoia are clearly two impressive funds and as a conclusion, I’d like to thank Fredrik who pointed me to Business Week’s The Venture Capital Winners of 2011.

Sequoia and KP may not be #1 and #2, but their track record remains more than impressive. Here is a bad picture taken on an iPad!

Darwinian and Lamarckian innovation – by Pascal Picq

I enjoyed reading Un paléoanthropologue dans l’entreprise, i.e. a paleoanthropologist in the corporate world, the last book of Pascal Picq, a paleoanthropologist who explores the world of innovation. He applies his knowledge of evolution to compare two types of innovation: by simplifying, Continental Europe, rather Lamarckian and the Anglo-Saxon world and especially the United States, of Darwinian type.

I warn the reader by quoting Picq’s conclusion (page 236): “the Darwinian corporation has nothing to do with all the stupid stereotypes erroneously expressed about evolution. It is a corporation that adapts to changes by mobilizing innovation mechanisms, which are based on the torque variation / selection ”

From the very beginning, we dive into the heart of the matter: “The public officials who are working to open up our French vertical society will see, in the opposition between Lamarck and Darwin, the ineffectiveness of competent organizations facing the fruitful “bricolage” (do-it-yourself) of the networks which create new sources of innovation and development.” And he adds: “Diversity is a prerequisite for innovation.” (Page 12)

Picq explains (page 44): “Natural selection works in two steps, the production of variations – ithat is variability – and, secondly, the selection. It is the Darwinian algorithm.” There is neither chance nor necessity. At each stage of evolution, innovations appear as random variations constrained by history. That’s the game of possibilities.

He is well aware that the use of biology to economics analogies is dangerous (page 51): “the concepts of corporations and species are not defined easily.” And the analogy of evolution has probably its limits. “But there’s an important message: variability” (page 52) “If the environment is favorable, there is no selection. If there is competition for resources, then it manifests itself by playing variations. Adaptation comes from this mechanism.” There is no perfect Adaptation, but (page 55) “isolationism is the penultimate step before extinction.” I can not help thinking of the work of Saxenian who has shown that the more closed culture of the Boston area partly explains its lag behind Silicon Valley and the demise of Digital Equipment (DEC).

“There is no perfect adaptation; even if we create the best products, the success or failure depends on many other contextual and contingent factors. The ways of coping are not impenetrable, but take paths and sometimes difficult to predict detours: crafts, breakthrough innovations, and also the return of products once thought obsolete which find new niches. There would be a solution, that of a planned model of needs and uses. Except that between Thomas Edison and Steve Jobs, no major innovation came out of directed economic systems. On the other hand, do we fit in an existing market or do we create new markets? For structural and historical reasons – i.e. cultural – the best European companies are excellent in markets already structured but have difficulty inventing new markets such as U.S. companies.” (Page 84). Earlier, he wrote: “The dominant idea of ​​a technological change that is linear and accumulative obscures a much neglected field of innovation: history.” (Page 63)

“If a new market emerges, everyone has a chance. The absence of pressure from competition and selection admits all possibilities, giving the false impression that one is great. But when the market is saturated or shrinks, this is where selection has a role. This was the case with mobile phones in the mid-1990s. A company like Nokia, historically out of the field of electronics, was able to find its place. In today’s highly competitive market, it would be simply impossible.” (Page 87)

I let the reader discover the concepts of preadaptation, transaptation, exaptation. Picq also describes the K and r strategies which I quote from wikipedia:
– The r-selection: In unstable or unpredictable environments, r-selection predominates as the ability to reproduce quickly is crucial. There is little advantage in adaptations that permit successful competition with other organisms, because the environment is likely to change again. Traits that are thought to be characteristic of r-selection include: high fecundity, small body size, early maturity onset, short generation time, and the ability to disperse offspring widely.
– The K-selection: In stable or predictable environments, K-selection predominates as the ability to compete successfully for limited resources is crucial and populations of K-selected organisms typically are very constant and close to the maximum that the environment can bear (unlike r-selected populations, where population sizes can change much more rapidly). Traits that are thought to be characteristic of K-selection include: large body size, long life expectancy, and the production of fewer offspring, which require extensive parental care until they mature. Organisms whose life history is subject to K-selection are often referred to as K-strategists or K-selected. Organisms with K-selected traits include large organisms such as elephants, trees, humans and whales, but also smaller, long-lived organisms such as Arctic Terns.

Here we are in the heart of the matter:
– Lamarckian innovation (page 158) is active. It responds to a solicitation of the environment and tend to the improvement. “The function creates the organ.”… “Inventions are the daughters of necessity.” It works to improve products in established industries: automotive, aerospace, rail, space, telephone, water, construction, petrochemicals …
– Darwinian innovation (page 160), initially produces diversity without thinking of the advantages or disadvantages of what emerges, then in a second step, there is the action of selection. In such a context, you have to waste time, set the conditions for the production of ideas. It allows serendipity.

These are the 20% free time at Google. He also explains (page 98) the dangers of rationalizing research expenditures (see my post on the need for wasting ideas). Then (on page 103) “Steve Jobs launched Next, without much success, in a culture of the trial and error; it allowed him to propose and test new ideas that led him to come back to Apple – which would have been inconceivable in Europe.”

And here’s his summary (page 139):

Lamarckian Culture Darwinian Culture
Continental Europe USA
Hierarchy of Schools Diversity in excellence
“I did Polytechnique” “I created a business”
Uniformity of elites Diversity of elites
Large Corporations “Small Business Act”
Culture of Engineering Culture of Research
“Agrégés” (teaching) PhD (research)
Culture of Compliance Culture trial and error
Managed innovation Darwinian algorithm
Selection on IQ Selection on creativity
Applied R&D R&D by emergence
Colbertism Freedom of territories
Career Entrepreneurship
CAC40 Top25

I could have added his distinction (page 222) between Owner/manager of a company and Entrepreneur. Another interesting anecdote: “If you look at the French CAC 40, almost all have been around for half a century. Bertlesmann is the only one being less than 40 years in the European TOP25 whereas there is one third in the United States.” I mentioned this in Start-Up by citing the work of Zhang Junfu. “Zhang also analyzed this astonishing dynamics by comparing the 40 biggest high-tech Silicon Valley companies in 1982 and in 2002 as provided by Dun & Bradstreet. Twenty of the 1982 companies did not exist anymore in 2002 and twenty one of the 2002 companies had not been created in 1982.” Here it is in full:

Forty Largest Technology Companies in Silicon Valley
1982 2002
1. Hewlett-Packard 1. Hewlett-Packard
2. National Semiconductor 2. Intel
3. Intel 3. Cisco b
4. Memorex 4. Sun b
5. Varian 5. Solectron
6. Environtech a 6. Oracle
7. Ampex 7. Agilent b
8. Raychem a 8. Applied Materials
9. Amdahl a 9. Apple
10. Tymshare a 10. Seagate Technology
11. AMD 11. AMD
12. Rolm a 12. Sanmina-SCI
13. Four-Phase Systems a 13. JDS Uniphase
14. Cooper Lab a 14. 3Com
15. Intersil 15. LSI Logic
16. SRI International 16. Maxtor b
17. Spectra-Physics 17. National Semiconductor
18. American Microsystems a 18. KLA Tencor
19. Watkins-Johnson a 19. Atmel b
20. Qume a 20. SGI
21. Measurex a 21. Bell Microproducts b
22. Tandem a 22. Siebel b
23. Plantronic a 23. Xilinx b
24. Monolithic 24. Maxim Integrated b
25. URS 25. Palm b
26. Tab Products 26. Lam Research
27. Siliconix 27. Quantum
28. Dysan a 28. Altera b
29. Racal-Vadic a 29. Electronic Arts b
30. Triad Systems a 30. Cypress Semiconductor b
31. Xidex a 31. Cadence Design b
32. Avantek a 32. Adobe Systems b
33. Siltec a 33. Intuit b
34. Quadrex a 34. Veritas Software b
35. Coherent 35. Novellus Systems b
36. Verbatim 36. Yahoo b
37. Anderson-Jacobson a 37. Network Appliance b
38. Stanford Applied Engineering 38. Integrated Device
39. Acurex a 39. Linear Technology
40. Finnigan 40. Symantec b

NOTES: This table was compiled using 1982 and 2002 Dun & Bradstreet (D&B) Business Rankings data. Companies are ranked by sales.
a – No longer existed by 2002.
b – Did not exist before 1982.

In conclusion, Europe is characterized by a very Lamarckian entrepreneurial culture, promoting and supporting the established sectors, very much organized and structured for businesses, schools, unions, governments, banks, etc.. It excels in active innovation for engineers, in highly technical fields with great success in structured markets. Obviously, (page 164) “there is a real difficulty, which is the transfer of innovation in the entrepreneurial phase.” It means to (page 168) “take risks, foster a culture of trial / error” and not to penalize failure. “There is an urgent need to develop an entrepreneurial culture at all levels of our society: schools, colleges and universities, of course, but also in business and society in general.”

This is not about to be Lamarckian or Darwinian. “And remember that R&D is research and development, R for Darwin and D for Lamarck, the two steps of the Darwinian algorithm.” All the talent is in the balance between the two phases. (Page 170)

Here Picq might be wrong. Darwin and Lamarck should both be applied to the D and it may be where we have failed in Europe. We forgot Darwin needs to be in the development phase too.

Picq develops his concept of “bricolage” (page 174): “We have too long believed that the complexity of organisms depended on the number of genes.” … “In fact, the structures are simplified by successive integration during evolution (optimization) but they allow a variety of functions (plasticity).” (Page 175) “Animals and children are not Cartesian machines, we learn to walk, eat, especially for species of type K.” (Page 179) “In addition the machine Hydra which was never beaten by the best [chess] champions was beaten in 2005 by very good players – but not the great Masters – who used computers that were connected to standard sites and other players. This is Bricolage!” … “A combination of intelligent entities, but simpler and fed with external information is more effective than the best and most sophisticated machines with its programs, routines, software and internal databases.”

I could repeat here his warning on the misunderstanding of Darwinian theory that I put in the beginning. He added: “There is a grotesque conception of the war of all against all [in ecology as well as in innovation]” (page 185). “One must think competition not to eliminate, but with a strategy of coopetition.” … “This requires an open culture, with intricate collaborations.” … “Silicon Valley is the most paradigmatic model” while Sophia Antipolis is a juxtaposition of companies. “The territories and generally peripheral populations set innovations more easily and thus evolve more rapidly.” And again (page 236) “To be Darwinian does not mean to eliminate the other, but to exclude practices and models with deleterious effects on the economy and society as a whole. Darwinian theory has never been the law of the jungle, or the selfish individualism, or the war of all against all. Life is not a Rousseau-like world, but we live much less in the world of Hobbes. ”

One last anecdote: “In the early 1980s, IBM had been reluctant to enter the market of the computer. Big Blue has followed a K-strategy with great expertise on large computer systems. Then the management decided to “isolate” a small group of very creative engineers, without the constraints of the usual processes. This led to the IBM-PC, a perfect example of rapid innovation by genetic drift in a population of small size and placed in the periphery.” This is exactly the illustration of the Innovator’s Dilemma theory from Clayton Christensen.

I’ll let you read his conclusion on why humankind went to Australia. And I have not taken the time to talk about his description of gazelles, antelopes, buffaloes and other elephants, or his defense of a Small Business Act for France (or Europe). Picq might be criticized for inaccuracies, misstatements, a little fast and simple description of a complex situation, but it would be wrong to stop at this, because this is a book extremely stimulating not to say enthusiastic.

A history of venture capital

I am surprised not to have published this before. It was one of my first work before I even wrote my book. It became its chapter 4. Venture capital is about 50 years old and it has changed a lot in parallel to innovation and high-tech. I hope you will enjoy these very visual slides!

Smasher, another Silicon Valley mystery

Smasher is the second Silicon Valley thriller from Keith Raffel that I read. After reading dot.dead, I found this one more complex, and certainly as interesting. A mixture of a traditional thriller where the hero’s wife is smashed by a car, together with a good start-up story where the leader in the field is trying to smash the hero’s company and an academic story of intense competition between researchers in the physics field of [smashed] particles. Hence the title Smasher.

I already mentioned novels about start-ups or Silicon Valley (dot.dead, but also The Ultimate Cure). I have never mentioned though Po Bronson (I loved The First 20 Million Is Always the Hardest) or Michael Wolff (Burn Rate). I have not read (yet) Kaplan’s Start-up. On the academic side, there is Small World by the great David Lodge which I have not read (either…) There are of course many essays on the start-up or academic worlds (I mentioned many in my past posts in the must read category) but there are clearly not so many novels based on these worlds,

Raffel loves to take inspiration from real individuals in Silicon Valley. I had played at recognizing a few in dot.dead. Here it is less obvious; the academic smasher is a mixture of Feynman and Gell-Man. The start-up smasher looks more like Larry Ellison with his dark suits and love for Japanese architecture. But there is a little from Steve Jobs as well. The other characters existed in the first novel. I will not talk about the story and only shortly about the particle physics. I will say more about the start-up and broader Silicon Valley context. Smasher talks of Quarks and quirks, of Murray Gell-Man who got the Nobel prize for their discovery and of SLAC, the Stanford Linear Accelerator (a small CERN). You may identify SLAC both on the map and picture below.

There is indeed a link between particle physics and the start-up world. Raffel reminds us that the World Wide Web was invented at Cern thanks to Tim Berners-Lee. Slac had other spin-offs, but this is another story. Slac was also a home for the Homebrew Computer Club (see [1] and extract from page 214 below)

Smasher is also about women and science. “Stanford was on a campaign to recruit female undergraduates, Ph.D. candidates, and faculty to the natural sciences. My mother’s late aunt had been the first woman in the physics department back in the 1960s. In an effort to honor her and to appeal to what was still the second sex in the realm of natural sciences, the university was naming its particle physics lab after her. I’d lived in Palo Alto all my life and couldn’t recall a building, library, school or academic chair at Stanford labeled with a name except in return for a donation of dollars, euros, yens, dinars, or other convertible currency. So maybe Stanford was really serious about recruiting women.” And the invited professor for the ceremony adds: “We all follow in the footsteps of our predecessors. When I was a girl in France, I wanted to be Marie Curie. After two years as a graduate student at Stanford, after two years of hearing about her legacy, I wanted to be your great aunt.” (Page 12)

What may not be realistic is that this French professor smokes Gauloises (page 213). I know I left France a long time ago but I doubt professors still smoke them! It is pure work of fiction of course but Raffel adds in his acknowledgments that he found inspiration in Rosalind Franklin‘s life. A sad story which shows the complexity of being a woman in science or high-tech

A funny (sorry for the jump for sadness to humor) quote and apparently true [2] on the academic world is Clark Kerr once said his job as president of the University of California was to provide football for the alumni, sex for the students, and offices for the faculty. [The physics and Nobel prize professor] sanctum was twice the size of the [professor of English literature]’s but only a third the size of the business school professor [who is on the board of the hero’s start-up].” (Page 34)

It is also about VCs and term sheets. “VCs, bah. When you had no need for their money, investment offers would cascade over you like a tropical waterfall. When you could use a capital infusion – like now – the money flowed like water in a wadi, a riverbed in Sahara. In other words, it did not.” (Page 20)

“I drove west of Sand Hill Road. This was familiar territory, the Vatican of venture capitalism. In the bubble days of the late 1990s, office space on Sand Hill was the most expensive in the world. Here’s where the founders of Google, eBay, Amazon and Cisco had come, hat in hand, seeking the dollars required to turn the base metal of their dreams into stock market gold.” (Page 41)

Raffel has a few notes on Silicon Valley culture:
“The value of Silicon Valley company wasn’t in inventory or patents. It was in the brain of its employees.” (page 33)
“I had learned in the Valley that no more than two people could keep a business secret and that only worked if one of them was dead.” (Page 45 )
“Under an NDA? I asked. Non-disclosure agreements didn’t usually do much good in the Valley, which was built on loosey-goosey dissemination of intellectual capital, but having one couldn’t hurt. We had a raft of patent applications pending on the technology, but if they stole what we had, we would be defunct by the time we won any lawsuit.” (Page 94)
“Ron Qi, the inventor [of the technology incorporated in our product] and now head of engineering looked down as if examining the polish on his shoes. The other three around the table, Samantha Maxwell, our Korean-born MIT-educated marketing genius; Ori Mohr, the ex-Israeli paratrooper and kick-ass head of operations, and Bharat Gupta, the CFO, all moved their eyes back to me.” … “I saw Ron, who’d been brought up in the more deferential milieu of Taiwan…” (Page 44) [Immigrants again]
“I asked the engineers how the tweaking of the product was going, the sales rep what I could do to help them close their big deals, and the bean counters how much work was left to close the books for the latest quarter. What I heard from them was unfiltered by the vice presidents who reported to me. (The business professor) had told me that I could ask any employee anything but I could only tell my direct reports what to do. Managing the others was – who’d’ve thunk of it? – the jobs of their managers. As I popped into offices or cubicles, I was following the footsteps of the Founding Fathers of Silicon Valley, Bill Hewlett and Dave Packard, who advocated MWBA – management by walking around.” (Page 102)
“Thirty minutes later, I walked into a building named after Robert Noyce, one of the “traitorous eight” whose departure from Shockley Semiconductor loomed as large in Valley history as the exodus from Egypt did in the Bible. One of the founders of both Fairchild Semiconductor and Intel, Noyce was the co-inventor of the microprocessor, the electronic brain that ran everything from cell phones to server farms.” (Page 194)

A few more things on the academic world:

“It seems that the only way for a Stanford professor to win prestige is to start a successful company.
– Americans may not be interested in how the universe is made. I can tell you though, in Silicon Valley, they definitely want to know how money is made.
A researcher at CERN wanted to share information with others physicists. He invented a language to send it around and we ended up with the World Wide Web.
– Of course you would know our wonderful Sir Tim. […] The computer nerds at SLAC in the early 1970s hosted meetings of what they called the Homebrew Computer Club [1]. Steve Jobs and Steve Wozniak came.” … “And from that came Apple Computer and the whole PC industry. So you’re saying Silicon Valley wouldn’t be much without the physicists?”
(Page 214)

as well as

“I caught sight of a new photo over the desk. His head flanked by two earnest student types. He followed my eyes. “Another sign of my vanity.” Sergey Brin and Larry page developed their search algorithm as Stanford grad students and, of course, started their company to exploit it. Stanford got shares in the venture in return for their ownership of intellectual property.
– And how many millions did that piece of Google add to the university coffers?
– Three hundred and thirty six”
(Page 218)

Smasher is certainly not about literature, but it is (really) entertaining; nor does it belong to the category of the mystery masterpieces. Raffel does not have the genius (or experience) of James Ellroy, or even George Pelecanos and Henning Mankell but he is a real pleasure to read, I appreciate his talent, imagination and his interesting description of SV culture, history and dynamics.

[1] Homebrew Computer Club: “One influential event was the publication of Bill Gates’s Open Letter to Hobbyists, which lambasted the early hackers of the time for pirating commercial software programs.” http://en.wikipedia.org/wiki/Homebrew_Computer_Club. Another site is Memoir of a Homebrew Computer Club Member

[2] Another legacy was his wit—after writing a serious book “The Uses of the University”, Kerr surprised an audience with this riposte–“The three purposes of the University?–To provide sex for the students, sports for the alumni, and parking for the faculty.” From http://content.cdlib.org/view?docId=kt687004sg&chunk.id=d0e21648&brand=calisphere&doc.view=entire_text

What’s an entrepreneur in France?

I was shocked, or I should say, I smiled yesterday when I used Google Translate to obtain an English equivalent of “l’entrepreneur doit être au centre des écosystèmes innovants”; I got “the contractor must be the focus of innovative ecosystems.” It is not a pure accident.

Let me remind you one of my favorite quotes from Paul Graham “I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?”

Contractor, concrete, office space… When I was a kid, an entrepreneur was building houses. Google just kept that old meaning. Or is it that old? I will come back on this topic when I will comment (on the French part of my blog) a book I am currently reading “le paléoanthropologue dans l’entreprise ; s’adapter et innover pour survivre” by Pascal Picq. What stroke me there is a description of the Lamarckian style of French companies vs. the Darwinian flavor of the Anglo-Saxon ones… The book may explain many of the cultural differences of these two worlds.

The end of a Silicon Valley adventure

I read this morning about Magma’s acquisition by Synopsys for $507M. In many cases, such an acquisition would look like a success. Here I am not sure…

EDA is an industry I appreciate because it is the perfect description of start-up dynamics. I will not describe it here but if you want to learn more you can read my previous contributions on the topic. I was also lucky to meet the CEOs of both companies, Aart de Geus and Rajeev Madhavan, two legends of the EDA industry, not to say of Silicon Valley (SV). Let me quote myself with a few paragraphs from my book in 2007.

“The only recent success story is Magma Design Automation. Its founder, Rajeev Madhavan, studied in his native country, India, then in Canada. He had founded two successful start-ups, LogicVision (sold to Synopsys) and Ambit (acquired by Cadence). He could have been satisfied enough but Magma became his new adventure.”

I should add that Andy Bechtolsheim, another SV legend, was a business angel in Magma, with investment amounts similar to a VC.

“It is still premature to bet on Magma’s future and its capability of becoming a giant. Some clouds have appeared on the horizon. Litigations are not a rule in Silicon Valley but they do happen. … In early 2005, Synopsys and Magma faced each other concerning the activities of one of Magma’s founders while at Synopsys and the ownership of some patents. The issue was finally resolved in 2007. But in 2005, Magma’s share price dropped by more than 50% from one day to the next and it only recovered two years later.”

Magma’s stock suffered again in the following years as the curve below shows it:

“Costello bitterly complains about a disappearing culture in Silicon Valley. The region has become greedy and individuals forget to give back to the community. There is too much litigation. Out of the ambitious start-ups of the nineties, only Magma has passed the main obstacles. But Magma has not proved yet that it can become a giant. Or will it disappear like Quickturn or Avant! ? No other new start-up seems to have the potential of threatening the established players. In the unstable, dynamic, innovative world of Silicon Valley, this is not a good sign.”

Now EDA is left with three big players, Synopsys, Cadence and Mentor. No start-up seems to be threatening them and the market is not really growing anymore. This is indeed not a good sign.

PS: Just as a reminder and because I now do this often, here is Magma’s data at IPO. Just note it is not very different from the price it is bought for in 2011…