Sanford Robertson

BW: Can you contrast what it was like when you first came out here, vs. what it's like now -- what has fueled the explosion in Silicon Valley and made this place unique?

ROBERTSON: Well, I came out in 1965, for Smith Barney. And did a quick assessment of what I thought the economic base of the area was. And Smith Barney wanted me to go on Chevron and Fibreboard Corp. and some of the more traditional accounts out here.

And I thought, well, we're very late to the party; the firm had never done an underwriting on the West Coast. And it's kind of late to get into that.

But I looked at some of the companies that were developing, and you could see the beginnings of the semiconductor industry. The big three in technology in those days were Hewlett-Packard, Ampex, and Varian. And I think if you bought a package of all three, then Varian and Ampex have been great winners. And Hewlett-Packard would just have been phenomenal

You could see technology was where the new economic growth of the area was. And that technology was fueled by the semiconductor industry, which is to technology much the same as the steel industry is to manufacturing.

I always felt it was pretty obvious. I tried to get Smith Barney to get interested and I really was dragging them, kicking and screaming, to the altar. So after getting deals turned down and having a hard time getting some done with them, where we were making private investments or doing private placements or even early public offerings, I just thought, well, I better start my own firm.

In those days, the major firms had very strict limits as to what a company's net income would be before you'd underwrite it, so some weren't providing good investment advice for the smaller companies. Regional retail brokers were the ones that were getting this market by default.

BW: Before you came out here, had you thought about starting your own firm? Or was this sort of an idea that occurred to you because you saw people here doing that in their businesses?

ROBERTSON: Well, I always thought that I was going to be happy being an owner, having a fairly good piece, or being a senior partner, eventually, of a New York firm. But I thought that maybe owning my own firm would be a lot of fun. My father was kind of an entrepreneur, and he said, "You know, you'll never be happy until you have own firm."

And the day I called him to tell him I'd done it and started my own firm, he was two weeks away from his 80th birthday. And I said, "Dad, I've done what you've always wanted me to do, I have started my own firm." And he said, "Oh, that's good. I started a new company this week myself."

So he was an entrepreneur to the end. He started a travel agency with another guy.

BW: And when you got started, your focus was technology, right?

ROBERTSON: Yes, it was. And then soon after, we followed with health care. And there's a lot of overlap in some of that. But it was strictly technology at the beginning, and then we followed with health care. The consumer area came later.

BW: How did the environment here -- even at that time -- help the business grow, or hurt it, in fact? I mean, what was it that made it go?

ROBERTSON: Well, there's a spirit in California that allows for entrepreneurship. And if you're doing a story on the Valley, I mean, you got to go back to the dean of the engineering school in the '40's and late '30's at Stanford [Frederick Terman], getting Hewlett and Packard together and getting people going like that.

But the spirit was already out here. And I've always thought back, being a Chicagoan, that it would have been a lot harder ever to start a firm in Chicago than it was on the West Coast.

BW: Why?

ROBERTSON: Well, entrepreneurs gravitate here. There's a classic article on the elements of venture capital. And it used to be reprinted in the front of something called The Guide to Venture Capital Sources. And it might be in a Harvard Business School article, but it was written years ago now.

But they had about 15 personality characteristics that someone should have, you know, at least 10 of before even thinking about starting his own business. You know, there's energy, and creativity, and drive and all the ones you thought of. But there was one of them in there that I thought was very interesting: It was be an immigrant. But then, the definition of an immigrant was not that you necessarily came from another country -- and there's certainly a lot of that in Silicon Valley -- but it's someone who came off a farm in Kansas to come West to find a better life. And this tilt toward the West the entrepreneurs find.

And, if someone isn't from a foreign country, they have come from the East to find a better life, or they came out here to school, or they sensed more of an entrepreneurial atmosphere on the West Coast. And I certainly sensed that when I got out here that I wanted to start my own firm.

BW: Any anecdotes over the years on things that sort of either helped you get going or you saw in other companies that sort of made them prosper here where they might not have elsewhere?

ROBERTSON: Well, there's generally more of an acceptance of the new in California. California was always the place where new things were tried. The automobile companies ran design shops out here to get the trends of automobile design. And, you know, foreign cars first were accepted in California vs. the rest of the country.

Fast food, and that sort of thing, developed in California before spreading to the rest of the country. But there was always the acceptance of trying something new. And I think that carried over into the general business community, and into the technology business community, as well.

BW: What about the culture? I'm guessing that Robertson Stephens is not run like a New York bank, and that you do things differently to reflect your client base. Is there anything specific? Maybe that's not true, but if it is, can you explain how that plays out within your firm?

ROBERTSON: Really, we're organized pretty much like a New York bank. I mean, our businesses are kind of horizontal. Yeah, we may be a little more horizontal rather than more vertical or more hierarchal than a New York bank might be. And there's more, I think, entrepreneur spirit in a smaller firm like ours that will relate to the entrepreneur on the other side. I've always found that. I can say to a guy, look, I started the business myself, I know what you're going through, I know how tough it is to get that momentum going.

So I've always felt maybe I have an advantage over a more traditional type of banker who has worked himself up through a hierarchy in a major New York bank.

BW: Is there a lot of clash between the traditional firms and Robertson Stephens on how best to deal with some of these companies?

ROBERTSON: Yes. They're coming around pretty fast to that, though. I think the first time Morgan Stanley used a logo on a prospectus was for a Cola-Cola offering, where they wanted to use their symbol. And I think they finally acquiesced on that one, and that broke the mold. We've been doing that and putting the logos and everything on the front of those prospectuses for some time.

BW: What about the IPO's? How big of a factor is that in Silicon Valley's success?

ROBERTSON: First, the amount of venture capital being raised really helps Silicon Valley a lot. If you go back into the '60's, there was very little venture capital and companies were really scraping it together. And they had to make a positive cash flow on their first offering of private securities, you know, to their venture investors, or there was what was known as washout for the investors -- if their first stock had been sold at $1, then people had to put more money in, it was going to be at 10 cents a share, and everybody got washed out.

Then, in the '70's, there started to be more and more venture capital available. And there were second and third rounds of venture capital without being washed out. And they were maybe starting to be successively marked up -- not at huge prices, but it might be $1 and then $1.50 and $2.50, as the company progressed. And there was more money to go around and more successive rounds of financing.

So, you know, know we're up to $10 billion a year of venture capital being raised, all looking for a home. So being an entrepreneur was a good idea: I can finance, if he's got a record, or if he's got a logical business plan, he can probably find someone to finance him. So you have to have that first.

Then they are the ones that are growing the IPOs. And the market has been very receptive. There's a wonderful capital market for growing securities. But they are farther along now, and they're more well financed getting there, because of the venture capital that came first.

BW: Well, but aren't there companies that, because of pressures to be liquid and pressures to just sort of get things going, that are going out too early?

ROBERTSON: Yeah. You usually find that at the end of a cycle. And there is definitely some of that going on.

BW: Is that dangerous? Should we be worried?

ROBERTSON: No, not yet. I mean, that's one of the leading indicators I look at in the marketplace. I may be a little bit worried about this stock market, but I don't see any indications of that yet. Because 8000 Dow might trip off a few things coming out too early.

But we had a company in earlier this week. They want to go in the fourth quarter this year. And our first cut was that maybe the first quarter of next year would be the right time. So we said all right, here are the hurdles: If you get over these hurdles and you can prove these things to us, we'll take you public on your schedule rather than ours. They said, fine, that's fair.

Some other underwriter might have just said, oh, O.K., we'll take you public in the fourth quarter. But if you take them public in the fourth quarter, they won't net the objective that was the basis to go public.

BW: Well, what's the urgency?

ROBERTSON: Well, the urgency was they liked the market out there at the moment. You get these things, also, at the end of a bull market where a venture capitalist calls up and he says, "hey, remember the old dog that we ran the Series J financing. We financed back in '88. And, gee, they've had three quarters of profitability now; do you think we can take them public?" And so they try to bring out the living dead a little bit at the end.

BW: And you see that happening now?

ROBERTSON: No, I haven't gotten one of those calls in while. So that's a good sign. But I really laugh at them, because that's another sign that the bull market is near the end.

BW: Any companies you can think of in the last year or so that you think did go out too early?

ROBERTSON: Paul Stephens is my guy down there. He used to keep stack of prospectuses of the companies that he thought were way too early. And I always wished we could quantify that. I called it his froth factory index by how high this pile of prospectuses was on the front of his desk. If it got too high, he went oh-oh, it's all over for a while.

BW: What about the venture capitalists? How big a factor do you think they are, in not just funding the companies, but in actually making them successes? Or make them, perhaps, not such great successes.

ROBERTSON: Well, great venture capitalists bring a lot more than money to the party. The Tom Perkins', the John Doerr's, the Brook Byers' in the biotechnology area; Dick Kramlich is an extraordinarily constructive director. And they bring a wealth of experience. They save the company from making mistakes that a lot of startup companies make. And they really bring the companies along a lot faster. They bring much more than money to the party.

And some of these guys that are good venture capitalists, like Kleiner and Perkins, both, were operating managers before they started their firm. And they could get in and really run a company if they had to. Or they could question the management with greater authority, rather than just a guy who came right out of business school into venture capital and never run anything.

BW: Any specific examples that you've noticed?

ROBERTSON: Well, to go one step further: even the really great venture capitalists were also the entrepreneurs. Perkins. Ed Swanson, for instance, in Genentech. And Brook Byers in starting a couple of biotechnology companies like Hypertech. I mean, they really went in and ran them for a while.

Jim Morgan, when he was working for Weiss, Peck & Greer, turned around a Florida company, went down there and ran it. Morgan is now the Chairman and CEO of Applied Materials Inc.

BW: Anything a little more recent?

ROBERTSON: Well, you've got companies like Cypress Semiconductor, where T.J. Rogers has been a good manager, but he had L.J. Sevin and Pierre Lamond on his board -- two former heads of semiconductor companies, who could, you know, guide him along the way and gave him a very fast acceleration.

BW: What about VCs that come in and sort of squash the entrepreneurial spirit of a company, whether because they're meddling too much or taking over, or because they want their money out faster.

ROBERTSON: You tend to only see that in the younger, less experienced venture capitalists. And sometimes, even with a good firm that it's a lesser priority deal, and they'll put one of the younger guys on it and make some bad decisions.

One of the problems for us is that a venture capitalist is known to be the financial adviser to certain companies. And a lot of venture capitalists know how to bring a company along. But when they come to the public market point, they don't know a lot about the public market or how to finance it from there on. I mean, the good venture capitalists do. They know how to talk to us about these things.

But you can get an inexperienced venture capitalist saying, "I won't take this thing public for less than $12 a share," and maybe $11 is the right price, and you can't get it done at $10. And so you never go public that cycle. And it waits another two years before it goes public. And, you know, I've seen some things like that over the years.

BW: What about about angels. In your mind, you told me earlier that you didn't think they were a big factor.

ROBERTSON: You know, I went back to my people after, because I hadn't focused on them for a while. And our own venture capitalists tell us that, yeah, they're maybe a little more of a factor than they were a couple of years ago. And back in the 1960s, they were very important. They were the venture capital industry.

BW: Do you think that that's just because the market has been so good the last few years that there are a lot of rich guys running around?

ROBERTSON: Well, they are. But there's also so much venture capital coming around, I think they're overwhelmed by the dollars in the very big guys. I mean, there's $10 billion raised last year in venture capital. So the angels, in total, don't account for a lot.

BW: What about marquee angels

ROBERTSON: That might work. We had an $8 million fund about 10 years ago. We put up a third of the money through our partners and friends. Kleiner Perkins put up a third of the money. And then the manager of the fund raised a third. It was called the Masters Fund -- the Masters were CEOs of companies we'd taken public. The idea was that they had a network that was supposed to bring in the deals, and then they could also be called upon to help these companies.

The fund was successful, but it didn't work the way we'd expected. The Masters were all so busy running their own businesses. Maybe we got one or two ideas out of them. But the fund was very successful. Carl ran a good fund and everything. But it was -- we couldn't get the Masters to focus on anything but their own businesses.

BW: Are you an angel?

ROBERTSON: I don't know whether I am or not. We have an in-house fund called Bayview, which is all our partners in the firm. But they have to invest alongside anything we do. There are some small pieces of things that we see a lot. I probably invest in 50 deals a year. Not just me. I mean, if I see an investment that I want to make, I have to share it with my partners, and vice versa. And if it's large enough for our funds, they get first choice. If the funds invest, then the firm or Bayview has to invest, I think it's 15% of what the firm takes.

BW: So you don't do anything on your own, really?

ROBERTSON: Anything I do on my own, I have to show to the other partners. And so, there are memos from everyone coming across my desk constantly. And Bayview allows us to vary our investment -- it counts as one name for the company to use. And they can print all their notices and everything to one spot. You can invest $1,000 in one name, or put in for $5,000 in the next, or $10,000 in the next. You can kind of vary your investment according to how you see fit.

BW: But Bayview is only for Robertson partners?

ROBERTSON: Robertson partners and principals and I guess vice-presidents, too.

BW: Are there any marquee-name angels that you can think of? People that you keep seeing in your deals again and again and again?

ROBERTSON: No. I read prospectuses and read the ownership a lot, and I haven't seen a lot of marquee angels in there. That's why I was a little surprised at that. But the venture people do say that we're seeing more of the angels investing.

BW: We're sort of talking about all this great stuff: all the money, all the jobs, all the prosperity. But there is a down side, sort of the dark side of the Valley, I guess. Whether it's just the cost of living here now, or the traffic, or...

ROBERTSON: Traffic, exactly. And the house prices and the traffic. And that's probably being offset by manufacturing going offshore, and the people that are there are more and more technically trained and higher paid.

BW: What, in your mind, is the biggest problem around here?

ROBERTSON: Well, I think you've hit upon it. I think the cost of living is a real problem. And that's why you're seeing remote technology labs and remote R&D spots. I mean, there's things up in Grass Valley. And they go to Oregon, they go to Idaho and Washington. And a lot of that is happening.

In Boston, they're going up into New Hampshire, etc., to keep the cost of living down. And getting, you know, 10 scientists together and letting them work in an atmosphere where they're five minutes from work and they can be outdoors. That helps, actually, spread the entrepreneurial spirit around the country, though.

BW: Is it a problem in recruiting people? I mean, either within your firm or with the companies you deal with? Do you hear about that?

ROBERTSON: It's often a problem recruiting for us, in that someone who's been living in New York and they come out and see the house prices in California. But there's been a little more balance as the East has caught up to our housing costs.

BW: Any anecdotes on recruiting problems for you? Either how you've had to increase salaries by whatever percentage or, you know, you've had to do something else?

ROBERTSON: I can remember two times when we brought people out, where the guy has given us a tentative yes, and he bring his wife out for the weekend. The guy's wife spent one afternoon with a realtor and the rest of the weekend crying, you know, after seeing what she can buy for a house.

BW: So did you lose those people?

ROBERTSON: One we did, yes, and one we didn't.

BW: Have your salaries increased dramatically?

ROBERTSON: They have. But I think that's more from the competition in our business for good bankers and good analysts. The analysts' salaries are just going through the roof. There seems to be shortage of good securities analysts at the moment.

BW: How much more would you guess it's grown? The salaries.

ROBERTSON: They're up 100% in the last year and a half, maybe.

BW: Wow! That's just analysts? Or is that across the board?

ROBERTSON: That is, across-the-board salaries are up. But analysts have gone up much faster. The reason for that is that, in winning a piece of business now, it is not the banker that's as important as having the good security analyst there who understands the company. The companies are getting so technical and harder to understand. That analyst has to be the one who's going to be the voice of the street for that company. And he has to really be able to explain it. And if the company CEO likes our analyst, we have a chance of winning the business. If he doesn't like our analyst, we're nowhere. So they've really become more important than investment bankers.

BW: Do you think it's hurting the Valley? All these sort of lifestyle problems.

ROBERTSON: It has the potential, because it may restrict the flow of the really good young engineers and scientists coming right out of school, who maybe can't afford to live in the Valley if these housing prices and commuting problems get too high. Although they could be put in these more remote locations and maybe be O.K. But it might be tougher to get the right people in at the bottom of the pyramid to start working their way up.

BW: What about work/life balance? Do your folks in New York say they have a better work/life balance than your folks in San Francisco?

ROBERTSON: Are you talking about our business, or the Valley, now?

BW: Well, both.

ROBERTSON: Well, having been in New York yesterday when it was 98 with a 98% humidity, a lot of the people in the New York office thought that it would be sure nice to be in San Francisco.

I think it's still an easier lifestyle in San Francisco, other than having to get up much earlier in the morning. The commuting isn't as bad. They might be in a better position to enjoy a weekend without going so far and that sort of thing. So I think the lifestyle, in general, is better on the West Coast.

BW: What do you think about in Silicon Valley, as sort of the Internet time has taken over?

ROBERTSON: The Valley -- and I think the Valley has got some real problems. But I think they're facing up to it, with things like Joint Venture: Silicon Valley Network. I mean, it's a great thing to kind of face the whole problems of the Valley once with one unified group working at it. And they're trying very hard to keep a very desirable place.

BW: What, in your mind, is the significance of this new group now, this technology network that you're involved in?

ROBERTSON: Well, it's the first time the whole Valley is coalesced around a political problem. People realize that, jointly, they can have some effect, if they speak in one voice -- whether it's Republican or Democrat, it's bipartisan. By speaking in one voice, they're heard a lot more than just individuals, a few individuals being politically active.

BW: But no one before seemed to care about that.

ROBERTSON: They really didn't. But it took [Proposition] 211 to get everybody going. Well, back in the 1992 election, though, the group that came together around Clinton, the 23 of us who endorsed him that one day, I think was the beginnings of it. And then it slid downhill from there for a while. And then 211 got it going again.

BW: Well, what has changed?

ROBERTSON: Well, I think the importance of the electronics industry has changed, and it's become, I'm told, the largest industry in the country now. Technology and electronics. And that gives it more importance in the national scene. And I think these CEOs in the Valley are smart enough to see that and see that they can be heard.

BW: Well, is it that Silicon Valley is trying to be heard in Washington? Or is that Washington needs to hear from Silicon Valley?

ROBERTSON: A little bit of both. Clinton really liked the fact that Silicon Valley was behind him, particularly in the last election. Because, you know, Dole was talking about looking to the past, and he was looking toward the next millennium, and he was the future, and these guys represented the future. And he really liked the identification with them.

They, in turn, saw that that gave them some clout with him. And being from the major industry in the country, now, they had real importance. Like at this dinner the other night or this event, that Clinton came to my home, there were the people in the room who had created jobs at a 67% compounded annual growth rate over the last two years. They'd gone from 8,000 to 22,000 jobs. They created 14,000 jobs in that two-year period.

BW: Wow!

ROBERTSON: And if Lou Platt had come, he would have added another 14,000 jobs, but he would have run the growth rate down to 12%. I ran those numbers and gave them to the President and the President's staff. And these are the job-creating industries that the Administration wants to pay attention to. Jobs are prosperity, and prosperity is winning in politics.

BW: Is it not also, though, a function of Silicon Valley not being able to exist any more in a closed environment? I mean, it's maturing, as it were.

ROBERTSON: I wouldn't agree with that. You know, I think they just kind of matured politically. The group was very apolitical before.

BW: Purposely, though.

ROBERTSON: Yeah. There were a few people, Scully, on one side, and T.J. Rogers has always been very anxious to speak out on issues. Then Ed McCracken got behind it. It's kind of snowballed.

Well, going way back, David Packard went to Washington. He was always active in the Republican Party. And was the Assistant Secretary of Defense, or Deputy Secretary of Defense, and was I really have always thought he was effectively the Secretary of Defense when he was back there.

BW: Well, what's your prediction for this area? I mean, where are we going from here?

ROBERTSON: This area is really exciting. And it's the forefront of everything that's happening in this country. It's entrepreneurial. It's on the front of science. It's on the front of job growth. It represents the change from manufacturing-type jobs to intellectual-type jobs, particularly in the software area. I don't think there are many things wrong with it.

It is crowding into one spot. But then that forces these companies to decentralize, and that sends entrepreneurial people into other areas of the country. And then they break away from these companies and start new companies themselves. That's not all bad. It kind of infects the rest of the world with our entrepreneurial experience.

There's only two things that the United States does better than the rest of the world. One is grow food. We have big economic farms with a high level of capital equipment, etc. And we grow food more cheaply than the world.

And we run our technology industry stuff better than the rest of the world. So it's got to be one of the two things we do fast, and it's increasingly important in the United States economy.

BW: What if we get a bust, though. I mean, what could make all this blow up?

ROBERTSON: Well, some time we will. But I think the underlying secular growth rate is such that it is not going to go down like a steel company would go down. You may have a flattening or a slight dip in the use of these products. But it's not like a capital goods manufacturer making machine tools or a steel maker where steel goes way down. Even automobiles or consumer products. Certainly there's going to be downturns. But they're not going to be very severe. Because of the underlying growth rate.

BW: Anything you want to add about your thoughts about this area?

ROBERTSON: I'm really bullish on the area. I just think the science is increasing at a geometric rate. That means there's just more and more connections of things that can happen with each other, and there's an overlap of software and semiconductors and communications, all happening at one time. It's really, really exciting.

So, yeah, it can slow down. I don't think it will ever really drop, but there might be a 2% or 3% dip, and there might be some shakeouts. But it's the most exciting thing happening in the United States today.

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