If you want to learn something about how companies get funded, watch Something Ventured. The documentary, which premiered at the 2011 South by Southwest Film Festival, was recently released on DVD.
You’ve probably heard of companies like Apple, Atari, Cisco Systems, Genentech and Intel. But you may not have heard of the venture capitalists -- Arthur Rock, Don Valentine, Tom Perkins, Dick Kramlich, Bob Swanson and others -- who bet money on them. While most of them appear to be getting on in years, they gave engaging interviews to the film makers. And many of the company founders also talked on camera about their companies and their relationships with these venture capitalists.
There are plenty of good reasons for entrepreneurs to see this movie. A few things you'll take away from it:
How venture capital got started
Most of us have always known a world with venture capital. But it wasn’t until the late 1950s that the first venture capitalist decided to make a bet on the equity of a technology start-up.
Listening to Arthur Rock, the son of a candy-store owner, describe how he struggled to help the eight co-founders of Fairchild Semiconductor Inc., the seminal Silicon Valley high-tech start-up, raise money to get off the ground, makes it look easy to create a new industry that transformed the U.S. and the world.
As someone who has invested in private companies, I really enjoyed the part of the movie where Rock shows the handwritten list of companies he called to ask them to invest in Fairchild -- with all but one of the dozens of names crossed off when they turned him down.
This film features many moments that show the practical things that venture capitalists do to help companies.
What it's like for VCs to work with entrepreneurs
While the venture capitalists clearly revel in their star turns, it is clear that they savor the opportunity to find companies that will transform the world and work with their founders.
I particularly enjoyed the way that the relatively straight-laced venture capitalists tried to domesticate the entrepreneurs. In one case, one bought Tandem Computers’ founder James Treybig a suit at Brooks Brothers before wheeling him in front of East Coast investors who ultimately turned him down.
It was also fun to hear them describe the strong smell of marijuana in Atari’s factory floor and trying to teach Steve Jobs how not to put his bare feet on the board-room table or learn manners.
But there was also the substantive help they offered their companies. For example, before Don Valentine would finance Apple, Jobs asked him what he needed to do to get the money. Valentine told Jobs that he needed to hire someone who knew something about marketing and distribution. And that led to hiring Mike Markkula, who was Apple’s president for a few years.
Why founders get fired
The movie does not focus solely on the wonderful parts of venture capital. For example, it points out that nearly half of venture-backed CEOs get fired. Fortunately, for them, they at least get to keep their shares in the company. In the example depicted in the film, that is a very valuable consolation prize.
I am talking about Cisco Systems co-founder Sandra Lerner. She helped develop the router, an electronic traffic cop to let PCs and other devices communicate with each other. Valentine brought in John Morgridge as CEO of Cisco Systems after dividing up the shares: 33% to Valentine, 33% to Lerner, and the other 33% to Len Bosack, the other co-founder.
In interviews with Valentine, Lerner, and Morgridge, the documentary makes it increasingly clear that Lerner ultimately would get the ax (even though we already know that she has been long-gone). The beauty of the film was that it showed why that decision was reached and how painful the outcome still remains for Lerner.
The icing on the cake are the credits at the end, interspersed with snapshots of what the people interviewed are doing now. There are the usual philanthropic activities and new businesses funded with their wealth.
But I was most delighted to see Tom Perkins's yacht, named The Maltese Falcon, and the cover of his novel -- Sex and the Single Zillionaire.
This movie leaves out all sorts of details that would explain how they achieved their success. But the producers chose to leave in the essential bits that give us insights into one of the best things that the U.S. economy still has going for it: the ability to fund and build world-transforming technology start-ups.