How Tom Perkins pioneered venture capital in 1972

After creating his own multimillion-dollar startup while at HP, the Kleiner Perkins co-founder went on to fund some of the biggest names in tech

This week we’re revisiting my 2007 interview with Tom Perkins, who was one of Silicon Valley’s most successful venture capitalists. The firm Tom co-founded, Kleiner Perkins, is responsible for funding some of the most well-known companies of the past four decades, including Google, AOL, Genentech, Sun Microsystems, Compaq and Tandem Computers. With that track record, Tom’s name is now almost synonymous with venture capital. But he actually cut his teeth as an entrepreneur. Educated at MIT and Harvard, Perkins first made his mark by managing the initial growth of Hewlett-Packard’s computer business while simultaneously inventing the first cheap and reliable laser. The company he built around the laser, University Laboratories, made him independently wealthy and allowed for the creation of Kleiner Perkins. But more than just the money, his time at HP gave him the opportunity to learn from a “giant” of business, Dave Packard. Packard, Tom told me, operated like a venture capitalist within HP and gave him a model to emulate when he started his firm. 

Though Tom wowed the business press for much of his career, later in life he gained national attention for having a key role in a 2006 Hewlett-Packard board scandal, briefly marrying Danielle Steel and building the world’s largest privately owned sailing yacht. When I spoke with Tom, he was busy in “retirement,” serving on a number of corporate boards of directors, including News Corp’s and HP’s. He’d also stepped back into the media spotlight with the publication of his memoir, Valley Boy: The Education of Tom Perkins. This episode offers a fascinating glimpse into the mind of the outspoken and pioneering venture capitalist. Tom died in 2016, but his advice for entrepreneurs remains as relevant as ever. Listen now on Apple Podcasts, Overcast and Spotify. If you love it, please help more people find it by leaving a review!

“Dave Packard taught me everything I ever learned about entrepreneurship.”

At the urging of his high school physics teacher, Tom Perkins was the first in his family to go to college. It turned out to be the first great stroke of luck in his career. The second, he told me, happened in 1957, when he came across a small, up-and-coming company called Hewlett-Packard. Dave Packard, in particular, would have a huge influence on Tom, who worked a variety of jobs at HP before Packard put him in charge of the company’s fledgling computer business.

It was during this time that Tom had an idea for a laser company — and Packard gave him the permission to start it up “as a moonlighting enterprise” while he continued to manage the computer business. It’s a move that not many bosses would have made back then. In fact, Tom told me Packard was probably the only person in the world who would have allowed him to do that, since it clearly interfered with his other work at HP. But Packard had a lot of trust and confidence in Tom, and his instincts were right. The computer business took off, and the laser business did so well that Tom merged it into Spectra-Physics, becoming independently wealthy in the process. 

“Our fund was the largest fund in the world for venture capital...It was $8 million.”

Tom’s laser company had made him a multimillionaire, but he didn’t leave HP right away. “The reason I didn’t,” he told me, “is that I was so fascinated by the computer business, which was growing explosively. It was compounding at 30 to 40% a quarter.” He stayed on for a few more years, but inspired by both the experience with the laser company and Dave Packard’s approach to incubating ideas and spinning off new divisions, he decided to try his hand at venture capital. In 1972, along with partner Eugene Kleiner, Tom founded Kleiner Perkins. 

Tom describes the approach he and Kleiner took to establish their partnership, handle investors and work with entrepreneurs. It was a formula that clearly worked. Early on, they hit “two major home runs,” with Tandem Computers and Genentech, which they started themselves and spun out of the partnership. Those early successes made it easy to raise more money and keep going.

“Good ideas come from good individuals, but the idea is the most important thing.”

Tom points out that in a properly structured venture, you put the risk upfront, and if you can’t get rid of it with the initial money, then it should and will fail. That’s okay, because you haven’t lost much money. But what about when something goes wrong after you’ve gotten through that high-risk phase? At Kleiner Perkins, the company would be sent to the ICU, which is just what it sounds like — an intensive, all-hands process intended to stop the bleeding. The company either makes it through...or it doesn’t. “In our case, when it dies, we stop the flow of money,” Tom told me, “which is like cutting off the life support in the ICU.” It sounds brutal, but he emphasized how important it is to have that kind of discipline. Otherwise, you can end up pouring more and more money into a bad deal.

“There’s always been too much money in venture capital.”

It’s interesting to listen back to Tom’s take on the VC market back in 2007 and what he predicted for the future. He talked about the “staggering amount” of money available in high tech capital at the time and figured that a lot of money would be lost. He also shared his view on the psychology of Silicon Valley, where everyone knows someone who’s made millions and thinks, If they can do it, so can I. While that mentality was pretty unique to Silicon Valley at the time, he expected that it would gradually spread across the country, and it is something we can now see happening in cities like Boston, Austin and Minneapolis.

“I enjoy business, and for me, it’s fun.”

Tom had retired from Kleiner Perkins by the time we spoke, but he was hardly just sitting around. In addition to writing books and sailing, he was serving on a number of nonprofit and for-profit boards. He talked a bit about what motivated him to join the boards and what interested him about the different businesses he was involved with. Since my company Muck Rack works with journalists, I enjoyed revisiting our conversation about his experience on the News Corp board (“not your typical board,” he noted). At that time, News Corp was in the process of finalizing its acquisition of The Wall Street Journal. Even back then, people were talking about how newspapers are dying, but he recognized the business opportunity in financial news services and broader media networks.

“Until very recently, I’ve tried to avoid the media...These days I yield the arena of self-promotion to no one.”

Tom was never shy about voicing his opinions or taking controversial stances. When we spoke he’d just published his memoir, “Valley Boy: The Education of Tom Perkins,” which he described as “fairly frank.” It wasn’t written chronologically like a typical memoir. Instead, he explained that the intent was to present snapshots of all of the different things he’d been involved in throughout his career. 

He was no longer doing new venture capital deals by then, but he was continuing to make some investments of his own and told me he was so busy, he hadn’t been able to spend as much time on a sailboat as he thought he would. As we wrapped up our conversation, I asked him what guidance he would offer to those who were interested in starting their own businesses. His first words of advice harken back to his own first stroke of luck: Get the best education you can get. After that, he said, you need to get experience:

“Go try to find your own Dave Packard. They’re out there. Go to work for a dynamic company—not too big, but not too small—where you will learn as much as possible...then, if you’re still so inclined, become an entrepreneur, building on what you’ve learned.”

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