Newsmaker: Legendary venture capitalist looks ahead

Some think of Don Valentine as the grandfather of Silicon Valley venture capital.

Since founding Sequoia Capital in 1972, he's helped nurture some of the Valley's biggest successes, including Apple Computer, Cisco Systems, Electronic Arts and Oracle. In all Sequoia, which now manages a $3 billion fund, has helped start and finance more than 500 companies.

Valentine's impressive instincts for good business plans once earned him the title of "the man with the golden gut" from Forbes magazine. But he's not immune to the occasional stinkers: Sequoia has also backed dot-com duds Webvan and eToys.

I really think it's sort of embarrassing for South Korea to have an infinitely greater disposition in broadband than California.

Nevertheless, Valentine is feared and revered among entrepreneurs pitching their ideas on Palo Alto, Calif.'s famed Sand Hill Road. And for good reason. Valentine could also be called the man with the sharp tongue among those he dislikes. Valentine recently spoke with CNET News.com about the past, present and future of Silicon Valley.

Which technology or company is most overhyped at the moment?
Nanotech anything, probably in part because of the huge amount of press coverage of what is sort of a lab fascination with the chemical process of making things small. People don't talk about particular applications, like making Pentium chips 50 times faster or curing diabetes.

So it's the media's fault?
The press has become fascinated with the concept and the scientists and investors and all the people surrounding the phenomenon. They have been interviewed to death. If there is an application for nanotechnology, it's going to be the later part of our lifetimes. You have this huge amount of press coverage and no market problem that needs solving.

What new Internet trend most fascinates you now?
I think the first phase of the Internet is established. We think of it here as the Internet, phase two.

What is phase two?
To us, it's merely the reality phase of something that happens that's overhyped, like nanotech. Now we're really into solid applications, problem solving and business. Look at how much advertising is moving to the Web portals. It's a reconstitution of the way Madison Avenue is thinking about where to place ads.

I got to Silicon Valley in 1959. Nothing is revolutionary; it's evolutionary.

The biggest thing that is making the Internet and all those things more interesting is broadband. It makes the Internet an even more powerful platform in which to buy and sell things--as a media platform and a market. To me it's an issue of patience. (Cisco CEO) John Chambers was talking recently about broadband and indicated that the U.S. is 15th in the world at implementing it.

Should people be alarmed by that statistic?
Possibly, for national pride reasons. Or for business-efficiency reasons. I really think it's sort of embarrassing for South Korea to have an infinitely greater disposition in broadband than California.

What is the computer industry's greatest challenge in the next three to five years?
If you look at the personal-computing industry, only a fraction of the world has participated in this arena. I think it's a huge, huge unit market. Companies like Dell, Microsoft and Intel--they're the primary members of that environment. It's an unfortunate situation that only Intel and Microsoft really make money. The rest, with Dell as an exception, don't make any money. I think the challenge for Intel and Microsoft is to find some other platform in which to grow, other than the personal computer.

What do you make of the upheaval in the business-software industry, of Oracle's hostile bid for PeopleSoft, and of so many other players merging or struggling? Is it changing the way venture capitalists approach and think about startups in this market?
Things constantly evolve in capabilities and directions that didn't exist before. Why would software be any different? There will always be new ideas that large entrenched companies don't think of.

What about the claim by (Oracle CEO) Larry Ellison that the industry will consolidate around a few big players, namely Oracle, Microsoft, IBM and SAP?
I'm in the Marc Andreessen camp against the Larry Ellison-Hasso Plattner camp. If you look at their offerings, neither has a flagship product in the customer relationship management market--10 years later. So I think they are like all big companies, filled and riddled with not-invented-here. They are unable to recognize innovation and they are very late to do what they claim they're going to do. DiCarta, iMany--there are all these small, flourishing companies started in late '90s that are doing very fine, thank you very much. That said, Oracle is interesting and one of my favorite companies.

Why?
Because we financed it and made a lot of money. But also, I'm a great admirer of the kind of raw-boned entrepreneur that Larry Ellison is. He is willing to speak out even if he's wrong occasionally.

Are you adjusting your expectations at all for some of the software companies you've invested in, such as Aceva, diCarta and Traiana?
We will continue to start software companies in categories like the one diCarta is in that are differentiated. The whole thrust of our conviction is that the future is an evolutionary future. New applications are going to emerge and customers will want to do new things.

What about Germany's SAP? It seems to dominate the global market.
It's an interesting company, located intellectually in central Germany. It has the historic flexibility of the Teutonic character. They do it their way, and the customer has to do it and buy it the way they make it. They are a "do it my way or forget it" company and the prices are astronomically high. They're hard to do business with, and when in doubt they deal in FUD (fear, uncertainty and doubt). SAP is the noisiest non-participant in the business.

However, the founders are largely out of that company. It will be interesting to see how or if they change with those guys gone. The same with Microsoft when Gates and Ballmer are gone.

Which technology CEO do you most respect?
Steve Jobs. Steve has managed to simultaneously run two entirely dissimilar companies--Pixar, and he is also running the resurging Apple Computer. I've long been a great admirer of his.

Which company or technology is most underrated but has or will have a huge influence?
I've always been mystified by the critically important disc drive industry, without which the PC is a useless device. You have to be brilliant in electronics, you have to be brilliant in magnetics and you have to be brilliant in mechanics to get all that memory capacity in a very little place and do it for next to nothing. That market has never been rewarded financially for its brilliance. Yet the contribution is huge. Cell phones, handheld products, PCs...they all go nowhere without that fundamental storage capability.

Has anyone learned any lessons from the dot-com bubble?
We should look at the people in the public markets. They never learn the lesson. The game is rigged in their favor. But yes, there was a flaw in the companies people financed. Will we make mistakes again? Yes. But we'll make different mistakes. The people that started all those dot-com companies? That's over. Most people will remember not to make that mistake again.

I got to Silicon Valley in 1959. Nothing is revolutionary; it's evolutionary. Look the sequence of Intel microprocessors. It's all predictable. The nature of silicon and software and storage go hand in hand. In the case of software, you just have to be more clever about the nature of the application. So all these things kind of tick along, feeding off each other.  

More Newsmakers

Nano: it's just too early

Computers were negligible in commercial viablity until the "killer Aps" that drove this market. Nano will amaze- just not yet- the manipulative mechanics just are not there yet. Look for nano-medical technologies, like drug targeting, to start nano's economic viability. People will pay a lot to stay alive.

SAP will not change.

The SAP organization may reflect the values to be found in Germany, rather then those of its American founders. I would describe my experiences with the German company "Rhode and Schwarz" as exactly matching Mr. Valentine's perception of SAP. You even have to set your PC's regional settings to Germany, before you are allowed to install some of their systems software.

Quite common

I'm currently working in Italy for an American company. Not only I have english operating system, english office, etc. They are also trying to convince the customers to subscribe contract written in English.
Crazy peoples.
What You are describing is common. Big companies' managers are so serious about theirself.

[malabrm1]

Smaller & Faster...

Mr Valentine forecasts with a broad brushstroke, but, in his capacity as a portfolio manager, I guess he cannot be more specific.

That spoken, I like of his two of his calls bigtime. They simply make too much sense to
be arguable.

(1) The need for smaller: nanotech's progresive capabilities, as well as potential threats, remain largely unexplored. What we do know is that much of its core processing architecture is based on the collection of millions of great thinkers' life experiences and thought processes known as Artificial Life, rather than the far more familiar math models of Artificial Intelligence. We've only begun to unravel the non-organic threats of AI in computing. It'll be quite some years before any reasonable investor will be willing to invest heavily in the potentially extreme organic threats posed by AL in super-computing.

2) The need for faster: after a certain critical level of high-speed internet capability, there is a rapidly diminishing curve in deployability, without vast memory storage, international bandwidth standardisation, and vastly greater r&d investment in improved enterprise security uniquely required at the highest bandwidth levels.

So much for networking and processing: Valentine's calls are undeniable.

On a lighter note, how can you not like a guy who bestows the greatest tech CEO crown to Steve Jobs?

[Ubber geek]

AI in computing

http://www.analogstereo.com/acura_owners_manual.htm

[Christopher Hall]

Bingo

The media's got it all wrong, too. Nano applications in the now are few and far between and the market will consolidate around what will make it the most money in the shortest amount of time. I took some nano classes at university and I thought it was all cool and dandy, but I don't think any of it will be life-changing for at least thirty years or so.

It's funny, most of the now applications of nano have been behind the scenes, like detergents. The cleaning industry has, thus far, seen the most advances in nanotechnology, but nobody seems to notice that.

Impressive interview A+

Hmmmm, I never give out A+s.

This guy touched all the right spots. Nanotech, lol. Ellison, hmmm, ok.

Best point is about how software is not as evolutionary and requires visionary touch.

Boring Interview

Am I the only person who found Mr Valentine extremely boring? Nanotech is over-hyped because it has no applications! Give me a break, just because Mr Valentine can not make a barrel of money from it is no reason to write nanotech off.

The Internet is better with broadband? Get out of here! Now I can see why this guy is a visionary!

In case people haven't noticed, South Korea is a much much smaller place than the US - that might be the reason why their broadband adoption and rollout rate is greater than that of the US!

"Oracle is interesting and one of my favorite companies... because I made lots of money from it", again, very wise words.

"Nothing is revolutionary; it's evolutionary." *yawn* the first time I heard this I was 19 and being hired as a programmer in a failed dot com company.

Maybe you miss readed

"In case people haven't noticed, South Korea is a much much smaller place than the US - that might be the reason why their broadband adoption and rollout rate is greater than that of the US! "

"Should people be alarmed by that statistic?
Possibly, for national pride reasons. Or for business-efficiency reasons. I really think it's sort of embarrassing for South Korea to have an infinitely greater disposition in broadband than California. "

He is comparing with California only.