During a recent visit to the Kauffman Foundation, pioneering investment banker Bill Hambrecht sat down with the Foundation's Chief Investment Officer Harold Bradley to discuss Hambrecht’s life and insights.
We present the complete interview as a podcast, as well as a transcript, below. View video highlights from the interview as an installment in our Kauffman Conversations series.
Hambrecht is the founder, chairman, and CEO of WR Hambrecht + Co. Previously, he co-founded Hambrecht & Quist and became a disruptive force to the conventional underwriting business. Long before the advent of the Internet, the firm financed Silicon Valley enterprises to become one of the leading investment banks of the technology revolution. H&Q rode the tech wave, underwriting initial public offerings (IPOs) for clients that would be come industry giants, including Apple Computer, Netscape, Genentech, and Adobe Systems. Hambrecht’s original vision and innovative spirit led to the creation of the OpenIPO, which made the initial public offering process more equitable. He helped persuade Google to use an Internet-based auction for its IPO in 2004, instead of a more traditional method using banks and other financial companies to find buyers.
Hambrecht was inducted into the American Academy of Arts and Sciences in 2006, is the inaugural member of the Dealmakers Hall of Fame, and was and appointed to the board of the Presidio Trust by President Barack Obama. He currently serves as a director for Motorola Inc. and AOL Inc., is on the board of trustees for the American University of Beirut and serves on the advisory council to the J. David Gladstone Institute. Hambrecht also is the founder of the United Football League. He is a graduate of Princeton University.
Transcript of the Conversation
Harold Bradley - Question: Bill Hambrecht, it's great to have you sitting with us here today, to talk a little bit about your life in startup companies, and some of the people you've been able to be around. For the people who don't know you, why don't you introduce yourself.
Bill Hambrecht - Answer: My name is Bill Hambrecht. I have been in the investment business since actually 1958, and have basically focused most of my career on financing reasonably young technology and disruption based companies. And it's been a wonderful experience because it, by definition, these are some of the most exciting, unusual companies in the country today. And for example, in our first fund, the two real successes that built our reputation and allowed us to raise more money for other people were investments in both Apple and Genentech. And since then, we've moved on into the software business, and Adobe, and a number of others, Netscape. And so we've been involved in a lot of the very seminal, early groundbreaking companies in the United States.
Q: So Bill, why don't you set the stage for everyone. Tell us about your first company.
A: The first company was Hambrecht & Quest. We were an investment bank and venture capital company. We integrated the two together, which was unusual in those times. We started in 1968 and the firm was ultimately merged into Chase Manhattan Bank in 2000.
Q: So basically, Bill, you sold Hambrecht & Quest pretty darn near the top, didn't you?
A: Well, I had actually left about a year before to start the new firm with the blessings and partnership of Dan Case who at that point had taken over as CEO of H&Q.
Q: Some might call you a lifelong disrupter. I think of Clay Christiansen, with whom I had the privilege to serve on your board at W.R. Hambrecht with several years ago, who wrote the seminal book, Innovator's Dilemma, which talks about the power of disrupters who recognize businesses that don't look to be potentially powerful, that can undo and undermine large and established enterprises. What does it mean to you to be a disrupter?
A: To me, I don't think I deliberately go out to disrupt. Let me tell you a story because I think it might illustrate it better. When we first announced the auction process, and when we had our first successful auction, I got a call from a person that I knew well who was with one of the major bulge firms.
Q: Who were the major bulge firms?
A: Well, the three dominant bulge underwriting firms are Morgan Stanley, Goldman Sachs, and at that time First Boston Credit Suisse. And he said, you know, he said, "I just don't understand this." He said, "You know, we've known you for years; we've worked with you for years on all the traditional underwritings at Hambrecht and Quest," he said, "why are you doing this to us?" He said, "I thought you were one of us?" And that bothered me because I respected him. He was a first class individual. I liked working with him, and I felt, you know, pretty badly about it. But the more I thought about it, and thought about it, and went back home to San Francisco, and I finally called him back and I said, "You know, I'm afraid I have to admit I'm not one of you anymore. I've been out in Silicon Valley too long. And in Silicon Valley, when a new technology comes along that allows you to do something different and cheaper and better, you do it. That's what innovation is all about." And I think that way now. I don't think in Wall Street terms anymore. I'm not sure he ever bought that, but he still talks to me occasionally.
Q: So Bill, you were part of the investment banking culture on Wall Street for a very long time. Has that investment banking and underwriting function failed to innovate? What's broken about it?
A: Well, you know, it was set up to raise capital for emerging industrial companies in the United States, and it really started in the late 1800s or right after the Civil War with Jay Cooke and some of the government bond issues; and then of course, J.P. Morgan who was the architect of so many of the conglomerates like U.S. Steel, and the oil trusts, and things like that. It, it raised money for these companies, and you know at that time, it was very hard to reach people. You know, communications were crude if at all available. You basically needed someone you could trust who would buy an issue from you and then resell it. And it took time, so it took capital, it took judgment, and you really, a system developed where the major financings went to those houses that could be trusted, that had good capital, and that had good sources and people believed them when they came out and said this is a good company. Well, things have changed so dramatically now, where I think on one side the firms are big businesses now. They're no longer small partnerships with people of high integrity like J.P. Morgan or Goldman Sachs. They are now big companies with thousands of, tens of thousands of employees, and lots of capital. And so they run it from a profitability basis. Of course, that's the way the system works. So it's no longer somebody saying, "My career is an investment banker. I am someone who is here to do a certain thing, and I'm not trying to optimize my profit on every transaction. I'm trying to raise capital for the clients I believe in and we're more than willing to take every long term rewards are, you get for that if you do it right." And I, to me, there's just a total difference between a major firm with all these people and all that capital, and the old partnerships that I used to admire greatly on Wall Street.
On the other side, the whole distribution system has changed. And so for example in the Ford Motor Company offering in 1956, there were over 700 small dealers as part of the syndicate, and it took them three months to complete the deal. And incidentally, Henry Ford made it a requirement that his customers had to be offered stock. So it took this long time. Today, you can accomplish the same thing in virtually a minute or two on the internet. You can reach millions of people with the push of a button. You can get the message to them, so you don't need that structure anymore.
Q: Your firm, W.R. Hambrecht, is known in kind of industry parlance as the firm that does open IPO. Could you maybe talk a little bit about how open IPO is different than the traditional investment banking infrastructure?
A: Well, open IPO differs from a traditional underwriting process I think in two basic principles. The first is that the price is set by the marketplace. In our system, the way it works is you start with the highest bid, and you count down to the last share that you want to sell. In other words, if you want to sell a million shares, the bid given for the millionth share becomes the clearing price for the transaction. And so everybody who bids that price or higher gets it at the clearing price. And this is I think the most effective way of price discovery. This is the way people open stocks in the morning. This is the way NASDAQ does it. I mean, you know, there's no better way than finding a clearing price to get the stock open, I don't think.
The second part though, which is even more important, is that it's open to any broker/dealer in the United States who is willing to vouch for an account, who says, "I want to make a bid." So it's in effect open to everybody. And the individual who wants to own shares has equal footing with the largest institution. Their bid is based on price, not economic value to the underwriter.
Q: How is that different from what the banks do?
A: The investment banks negotiate the price, and they will estimate what they think it's going to sell at, and then they discount it to make it a bargain for the first day purchasers. Now, sometimes they get it right. Most of the times, the discounts can be almost obscenely large. Many stocks double on the first day after an underwriting. And part of it is the conservatism of an investment bank; but also part of it is to try and get the best deal they can for the first day buyer. Because the first day buyer who quite often sells it the first day if there's a big profit, the first day buyer is usually his best accounts, be they institutional or individual.
Q: Is that a mutual fund?
A: It used to be mutual funds, but now I would say it's probably more hedge funds.
Q: So Bill, tell me what you think should happen in public policy that could most help startups and the entrepreneurs behind them.
A: Well, I think the problem that the venture capital community and entrepreneurs face today is that there's been very little access to the public markets for the past ten years. So most of the companies that have developed their businesses over the past decade, have had to raise their money through venture capital or angel groups or institutions, and there have only been a small number of underwritings, and generally only the very largest and most successful have come to the marketplace. So that's important because anybody who really finances through a venture capital investor, or an institutional investor, or even an angel investor, sooner or later has to show them liquidity on their investment. So typically if you've had an investor for ten years, he's at some point or another going to ask for liquidity and there's really typically only two ways you can do it in a growth company, and that's basically go public so there is a public market on your shares, or sell out to a bigger company.
Q: I guess the question I want to ask is, we hear a lot about serial entrepreneurs. These are folks who start companies, sell them in a year or two, and then go start another one. You built a billion dollar enterprise over 30 years of investment of your time, and your effort, and your intellect. Could you do the same thing today?
A: I think the great companies are started with a sense of mission that's not measured in time or money. I don't think Steve Jobs would have ever sold out to anybody. I don't think Bill Gates would have ever sold out to anybody. And I think, for example, the principals of Google went to great pains to get a shareholder structure that would say they could stay independent. I think the great companies are set up to be permanent and long term successful growth companies. That's what we always look for. I think that to me is a cardinal principle. If you do it for money, that doesn't mean you won't be successful. But there will be times during your growth phase where you will be offered a lot of money for your company. And if you're doing it for money, you might take it. What worries me today is that there are so many companies that don't have the option to go public and stay independent because if they don't do that, they are going to be pressured to sell. And you know, companies that sell into a consolidation company, it's a net job loss. And they lose their soul. They lose their sense of being. They lose their sense of drive and their sense of mission. It just becomes another product line.
Q: So Bill, is there a role that Congress could play in creating a more open and hospitable public market environment for small companies, so they didn't feel the necessity to sell out in a very early stage of the company's development?
A: Well yes, I think Congress can help by providing legislation that makes the process simpler and makes it less expensive, because the problem now is that, first of all, the underwriters have consolidated. So they all want to do big multi-billion dollar deals. It's very hard to get a major bulge firm to really want to do an underwriting of under $100 million. And that to me is not the problem. When you get a company that, say, makes 25, 30, 40 million dollars, and can have a market cap of four or five hundred million dollars, you can get plenty of underwriters. All the big guys will scramble for you. It's the company that maybe is up to $50 million in revenue, that maybe they make three or four million dollars, and you know, maybe can support $100 million market cap. They are the guys that are getting bought out because that market has not been available. And so we now have some efforts going to try and make it simpler, and less costly to go public in, say, a 20 or 30 million dollar offering, which is more than enough for 95 percent of these companies. Normally, that fixes their balance sheets forever. You know, and people forget, you know, the initial public offering for Intel was around five million dollars. The initial public offering for Adobe, which is one of the great successes in 1986, was six million dollars. Microsoft went public for 30 million dollars. And incidentally, Microsoft never needed a dollar of it. They were always generating cash. It always annoyed Bill Gates that he had to sell that much stock to get a public market started.
Q: Well, it's a really different world today than the one you're describing. Take Facebook, for example, do you think Facebook would be a good candidate for open IPO?
A: I thought Facebook would have been a good candidate for open IPO, because, not because he'll need the money. I seriously doubt whether Facebook is ever going to need any extra money. They have a cash machine. I mean, they have a great business that's generating a lot of cash. And they need marketability for their shares. And, you know, it is kind of a coop; you know, a social network is really sort of a coop. And so I thought the most effective way for them to go public was in some way or another offer stock to the user base. And, you know, this is a difficult logistical problem under the best of circumstances. But I honestly think the only way they could have really done it is some kind of auction, some kind of worldwide auction that would allow what is a very worldwide user base there to participate.
Q: Is that possible for them to do that under today's regulatory environment?
A: Well, there are, you know, if you want to do worldwide, you're probably dealing with six major regulatory sets of rules. But yes, it's possible. You could do it.
Q: So Bill, when I think of you, I think that venture capital kind of defines your heart and soul. Do you think venture capital is working today the way it's worked historically? And if not, what's broken about it?
A: Well again, I think venture capital has become more of an institutional money management type of business as opposed to really taking risk to back young entrepreneurs. I think it's very meaningful when you look at some of the very early investors and some of the great new companies like Google. They're essentially angels. They're essentially individuals who understand the technology and will put up some money behind some bright, technical people. The venture capital guys come in after, you know, the feasibility of the concept is a little better formed, and a little bit more … there are still some really good venture guys that will go early, but because they have so much money, and because they have to invest a lot of money, they really tend to go to the things that are a little less risky, and require, and where they can invest a lot more money. Whereas, some of the great companies are the ones that don't take a lot of money.
Q: It's interesting how little money was raised in some of the initial public offerings for companies like Intel, as you've talked about. How have things changed since then for some of these companies; and are the capital needs greater or lesser than they used to be?
A: To be honest, I think most of the early venture capital investments in technology were more capital intensive 30 years ago than they are today. For example, I remember some of the early financings in the semiconductor industry, and starting to get sort of nervous about it when it started getting to 20 or 30 million dollars to start a semiconductor company. Now, of course, it's three or four hundred million dollars to get a plant. So you know, the hardware manufacturers were always pretty capital intensive. But what really changed was when the value add is shifted to software, and to the internet, and to the scaling, where you don't need a lot of capital. You know, the amazing thing about some of these companies like Apple and Google is how little money they needed to generate all the cash they generate. I mean, as I say, Microsoft, Adobe, none of these companies ever needed outside capital once they got the business going.
Q: So if those companies didn't need capital when they went public back in the heyday of venture capital, explain to me what the likelihood is that investors today can make money when they're putting money into funds with, you know, 300 million or 500 million or a billion dollars of investment capital?
A: Most people invest based on history; and you know, the history of investing in ventures up until the bubble was quite good. There weren't an awful lot of failures. There were, the overall returns were in the teens. And so it attracted a lot of money. To me, what it is, it's the classic price theory of economics. When you get an above average return in any class of assets, money floods in until it drives that return down to a normal. And I think that's what happened.
Q: So would you say it's normal today?
A: I don't know. You know, normally, incidentally, there's a history of over-shooting both on the top and the bottom in the price theory. And so it will probably overreact on the downside just as it overreacted on the upside.
Q: It seems to me that people recognize now more than ever the close connection between economic growth, entrepreneurship, and the starting of new businesses which hire an awful lot of people in the economy. Where would you put the resources to facilitate more of this kind of activity in our economy?
A: That's a very difficult question, and I think philosophically when I think about what's important in the venture capital industry, I've come over a period of time to be a great believer in the value of an idea. I think I've seen a lot of really good people not make it with great effort because the idea was either wrong or it didn't fit or was too late. A lot of it is too late. By the same token, I've seen people that had a great idea and not necessarily have all the management skills and everything else you in theory need do extraordinarily well because the idea was so good. So to me, when we look at a venture, the first thing is we really have to have a methodology to be able to try and judge how strong the idea is, and how sustainable the idea is. Then, of course, you move on to you've got to get the money. But as I say, you know, generally most of these great ideas don't need a lot of money. So I'm not sure adding a lot of money to the pot is going to get you anywhere. I think getting access to the public market is crucial because that way you can stay independent and you can grow your business to its full potential. It really hurts me when I see some of these younger companies that have done a really good job sell out, because no matter how you call it, no matter how you call it, it's the end of a business. And I think that's a shame.
Q: Do you think the Kauffman Foundation can do anything to change that?
A: Anything that Kauffman Foundation can do to improve the ability of the companies to get a public market, I think would be great, because that is the key to me on where we go from here. You know, there's some statistics that are really sobering and uncomfortable every time I look at them. For example, the number of publicly reporting companies in the United States has gone from over 9,000 to under 5,000. So there's enormous shrinkage in the number of public companies. When I talk to people like Larry Sonsini or the Silicon Valley Bank, and I ask them, "How many clients do you have? How many people want to go public?" Because you don't go to Sonsini or Silicon Valley, you don't go to those places unless you're ultimately wanting some kind of liquidity event. They have like 7-8,000 clients. So I think there's literally thousands of good businesses that have been funded by good, smart venture capital people that will sell out if they don't have access to the public market.
Q: What has to change to give them access to the public market?
A: Well, you know, part of it is the market. And, you know, there was such damage done in the bubble that, you know, the market is going to come back slowly and with a great deal of caution. So you're not going to get that really, crazy enthusiasm that we had in the end of the 90s. So that says to me you've got to be able to do smaller deals. And to do smaller deals you have to reduce the costs, you have to reduce the risk to the issuer. And you know, I think the regulatory process is good. I mean, you know really, when you look at the big fraudulent things that have happened in the United States, and the real, particularly in this last financial crisis, none of them had anything to do with small offerings. You know, and all the great accounting frauds are usually big companies. I mean, you know, it's hard to do it as a small one. The businesses are small enough to understand. So I think from a regulatory process, it works fine. You don't have to add any burden. And if you could reduce the legal costs and some of the accounting costs, and get something out there that works more efficiently, I think it would be a great help.
Q: So you're basically saying that you think Sarbanes-Oxley has slowed down public offerings?
A: You know, I think Sarbanes now has matured to the point where it's more of a psychological barrier than an actual financial barrier. I think the accounting industry now has figured it out and are demanding less. I think parts of Sarbanes are very good. For example, the idea that a CEO and a CFO has to sign his financial statement. I know I wouldn't underwrite a company if a CFO or a CEO wouldn't sign it. I think that's great. Do you need a fully staffed self audit unit in a $50 million company? Probably not. So, and I think most accounting firms are finding that balance.
Q: Bill, the Isaacson's book on Jobs was a fascinating work, a work of modern technology history. And you were, you know, you had a cameo appearance in the book because of your important relationship with Steve through the capital markets. Tell me, what was it like to work with Jobs? And, did Isaacson get it right? Is your perspective any different than the way he depicted it in the book?
A: I of course was a lot more involved in Walter Isaacson's story, and there were really about three or four seminal events where I was involved with Steve—in his initial IPO, in the Pixar IPO, and you know, Steve did come in and provide the second round of financing and basically gave us a direction that made Adobe so successful. And you know, we, we criss- crossed on three or four things that all worked very well. And look, I loved the guy. I thought he was, he was a great, you know, a great visionary. You know, it was funny. Walter Isaacson summarizes the book by saying, you know, "Steve wasn't the smartest guy in the room, but he was a genius." And I told Walter later, I said, "You know, I would disagree with that. I think Steve was the smartest guy in the room, and was great at recognizing genius in others." That was what he really did well. I mean, for example, in Adobe, you know, we were I think three or four months into the project, and we had raised, we had committed two million dollars to start Adobe, and these were two guys out of Xerox Research Park that were, you know, academic research type people. Really great people. But not businessmen, research people. And Steve somehow or other heard about it, and came over, and took one look at what they were doing and said, "You've got to put that on Macintosh." And everybody said, "Oh, you've got to be kidding? You know, this is a high end, great system, and we need these huge computing and everything." And he said, "No, you don't. Put it on Macintosh." And he said, "And so, just so that you'll do it, I'll give you two million dollars for 20 percent of the company. Go put it on Macintosh." So of course, that's what they did. And he was dead right. And I think that's where he was, had no peer. And you know, he, the idea of the auction for the IPO basically started in my head when Steve Jobs questioned the pricing of the original Apple IPO. And he was the one who linked it to the aftermarket, and the way he put it, he said, "Aren't your customers going to be awfully happy if they buy my stock at $22 and it opens at $30?" He was very smart.
Q: So we know the Xerox Research Park was really important to the development of the early Apple computer. Do we have an equivalent to the Xerox Research Park today?
A: I don't think there is a Xerox Research Park really operating as sort of an independent research operation. You know, Xerox Research Park was really built around the Bell Labs model. And you know, I think those things happen when you have a virtual monopoly and you can afford to spend some money on some real long range, almost academic research. Today's world, I think most of the R&D operations are within companies and are pretty much defined around their product strategy or their growth strategy; and most of the real blue sky research gets done at the university level now.
Q: So is there a university that does the same thing that the Xerox Research Park did?
A: Well look, there's an awful lot of really basic research in both IP and internet and biotech and everything. That's really come out of the great universities, or a lot of different universities. You know, Netscape. Marc Andreessen came out of the University of Illinois. They, I think it's interesting. It's not as concentrated in one or two universities anymore. But yeah, there's some great research work that gets done there.
Q: So you've got a long history in underwriting new companies. You helped bring Apple and Adobe public. Talk about that in contrast to the recent markets, say, of a Google coming public or a Facebook coming public.
A: Intel of course was this tiny little deal that no one could understand. All they knew was that it was the 13 guys that came out of Fairchild and Bob Noyce was a very impressive man. So it was really, but no one understood what they were really talking about, including us. I think by the time Apple came around, Apple was somewhat understandable and it had a consumer base. And so there was a lot of interest in Apple, and Apple was one of the first really hot deals of any size. Google, there was just unprecedented interest in Google, but it was restrained by the market debacle and the bubble, and again, people not fully understanding the sustainability of the disruption that Google was doing. You know, Google basically disrupted the advertising business, and that's a huge business. And so they were able to build a huge, profitable business. Facebook, you know, will be a little different. That, we'll have to see, you know, where it goes. They've done a great job of building, you know, the largest user base ever really—800 million people. And if you can keep 800 million people interested and connected to your network, you're going to do awfully well. There's just an enormous number of ways you can monetize that. So we'll see.
Q: What three things would you change today to facilitate the startup and growth of new companies?
A: I think number one, I'd try to encourage the, the creation of real risk money. By that, I mean the guy who will really put up some money behind an idea and not later. There are a number of ways of doing it, but you know, I think more money in the hands of people that are willing to take a risk is better than just a lot more money in institutionalized framework, because I do think it's the risk tolerance thing that basically regulates how much money is really going to go into startups. Secondly, as I say, I would figure out how to get them access to the public market as soon as possible, and to ensure that they can really go to their full potential. Thirdly, I guess I'd try to figure out a way of minimizing some of the nontechnology costs that go into a startup. For example, one of the rules that I use—I have sort of my own entrepreneurial rules. One of them is don't spend any money on marketing until you have the product. And you know, the same thing would be true is, how do you get the legal work done in an economic way? How do you set up the right accounting systems? Because if you don't do those things right in the beginning, sometimes you never catch up. So there's, there's really some practical ways of helping it too.
Q: It's really interesting to me that after having been at this myself for, you know, a decade or more that it seems all successful, early stage investing happens in one of two place—either Boston or Silicon Valley. Do you think it's possible to replicate what happens in Silicon Valley anywhere else, even though they've been trying to do it for a really long time and failed?
A: You know, I think there's been some dispersal of ventures around the country, because the internet really makes it almost immaterial where you happen to be physically. You know, you can sit at your computer in Montana and be just as effective as a programmer in San Francisco or Silicon Valley. But no one else has really created the infrastructures and the support systems that are available in Silicon Valley or Boston. You know, you can get something started in Silicon Valley, and if you need a certain kind of programming, you can usually get a couple of guys to moonlight to get something done and for very little cost, and even for shares or whatever. And it's really hard to be able to access all that kind of talent that you need almost any other place besides … although, I would say New York is, you know, the web, there's been a development of a lot of web companies in New York too. But you do need that concentration of people that can write code, combined with people who are willing to put up the money, and combined with some kind of physical assets that you might need.
Q: Bill, you're aware—I know we've discussed that Google has made a major commitment to Kansas City to install fiber to the home, and to create the first kind of metroplex gigabit Ethernet experiment. I guess I'd be interested in what you think that's likely to change in business, in scale, just in terms of how the Cloud is used. What do you think the experiment will yield?
A: The Cloud computing has had a profound change in terms of business opportunity because what it's done, of course, is greatly reduce whatever hardware costs that a typical user would have to put up. I mean, it's really has remarkable economic benefits. And you know, I do find, what we found is almost all these serious Cloud companies are almost inherently disruptive. They just provide so much more to the user for so less cost. So I think that's probably one of the real basic trends that's changing everything right now, and changing both the cost of getting going, and the scale of what you get when you're there.
Q: So what is in your opinion "inherently disruptive" about the Cloud?
A: It dramatically reduces the cost and, you know, the disruptive formula that I like to try and use is someone that provides 80 percent of what the market looks for at 20 percent or less of the cost. This kind of formula makes it very difficult for the incumbents to really come down market and compete with you. And you know, you look at the sales forces and the .Net suites and the kind of people that have done some of the real initial Cloud computing, they produce you know just a great system for an enterprise at a fraction of the cost that you pay for a true enterprise system. I think it's a very profound disruption.
Q: So Bill, here's a philosophical question for you. Are entrepreneurs fundamentally born, or can they be made? And I guess I'd start with you. You built a billion dollar business as an entrepreneur. Were you born, or were you made?
A: I don't know whether entrepreneurs are born or raised. I really don't. I think looking back, I had a thought process there that I always wanted to explore the other side, or I wanted to at least consider an alternative. So maybe I was a born rebel, I don't know. But I was always wanting to at least explore it and to think about it. And I found that that was fun and enlightening, and sometimes you came up with some answers that were very different than what was the accepted mode of doing things. I don't know where you get that. Sometimes it happens, sometimes it doesn't.
I was also extraordinarily lucky, and so I'm a big believer in the luck part of it in that I went down to Florida in 1958, and basically went to the east coast to Florida, Melbourne, where Cape Canaveral was being built and developed. And that's where the first UNIVAC computers were being built. And I had the great fortune of getting to know and really building a great relationship with two or three of the really early pioneers in the computer field. And so that got me going. I never understood the physics or some of the algorithmic kind of things they were trying to explain to me. But somehow or other, where they were trying to go made sense to me, and so I just kind of signed on to the idea that this was fundamentally something very different, very profound, and would have great impact on the world today. And then, as, when I went out to the west coast—again, primarily following the technology that moved from the east coast to the west coast—again, there was a great deal of luck involved in that we started Hambrecht & Quest in April of 1968 when we got our license. It was the same day, same month Intel started. And so, you know, here we were there when it happened. I'd love to tell you we had it all figured out. Huh-uh. I remember our original business plan, which we scribbled on a night flight on the way home, was that if we could find five companies that we could invest in over the first five years and provide the financings for it, we would have a very successful small investment bank. You know, after, I think in the final analysis, I think we were over 500 investments and underwritings 30 years later. I had no idea it would be like that. But you know, luck plays a big part.
And I guess then finally, you know, you have to be exposed to really brilliant people, and we were so lucky to have people like Bob Noyce and Steve Jobs and people like that. You know, now, people look on them as icons. Hey, in those days, you know, these were the guys you kind of went out and had a beer with. And so it was, it was great fortune. But the guy that really taught me the computer business was a man by the name of David Evans. David was the, initially, head of computer science at Berkeley, and then went back to Utah and became head of computer science at the University of Utah. And he and Ivan Sutherland started a company called Evans & Sutherland, and I went on that board, and we invested in it, and he used to give me lessons. You know, he really did. I became a challenge to him to see if he could teach me what was going on. And you know, from that group, Jim Clark was one of his postdocs. John Warnock who started Adobe, the guys at Pixar came out of there. You know, it was, it was a remarkable group of brilliant, technical, technical people. And then Adobe, you know, first time I ever heard the word "internet" was at Adobe. You know, you just have to be there, and you have to be associated with really bright people that understand what's happening. And then you've got to be willing enough, you know, to go with it rather than fight it.
Q: So Bill, do you have a teacher even today?
A: Yeah. Yeah, I mean, the internet for example, I think Tim Armstrong, you know, who I met at Google when he was head of sales at Google. I think Tim has taught me more about monetizing the internet than anybody I know. You keep, you know, I keep learning.
Q: You recruited Clay Christiansen at about the time he was writing Innovator's Dilemma, or maybe a little before or a little after, and you talked very fondly all the time about his ideas around disruptive innovations. Do you consider Clay a mentor for you?
A: Clay Christiansen has been a great mentor because, you know, he essentially, when he wrote his book and developed his innovation and disruption theories, when I first read that, I said, sure, this is what's been happening. I could never articulate it or think it through the way he did, but to me, I'd seen that movie before, and I just signed on. And I continue to think he is, you know, a phenomenal thinker and a great person. And you know, he's moved a lot of his focus now to public policy, and I think he's just a great asset to the country really.
Q: So Bill, early in your career, you've described how you were regularly engaged with really smart physicists and really, really smart people that you could barely understand what they were talking about or what it meant; but somehow, understood its importance and its implications. How did you know what your role should be, and how did you figure out how to work with these people?
A: My role evolved over a period of time in that initially I just respected and was intrigued by these people so much, I figured my role was raise them some money. You know, and I essentially didn't know an awful lot about it, but because it was so new, I knew more of it than anybody else did at that. You know, in other words, I could go into an institution and I probably knew more than they did. That started to change, you know, as the world changed and as we started going, for example. One of the innovative things that we did I think at Hambrecht and Quest is we didn't hire Wall Street analysts; we hired people out of IBM or Hewlett-Packard or Sylvania. And, because there wasn't an awful lot of financial analysis involved. I mean, equity was pretty simple. It was, does the technology work? And so we hired those kinds of people. Well, you know, by I'd say within a few years, the major firms caught on, and they did the same thing, and then the institutions. And so the market's caught on reasonably quick. So we didn't keep that advantage forever. But I found over the years, particularly sitting on the boards of some of these small companies and living with them, at first I wouldn't say anything, I'd just listen in awe. And then, I don't know, I started to develop some points of view, and I remember being very surprised to find out some of these guys were listening to me. I thought, wow, now I better be careful of what I say because they might even do it. And so, you know, I don't know, just evolved over the years, and I think probably the one common thread that I tried to pursue—I always believed in being the low cost producer. I never liked a business that was selling a product that cost more than the other product, and basically its success was based on pure marketing. You know, I always felt that the value added ought to be there. And so I had a natural predilection for people that kept lowering the costs, making it simpler, making it better.
Q: Well, that's an interesting thought, Bill, but you do have a couple of wine brands that you stand behind, right? Do the low cost producers in wine also win?
A: No. No, it doesn't work in wine. I remember, I remember this wonderful marketing guy, because we started out. You know, my goal in wine was to make the best six dollar bottle of Zinfandel in the world. And this marketing guy came to me and he said, "You just don't get it." He said, "If wine is inexpensive, it isn't good." He said, "People relate quality with expense." And he was right. We raised the price to $12 or $15 and boy the stuff went right off the shelf.
Q: My interactions with you over a very long period of time now tell me that you're a lifelong learner. What about your formal education? Were you as good a student in the classroom as you seem to be in real life?
A: Well, you know, I think my education was really, where it was really a breakthrough for me was I went to Princeton, and I went there from a public high school, and I was an athlete, you know, and spent most of my time playing athletics and chasing girls, and not worrying too much about the academic side of it. And of course, the first year or two at Princeton, I thought, gee, you know, I really felt way behind all these kids that were really bright that came out of the prep schools and, you know, were really good students. But I don't know. A couple of professors got hold of me, you know, near the … one in particular my junior year, and so I got very interested. And I was a history and economics major, and I ended up almost being willing to question some things and to follow my own instincts. They encouraged that. And so I thought, you know, I owe them a great deal.
Q: So I guess I have one last question for you. You've accomplished so much. You've got such an interesting narrative of the people you've interacted with, of the companies you helped underwrite. You're in the Silicon Valley Hall of Fame. What is it that keeps you interested and stimulated today to be thinking about the world tomorrow?
A: I don't know. I just always love a good problem. You know, there's … one of the guys who I really enjoy and I probably shouldn't even name him because he'll get mad at me. But there is a technologist down in Silicon Valley who almost by definition always takes on the hardest problem. And I love talking to him. You know, I mean, it's, it's really, it's really fun to see somebody really go at something that is really challenging, and that really dig through and find the answers.
Q: I want to really thank you for having the patience to go through this exhaustive interview process, but it's really great to have this down in a way that can help us share this with entrepreneurs and others who might be inspired by your words.
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