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11/25/92


TITLE #m#gm#m##m#ak/sw#m#Venture Capitalist Don Valentine: Dis-
cerning Promising Start-Ups From Mere 'Spellbinders' Kathleen
Doler In Menlo Park, Calif.  Most people believe venture capital-
ists invest in entrepreneurs. Not so. They invest in markets and
products, says Don Valentine, founder of Sequoia Capital#m#cq#m#
and a top Silicon Valley financier for more than 20 years.  He
calls the technology masters he deals with "spellbinders," and as
much as he reveres them, he steers clear of these visionaries un-
til his team has thoroughly researched the products they're being
asked to fund.  "Some of these people are dazzling intellects,
phenomenal salesmen," said Valentine. "And they're all dressed up
in their blue suits and power ties, and that's irresistible.

"We find it's much easier to be foto

objective about the size and dynamics of the market (by focusing
on the product itself). I have never invested in a company where
I wasn't persuaded that the market was either substantial at the
moment or predictably substantial."

Over the years, Valentine, 60, and his team have provided funding
for more than 250 companies operating in a number of markets.
Valentine launched Sequoia in 1971. Its first investment was in
Atari Corp., which created the market for coin-operated and home
video games.  Bigger things lay ahead. In 1977, Sequoia was the
first venture firm to fund Apple Computer Inc., the company that
launched the personal computer industry. That investment marked
Sequoia as a power player in Silicon Valley.  For its first eight
or nine years in existence, Sequoia only funded computer-related
companies. Recently, however, it has made a big push into biotech
and health care.  "We perhaps make 12 new investments a year, and
they're about 50-50 now" between computer and non-computer com-
panies, Valentine said.  Besides Apple, Sequoia's investments now
include positions in Electronic Arts


Financier Valentine Focuses On Products

Inc., Acuson Corp., Cypress Semiconductor Corp., Cisco Systems
Inc. and Total Pharmaceutical Care Inc., to name just a few.
Around Silicon Valley, Valentine is respected and a little feared
for his sometimes abrupt manner and his penchant for grilling ex-
ecutives about their strategies.

Trip Hawkins, chairman of Electronic Arts#m#cq#m#, an entertain-
ment software company in San Mateo, Calif., considers Valentine
one of his greatest influences and mentors.


"What Don does is a little like a dysfunctional parent, in that
he withholds approval," Hawkins said. "Whatever you decide to do,
he's going to rip it apart. So you're so insecure and desperate
for approval that after awhile you really work . . . to make sure
you have your act together." He added, "Don is one of the most
intimidating people you're ever going to come across. He can be
very charming if he wants to be. But talk to anyone who's had him
on their board. He basically eats people for lunch."

Valentine admits he can be intimidating due to his economy of
words and pointed questions, but he insists his job is to nurture
entrepreneurs, not intimidate them.  "My view in dealing with a
president, or a major ego, is that you have to nurture that ego,
not damage it," he said. "I don't ever want to attack that ego
publicly - I rarely want to attack that ego privately. They work
best when they're super-optimistic."

Still, Valentine acknowledges that entrepreneurs have plenty of
reason to fear venture capitalists, many of whom he says meddle
too much in their investments.  In his book on the venture capi-
tal business, "Nothing Ventured," Robert Kunze observes that the
huge egos of entrepreneurs are often rivaled only by those of
their financial backers. Kunze also says there are no more than
50 truly successful venture capitalists in the U.S., and he names
Valentine as one of the top players in the business.

Valentine established Menlo Park, Calif.-based Sequoia before
Silicon Valley became known as a high-tech mecca. He attributes
part of his firm's success to the experience of its partners,
most of whom have run businesses themselves.  He has little pati-
ence or respect for venture firms that hire legions of MBAs fresh
out of school. When he speaks at schools, he encourages students
to go into business, not finance.  Valentine, who has an under-
graduate degree in chemistry, began his own professional life in
1959 as a salesman for Fairchild Semiconductor Corp. By 1967,
he'd risen to vice president of sales and marketing.

Seeing An Opportunity

During the late '60s and '70s, the semiconductor industry was
booming. Several executives left Fairchild to form National Sem-
iconductor Corp., and Valentine joined them as head of sales and
marketing.  Valentine saw opportunity in the semiconductor indus-
try.  "The future was going to be an exploitation of the mi-
croprocessor," he said.  He began by investing in new products
and industries that were created by the development of the mi-
croprocessor. Later, he branched into related products and mark-
ets, like hard-disk drives and software.  He currently is in-
terested in networking and client-server computing. In health
care, Sequoia is funding alternative-care providers, as well as
biotech companies.  Sequoia's first venture fund closed at $5
million, which Valentine says was a "princely" sum of money in
1971. The firm closed its latest fund at $90 million.

Sequoia is still tightly tied to its first client, Capital Group
Inc., a privately held Los Angeles investment concern that
manages "probably $80 or $90 billion of mutual funds and a lot of
U.S. pension funds," said Valentine.  Not surprisingly, Valentine
has very strong views on the venture business. Although others
decry the decline in available venture money, Valentine applauds
it and even wants to see the capital pool shrink further.

Peak In Capital Pool

The venture capital pool peaked in 1986 at $4.6 billion and
dropped to less than $2 billion in 1991.  "There are too many
people in this business who haven't a clue about what they're do-
ing," he said. "And they have far too much money." But Valentine
also worries that voters don't understand the difference between
venture capital and other small-business financing.

Venture money funds the big ideas -companies that ultimately be-
come large enough to go public and provide their bankers with an
exit. Smaller ideas, which may result in good little businesses
that create 20 or 30 new jobs, are usually funded by individual
investors - what Valentine calls "angels." Many of these go un-
funded because of a detrimental tax structure that Valentine says
is discouraging private investors.  Valentine is doubly dis-
tressed by the incoming administration's platform.  "If the new
administration enacts the tax-destructive legislation on which
they campaigned - soak the rich -you're going to take the discre-
tionary money that normally would be in the angel pool out of the
game and you're going to fund something in Washington, some
pork-barrel mindless idea like keeping a naval shipyard going in
Kansas." Valentine further argues that few voters understand that
most venture money is tax-free, because it comes from pension
funds. So changes in income taxes or capital gains taxes will not
affect venture capitalists, he says.  "It's the angel pool of mo-
ney and the entrepreneurs who are diminished by additional
taxes," he explained.

Loving The Chase

After more than 20 years of listening to pitches for new com-
panies, Valentine still loves the chase of discovering a new in-
vestment and would rather spend his day looking at new ventures
than managing his existing investments and working with clients.
"I still find listening to a new group of people the highlight of
my day," he said. "These are sensational people, flawed though
they may be. Our country would be vastly diminished without these
people. These are the risk-takers. So they're exciting, even when
their ideas are crummy or imperfect. And when you encounter some-
one with a good idea, then it's really exciting."

When he isn't trying to discover the next Apple, Valentine enjoys
golf and skiing and spending time with his three adult children.
And his legacy of helping to develop Silicon Valley extends to a
personal level.

He proudly states that all three of his kids are "nerds" who are
employed at high-tech companies in the area.

This article is copyright 1992 Investors Business Daily. Redis-
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