How a Rock started the venture capital biz in the Valley

Money monopoly

By Ashlee Vance in Mountain View • Get more from this author

Posted in Business, 2nd May 2007 21:58 GMT

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Arthur Rock once savored a monopoly over the minds and money flowing through Silicon Valley.

One struggles these days to imagine anything less than a steel cage, death match as myriad venture capital firms rush to fund the latest and greatest start-ups. Investors fall all over each other, hoping to strike it rich in a flash. This is the Tipping Point mentality promoted by author Malcolm Gladwell and worshipped by lottery aficionados.

Rock and his partner Tommy Davis worked in simpler, murkier times. They started to define the Silicon Valley venture capital culture back in 1961, using Rock's past investment in Fairchild Semiconductor and $5m as proof of their credentials. Back then, $5m bought you plenty of attention.

"We were the only game in town, so they all came to us," Rock said last night, during an event here at the Computer History Museum. "We didn't have to go looking."

On one level, Rock is best known for that Fairchild deal.

While working for an investment bank in New York, he learned of seven unhappy researchers at the Shockley Semiconductor Lab in Mountain View. The workers wanted to leave en masse and find a company willing to employ the entire group. (Fairchild and Intel co-founder Robert Noyce later joined the seven, forming the so-called "Traitorous Eight".)

In 1957, it proved tough to find a company willing to adopt the Shockley workers. Rock pitched 35 businesses, and they all declined.

"These companies all had order and form and none of them could see how they could set up a separate division and give people operating that division a larger profit than their own employees were getting," Rock recalled. "It just wasn't in their mindset. Options were practically unknown in those days."

Eventually, Sherman Fairchild grasped the opportunity at hand, slotting in the eight workers at Fairchild Camera and Instrument. Each of the researchers took 10 per cent of the new operation, while Rock took 20 per cent.

"That is where the famous 80/20 came from," Rock said. "All the venture capitalists in the room can thank me for your 20 per cent."

Fairchild charged the transistor market and thrived off Noyce's integrated circuit discovery. Eventually, however, management failed to keep up with the entrepreneurial spirit of its workers, opening the door for Noyce and Moore to start another venture.

With Rock by their side, Noyce and Moore fired up Intel in 1968, using a two-and-a- half page (double spaced) business plan "designed to say nothing" and $2.5m. Rock remained a director at Intel for three decades.

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