Venture capital the Perkins way

As regular readers of the Library House blog will know, Tom Perkins, a driving force behind Silicon Valley for half a century, has just published his memoirs.

In the light of what he reveals about himself and his approach to investment, it is worth taking a closer look at some of the lessons today’s VCs and entrepreneurs might take from Mr Perkins’ reminiscences. While the book is short on detail about his investments, what he discloses about his general approach to life is instructive.

For those who have not followed his career, Mr Perkins is best known for helping to build up Hewlett-Packard into an IT titan and leading Kleiner Perkins, the venture capital firm that he co-founded in 1972. Kleiner Perkins has backed a string of super-startups, including AOL, Amazon and Google. In addition, Mr Perkins was for 10 years the chairman of Genentech, in which Kleiner Perkins’ initial investment of $250,000 has increased 800-fold to $200m.

In the book, it is clear that Mr Perkins’ style of funding companies stood out in that he was intimately involved in their strategy and management from the very start. Conversely, he is sceptical about the motivation of many directors today and of their ability to run companies effectively. Why even have a board these days?, he asks. The lawyers force directors to tick the boxes and take the safest course. He characterises directors thus: “They just comply with corporate governance and don’t worry too much about the actual business.”

He argues that Sarbanes-Oxley and its equivalents around the world are scaring off talent from running big business. One of the key planks of Sox, for example, is that executives have to sign off accounts and become personally liable for any mistakes or fraud. But the idea that the director of an audit committee can somehow ferret out misdeeds is crazy, he says. Big companies are so complex, you can't know everything. What a director needs is a feel for a company, a feel for whether revenues look too high - you're not going to get that from the numbers.

In fact, this is probably the strongest message in the book: keep your hand firmly on the tiller and trust your instincts. He applies this philosophy to sources of information too, arguing that the media obscures, rather than presents, the facts. He says: “Obituaries are the only true news and the only thing that papers rarely lie about.” In other words, he does not trust reported, or second-hand, information. Only the evidence of your own eyes is good enough.

This conviction is at least partly derived from Mr Perkins’ childhood experiences. An only child, Perkins grew up during the depression, which he says devastated his father and distorted his mother’s priorities. “My mother wanted things in life that my father couldn`t provide.  The fact that we didn’t have any money was very, very evident in my life.”

So, by default, he has an overwhelming need for the tangible, and this has served him well in his business life (although he admits he has a tangled private life, including a failed marriage to novelist Danielle Steel)

In today’s world where success is expected and demanded in short order, where there is an accent on disassociating factors such as financial engineering, scale, intermediation and risk-management, feeling the cut of the cloth is not in vogue. But investing and building companies has probably not really changed all that much since Mr Perkins started out. Amid all the background noise, the best VCs and entrepreneurs keep that secret to themselves.

The Week's Deals

Spectraseis, the Switzerland-based provider of low frequency geophysical technology and services to the upstream oil and gas industry, has raised $32.5m (€21.9m) from Warburg Pincus in exchange for a 'significant' minority stake in the company. Spectraseis researches and applies technologies, on land and offshore, to acquire and analyse low frequency seismic background waves present in the Earth’s subsurface, in order to identify hydrocarbons.

Skyscanner, the UK-based search engine for cheap flights, has raised £2.5m (€3.5m) from Scottish Equity Partners. Skyscanner, which was founded in 2003, has developed proprietary search engine technology which allows consumers to obtain instant online comparisons on fares from more than 180 airlines to more than 5,000 destinations. The capital will help Skyscanner set up what it believes will be the first system to cover every scheduled flight in the world, including budget and chartered airlines.

Advasense, the Israel-based fabless semiconductor company, has raised $6m (€4m) from Taiwanese venture capital fund CIDC Consultants, bringing the total raised in its third financing round to $20m (€14.7m). Advasense develops advanced CMOS image sensor products designed to enhance the image quality of cameras in mobile phones.

The Week's Exits

VoluBill, the France-based supplier of real-time charging, control and monitoring applications for VoIP, data, messaging and content services, has agreed to buy certain assets, including software intellectual property rights and customer contracts, from Intec Telecom Systems. An initial sum of £1m (€1.4m) is to be paid for the assets, which relate to Intec's Denmark-based 'Intec DCP' rating and charging product, acquired in 2003 as part of Intec's purchase of Digiquant.

AOL, Time Warner's internet unit, has acquired Israel-based online question-and-answer service Yedda for an undisclosed amount. Yedda, which routes questions to relevant groups of internet users, will become a wholly owned subsidiary of AOL, and eventually incorporate its service across the entire portal. Yedda received $2.5m (€1.89m) earlier this year from Genesis Partners and private investors.

People Moves

Enigmatec, the UK-based developer of automated management software, has appointed Peter O'Neill as chief executive. Mr O'Neill has previously held senior positions at Hewlett-Packard, Sequent, KPMG and most recently Searchspace, where he increased revenue from £2.8m to £21m within 5 years. Enigmatec's tecnology is designed to enable businesses to lower operating costs and reduce business downtime with solutions for automated workload management, orchestrated disaster recovery and business continuity.

Cambridge Biostability, the UK-based developer of technology to create thermo-stable liquid vaccines, has announced the appointment of Luca Guerzoni as chief executive to succeed Dr David Stone. Dr Stone will become a non-executive director. Mr Guerzoni has worked in the pharmaceuticals and vaccines industries for more than 20 years.

Selected Recent Updates

Webjam, a London-based internet start-up founded by former Yahoo! employees, has started seeking investors for its second funding round. Webjam raised £1m (€1.5m) from French early stage venture capital firm I-Source Gestion earlier this year and is now looking for £6-8m (€8-11m) to finance technological development, marketing and international expansion. Webjam allows individuals and communities to create, aggregate and share content online. Currently employing ten people, Webjam says it differentiates itself from its competition by bundling powerful community features with an easy drag-and-drop interface, a catalogue of modules and styles, and a feature to replicate contents and styles from the community.

Neorphys is a French biopharmaceutical company that discovers and develops lifestyle drug candidates, with a particular focus on female desire dysfunction and nausea-free acute pain management. Set up in 2005, the company has been backed by Inserm-Transfert Initiative, Soridec Capital Investment, and CEA Valorisation, over two previous funding rounds. President and founder Mr Roger Lahana told Library House this week that the company is currently in the process of raising further funding from these investors, which is expected to be finalised by the end of this year or early in 2008. This will precede a larger financing round of several million euros which will open in 2008 to fund development of the company's lead compound, a nausea-free pain management drug, to clinical trials. Neorphys is also developing a drug for female sexual dysfunction which Mr Lahana estimates will take 18-months to bring to the animal proof-of-concept stage. Neorphys intends to hire an additional 20-30 people over the next three years to support the development of its compounds. In addition, the company intends to hire a clinical director in 2008 as well as a chief financial officer after the close of the funding round.

Denmark-based InMold Biosystems is developing technology designed to offer a radical new approach to increase the functionality of plasticware. The company's process integrates biological functionality directly into plastic surfaces during injection molding and thus integrates the production process and biological functionality in a relatively cheap and reproducible way. The company has identified three main application areas where the InMold technology would offer significant advantages: immunology, molecular biology and cell culture. Chief executive, Mr Jan Andersen told Library House that the company is in the process of raising €3m in order to fund the business for the next two and a half years. The funding will allow the company to bring its bio-activly surfaced plastic products to market in 12 months' time, and to establish production lines. Mr Andersen expects the company to be ready to exit in five years' time to a large plastics manufacturer such as Corning, BD or TPP.

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