Magnum

HAD you visited the Valley of Heart's Delight, south of San Francisco, in the 1930s, you would have found a pretty place of plum and walnut orchards. Radio hams liked to go there, attracted by the clarity of signals near the ocean. Seventy years later, the valley contained 7,000-odd companies working in electronics, biotech and their offshoots, with 11 more springing up every week. Yet this most recent industrial revolution, like earlier ones, depended on the chance combination of three elements: the scientist with his invention, an entrepreneur to market it, and an investor willing to risk his money.

Eugene Kleiner was each of these, at different times. But he began with no thought of revolution. When he came to California in 1956, a nerdy young engineer in flannel suit and tie, his only desire was to make a perfect transistor. His job was at the Shockley Labs, where he and seven others were employed to turn William Shockley's Nobel-winning invention into what was to become an integrated circuit. The volatile and brilliant Shockley wanted to fit as many transistors as possible on a single wafer of germanium. Mr Kleiner and his colleagues preferred silicon, which could take heat better; they fell out with the boss, and went off on their own.

But what then? Starting up a company, and getting seed capital, were still rare activities in 1957. The “Traitorous Eight”, as Shockley called them, managed to scrape together $3,500 between them. But they needed a backer, and only Mr Kleiner had the slightest contact with anyone with serious money. He wrote a letter, now famous in Silicon Valley history, to his father's stockbroker in New York; the letter was passed to Arthur Rock, a budding venture capitalist; Mr Rock went out to California, approved of the project, and persuaded Sherman Fairchild, the inventor of the aerial camera, to make Mr Kleiner's little group a subsidiary of his company.

Somewhat to his surprise, Mr Kleiner was now an entrepreneur. Unlike Shockley, he was good at it. The new-fledged Fairchild Semiconductor dispensed with titles and went for informality, a style that was to typify the Silicon Valley revolution. The scientists had an equity stake of 10% and stock options, both extraordinary at the time. But the formula worked. Within six months, the subsidiary was making money; within ten years, it accounted for every penny of Fairchild's profits.

By 1972, Mr Kleiner had plenty of cash. He also wanted to become a venture capitalist himself. The breed was still rare, and even rarer in the guise Mr Kleiner had in mind: a “technologist” who was involved and got his hands dirty, as well as simply writing cheques. He was never interested in enterprises that did not relish this approach. But in partnership with Thomas Perkins, and later in the firm of Kleiner, Perkins, Caufield & Byers, he gave the starting push to more than 350 companies. Some were duds, of course, like the snowmobile company that ran into the drifts with the 1973 oil embargo; but they also included Compaq, Genentech and Amazon. By 1997, KPCB had backed firms with a combined stockmarket valuation of more than $100 billion.

What exactly Mr Kleiner said in his letter to New York is lost to history. Later, however, when he had acquired the mantle of a father of venture capitalism, he laid out some basic rules for ideas-men begging for money. First, get the facts straight. Second, don't lie. Third, leave nothing out. Fourth, seize cash as soon as it is offered. As he put it, in what became known as Kleiner's Law of Appetisers, “The time to eat the hors d'oeuvres is when they're being passed round.” (This was later adapted, by himself or others, to “When the hors d'oeuvres are passing, take two.”)

Also, since he knew the other side, he laid out rules for venture capitalists. They should look less at ideas, he said, than at the soundness and energy of the people peddling them. Great ideas could easily fall apart on paper or, worse still, in the marketplace. “Make sure”, he insisted, “that the dog wants to eat the dog food.” Metaphors of eating always loomed large in Mr Kleiner's laws. It was, after all, a four-hour breakfast with Mr Perkins at the Hyatt Rickey's in Palo Alto that had made him a venture capitalist in the first place.

Opportunism, with a slice of luck, always played a large part in his life. In 1938 he escaped Vienna, with his family, just before the Nazis arrived. At Brooklyn Polytechnic, walking home one night after the opera, his pretty companion said she wanted to be a social worker; Mr Kleiner immediately asked her if she would help him by becoming his wife. She agreed. It was sheer good fortune, he always thought, that brought both Mr Rock and Mr Perkins into his life, and the luck of the business cycle that put him in the thick of the wildest industrial growth in modern American history. “In a high wind,” he once said, “even turkeys can fly.”

A shy man, he tended to efface himself in teams and collaborations. His letter may have been the spark that brought silicon to Silicon Valley and led, indirectly, to the hundreds of start-ups that established the age of the computer and the semiconductor. Yet his greatest pride was to be not just an enabler, but an inventor. To the end of his life, he called himself an engineer.

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