October 16, 2005 – Making Transitions

October 16, 2005 – Making Transitions

I’ve just changed jobs moving from a high tech company based in Palo Alto off Embarcadero Road to another one located in the office complex across Guadalupe Expressway from the entrance to San Jose Mineta International Airport. It is yet another passage I’ve made to another stage in my life. We are all encountering these points in our lives where some significant transition happens. It’s hard to see the significance until later when time has provided you the hindsight to discern it receding into the past, a sign post you would now give a great deal to have recognized it when it came upon you. This is especially true for me as the number of transitions I’ve traversed far out number the remaining number I can hope to look forward to.

As to what has bought me to this nexus, that is the purpose of my discourse. I’ve always viewed Silicon Valley as an enormous goldfield, only different from the legendary one that sparked the state of California into being, by the substance being mined. The first rush was set off by the mineral gold—symbol Au, atomic number 79 in Group Ib the periodic table of the elements; the current one by silicon—symbol Si atomic number 14 in Group IVa. The former is one of the best conductors of electricity, the latter a poorer conductor, but what makes it special is that its conductance can be regulated—made to increase or to decrease, much like the valve in a water pipe under pressure. This characteristic is what made Si so valuable, what engendered an explosion in wealth. I found it ironic that a couple of years back news reports remarked that a single Intel microprocessor had a value greater than its equivalent weight in gold—this was at a time when theft of silicon chips was running high in the valley.

I arrived in the valley during the early 1970s when the silicon rush was well underway but the “mines” weren’t producing at the levels they would a decade later, when silicon demand prompted the creation of ever larger manufacturing giants to produce the valuable substance. My first transition occurred at the end of the 1970s when I stopped working for large corporations and joined first a small marketing agency, then a magazine, published by a relatively small New Jersey publisher. The valley’s next major transition occurred in the 1980s, which saw the era of the Japanese keiretsu, a grouping or family of affiliated transnational companies forming a tight-knit alliance working toward each other's mutual success. They successfully challenged U.S. giants and wrested control of the lion’s share of silicon manufacturing. The industry’s next major change occurred in the 1990s, which saw Korean and Taiwanese enterprises successfully wresting hegemony in silicon production from the keiretsus. Now, with the dawn of the new millennium, the industry is witnessing the next transition, in which China is beginning to challenge Taiwanese and Korean dominance.

Up until the end of the last century, my life has largely been spent reporting on the technology wars these great giants have waged over the past thirty years. I relinquished that responsibility to a new generation of reporters, who like, me are content to chronicle the times we live in rather than participate in them and shaping the direction our times will take. When I did become part of the commercial world of silicon, it had dramatically changed. There were only a handful of companies in Northern California still manufacturing silicon in their own production facilities, and these ventures no longer could expect a future of rapid growth—that had occurred in the late 1970s for those based in the U.S. Furthermore, there were few companies in the valley who specialized in creating chip designs that large semiconductor companies with production capacity manufactured in high volume—that had occurred in the late 1980s, peaking somewhere in the mid 1990s. And finally, there were only a handful of start-up companies selling software intellectual property to the corporations building larger chip designs—they began their rise in the late 1990s, but as luck would have it I found one. Like the other two groups of companies a great deal of the growth had already occurred in the company I just joined, but there were still exceptions to be found. I’m betting I found one.

The history of the silicon gold rush can be seen in the Price Waterhouse Cooper's Moneytree report. In 1995, the accounting firm reported 1,771 venture capital deals worth a total of $7.8 billion. By 2000, the number of new ventures funded had risen to 7,814 worth a total of $105 billion. Last year, PWC reported 2,925 new start-ups received funding worth $21.4 billion. And more telling is where VCs are putting their money, the lion’s share going first to software, then biotech, then various types of communications and networking, which represent the next three most funded types of start-ups. Semiconductors represent the sixth place in order of funding in total dollar amount and number of companies funded.

During the 1980s and 1990s, a great deal of wealth being generated was being disbursed throughout the population. I had friends who had quit working for others and began selling their services. They were enjoying a high standard of living. In the aftermath of the 2000 recession, all of that excess wealth disappeared. Those same friends in 2001 who had prospered years before were now scrambling to land steady employment and finding it increasingly difficult. Jobs they once counted on were being shipped abroad thanks to the Internet to competent workers with a less demanding lifestyle to support. Any job that could be performed on a computer could be done by anyone with a high-speed connection.

What I’ve come to realize over time is the importance amassing wealth becomes as you grow older. It provides self-sufficiency. The more you have the less beholding you are to others. The transition I made in 2000 recognized that I was the one who had to create that independence, by making investments in companies that have the potential to grow wealth—the other distinction between the gold and silicon gold rush, the former consumed tangible natural resource, the latter appears to create it out of imagination. This will be the third company I have made an investment of my human capital in since rejoining the workaday world. All have been software companies. The first was short-lived—a year—killed by the dotcom implosion that devastated many dreams, mine included. The one I’ve just found holds the promise to find that lost hope. I'm hoping that in hindsight, this will represent the major transition my wife IM and I need at this point in our lives.

When I was a kid in the fourth and fifth grade living in Puerto Rico, my friends and I collected baseball cards each with a unique number on the back of the card. We would shuffle our cards, split them and hold half in one hand and half in the other picture side up and present the two stacks to a friend. He would make a bet of the number of cards he would take from or give to me based on whether he had chosen the part of my card deck with the highest number showing on the bottom card in that hand. Each of us had our streak of luck where we would clean out our friends. As you grow older you never stop being a kid.