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Sutter Hill Ventures, a Palo Alto fund with investments in 50 companies, measures the health of its business by the daily mail. Between 1973 and 1978, it received about 250 financing proposals each year. This year it expects to receive 400. The quality of applications is improving too. Says Sutter Hill Partner G. Leonard Baker Jr.: "During the slack times, we were seeing people with very few alternatives for finding new money. Now we're seeing an explosion of entrepreneurs."
One of the most successful venture capital firms in California is Kleiner, Perkins, Caufield & Byers of San Francisco. This is neither an old wealthy family firm nor a subsidiary of a major corporation. The company is rather using the gilded reputation of past successes to raise large new pools of money for fresh investments. Started in 1972 by Eugene Kleiner, one of the founders of Fairchild Semiconductor, and Tom Perkins, a former Hewlett-Packard executive, the company has seen its initial investment fund grow from $8 million in 1972 to almost $300 million today.
Kleiner, Perkins closely studies an infant company's prospects and then carefully nurtures it during the early years. In 1973 Jim Treybig, one of the partners, began to work on an idea for a new computer that would eliminate many common computer breakdowns. Last year Tandem Computers, with Treybig as president and Tom Perkins as chairman of the board, rolled up sales of $109 million. The $1.5 million investment by Kleiner, Perkins is now worth $220 million. The company also struck gold last year when Genentech "One large winner takes care of an occasional loser.
Inc. went public. Genentech was founded by Robert Swanson, another former partner, sand Biologist Herbert Boyer. Today, Swanson is the president of Genentech, while Perkins is the chairman. The initial $200,000 put into the firm has swelled into stock worth $40 million.
The masters of venture money, however, must be patient. Since 1972, Kleiner, Perkins has been bankrolling Andros Inc., a small company that hopes to market an artificial heart. So far, the young firm has shown no profit.
The long development time and the potential for failure help explain why venture capital funds have had little appeal for small investors. Although the public can buy about two dozen venture capital mutual funds, these have not been popular. Says industry expert Stanley Pratt: "People should not expect these new companies to grow like weeds. It will take a long time for an investment to mature." Pratt advises the small investor who is interested in such firms to buy their shares after the new companies make their first public offering.