by Norman Oro
Barring that, he supposed that he could’ve simply waited. An optimist at heart, he felt that despite the stand-off between the United States and the Soviet Union, the course of international affairs was a positive one. In his opinion, the first field criterion would eventually be realized of its own accord because it suited human nature. And though he didn’t have Dr. Gidsen’s voluminous knowledge of world history, what he did know seemed to support that notion or at the very least proved that it was possible. To his thinking, what was the first condition other than the resumption of the world’s economic trajectory as it’d been in the late 19th century when tariffs were low and economies relatively well integrated? Also, he believed advances in information systems would continue, driven on the one hand by the increasing data requirements of businesses seeking to cater to a growing middle class, and on the other hand by the public’s fascination with computer technology. Others would certainly be more than eager to take on the mantle of advancing the power of information systems until the second field condition could be met. All Guy Pool had to do was wait. Unfortunately, this ran counter to his very nature. He would’ve personally found it excruciating sitting on the sidelines, watching the course of human events unfold without somehow taking part in it. With that realization, a kind of division of labor emerged. Dr. Gidsen would work to realize the first field criterion. He was such an ardent believer in peace through prosperity that Guy Pool couldn’t envision him doing anything else. Dr. Marshall would continue studying the Allen field technology, which the government had essentially given him a monopoly on. And he would work towards developing information systems advanced enough to help realize the second field criterion.
Once he had a broad sweep of what he wanted to do, the time came to look at its details. As spring of 1962 neared, Guy Pool had spent almost two years traveling around the world, attending presentations and conferences on the nascent computer industry. He’d learned what he could about mainframe computing, the industry’s leading edge at the time. It appeared even then that two hubs of activity were forming in the United States, one in Northern California and the other in the Northeast. In those early days, he hired undergraduates at MIT to collect news articles about computers for him and continued toying with the idea of launching his own company. His thinking, however, eventually evolved more towards financing various companies rather than starting his own. Considering how new and therefore unpredictable the computer industry was, it seemed to make more sense to play the odds and foster the growth of a variety of businesses, at least a few of which would probably go on to be successful, bringing the second field criterion closer to reality. There was even a class of private investment that focused on just that area. Appropriately enough, it was called venture capital. From what he learned, it seemed to be a risky line of work. Many businesses seeking venture capital had no profits or even revenues to speak of. Given that, he then wondered how he personally would’ve gone about identifying which companies to invest in. Although he considered himself fairly intelligent, the exercise of trying to formulate an investment strategy made him realize that if he was serious about working in venture capital, he’d have to strengthen his practical understanding of finance.
Through friends from college and his family, he found a job in 1962 as an analyst for an investment firm in New York City called Goldman, Sachs & Co., which had gained some notoriety for handling the public offering of shares in Ford Motor Company a few years earlier. It was a somewhat awkward experience at first. Guy Pool was about ten years older than most of his fellow analysts; and the bits of finance that he’d picked up over the years made him conversant enough in the language of commerce to often be mistaken for an associate or sometimes even a young partner. Nevertheless, his years there proved to be invaluable. He worked in a group that made investments using the firm’s and its clients’ money, which in his case often involved evaluating businesses in the computer industry. In the process he learned to read financials, conduct business valuations and use other quantitative techniques to evaluate a company’s prospects. Despite his age, position and what he’d heard about investment banks, he was never made to feel uncomfortable. On the contrary, he found the atmosphere to be very collegial; and grew to genuinely like Goldman, Sachs and its people. After two years with the firm, he’d learned what he needed to in terms of high-level corporate finance. In particular, he’d grown adept at reading SEC filings and annual reports to get a bird’s eye view of a corporation, its challenges and its opportunities. A few months before giving notice, however, he’d decided to seek work within a computer company in order to experience firsthand what those financial statements summarized.
In 1964, he took a corporate development manager position with Digital Equipment Corporation, a computer manufacturer in Maynard, Massachusetts. He spent the next two years formulating corporate strategy, while evaluating the profitability of new and existing product lines. As he’d hoped, he saw marketing, operational and financial issues up close that he’d only touched on in investment banking. During his time there, he also worked on securing financing and experienced what sourcing capital was like from the company’s vantage point. Most importantly perhaps, he began to form a reasonably accurate picture of where the computer industry was and where it might be headed.
After working at Digital Equipment Corporation, Guy Pool felt ready. With his finance experience and the contacts he’d acquired through work, school and his family, raising at least a small venture capital fund seemed realistic. However, having taken to heart the holistic approach that Dr. Rys had tirelessly preached while he worked at US-395, he wanted to broaden his understanding of the business world in general before taking the plunge. In 1966 he enrolled in the two-year master’s program at the Sloan School of Management at MIT. In addition to his business classes, he learned as much as he could during his time there from noted academics and entrepreneurs involved in computing. Through a lot of legwork and a bit of luck, he got a summer internship with a venture capital firm in Northern California, Sutter Hill Ventures. One weekend that summer, sitting on his surfboard at Steamer Lane under the warm California sun, he realized just how much he missed the West Coast. That was when he decided to base the venture capital firm that he intended to start in Northern California. Once he graduated from Sloan in 1968, he moved back to the West Coast and bought a modest one-story home in Half Moon Bay.
During his years away from California, Guy Pool tried to keep alive at least the memory of what he’d been a part of in Pueblo. Just before going their separate ways, he’d gathered phone numbers from project team members expressing an interest in staying in touch; and after US-395 shut down, he attempted to get everyone together once a year, usually on July 8th. However, few ended up attending. Most had just begun new lives and understandably didn’t want to jeopardize that. Also, many simply didn’t want to reconnect in any way with something they found very distressing even years afterwards. Remembering what they’d all been through, Guy Pool couldn’t fault them.
By 1962, the only attendees aside from himself were Dr. Gidsen and Professor Marshall. It was a good reunion that year despite the lack of numbers. Dr. Marshall was about to earn tenure in nearly record time at UC Santa Barbara; and Dr. Gidsen had just finished advising the Dillon Round of negotiations for the General Agreement on Tariffs and Trade. Apparently, it’d gone very well with significant tariff reductions and considerable progress made on a European common market. Months earlier he’d also met the woman of his dreams, a mechanical engineering student at Stanford named Julia Jones, and they were engaged to be married the following year.
Although their reunion in 1962 found them all well and was one marked by a sense of nearly boundless optimism about the future, in Guy Pool’s mind it wasn’t their most memorable get-together. Even many years later, their first gathering after he’d moved back to California in 1968 was the one he remembered most vividly. By that summer, they’d moved the event from Art’s Diner to Professor Marshall’s ho
use in Carpinteria. He’d married Victoria Stillwell in 1964 and there was a little Alberto Marshall running around in the front yard when Guy Pool pulled into the driveway that year. He saw Dr. Gidsen’s red 1965 Mustang convertible already parked there, and greeted him and his wife when he saw them in the living room. Guy Pool’s date that year was a math major from Berkeley named Piper Finesine. Between her stunning looks, her equally stunning intelligence and her unforgettable name, she was one of the reasons why that reunion was so memorable. The other reason was the impending launch of his venture capital firm.
Guy Pool hadn’t chosen a name yet; however, he had decided that he’d base it out of Menlo Park in Northern California, an area which was then just beginning to coalesce into a hub of entrepreneurial activity and venture finance. Huddled around Dr. Marshall’s kitchen table that afternoon, he walked them through the first fund he was raising. The firm’s overarching goal, of course, would be to help realize the second field condition. This meant that committed capital would finance technologies that might one day enable the information systems that Dr. Gidsen had originally envisioned nearly a decade earlier. He’d spent days preparing for what amounted to little more than an hour speaking with his friends. Fortunately, it paid off. Once he was done and after answering a few questions, his firm had two new partners. They all agreed that Guy Pool would handle most of the investment activities with Dr. Gidsen and Dr. Marshall serving primarily as advisors and fundraisers. Nevertheless, all investments would require unanimous approval. Though finding the right name took longer than it should have, it was arguably worth it. To reflect geography, as well as aspiration, they named their new firm Pacific Capital.
Pacific Capital I was fairly ambitious for a first fund with Guy Pool seeking to raise $750,000 in committed capital by early September, 1968. To set the tone, he started by investing $125,000 himself, a substantial portion of his own personal wealth. Dr. Marshall did likewise. Dr. Gidsen invested $50,000 and provided in-kind services valued at another $50,000. Despite the distinct risk that their first fund might be a failure, at least no one could ever fault them for being unwilling to put skin in the game. In fact, they had so much skin in the game that Guy Pool felt obligated to point out that they were disadvantaged in terms of how much of the gains they’d receive relative to how much they’d contributed. To set everyone at ease, however, he then noted that it was probably best viewed as a cost of doing business, essentially an upfront investment to establish the new firm’s credibility. To make PC1 even more attractive to potential investors, they decided to incorporate what they felt were best practices based on conversations with entrepreneurs and other venture capitalists. For example, rather than the customary ten year term, Pacific Capital I would have an eight year term with a two year extension contingent on partnership approval. Also, the limited partners’ committed capital would have priority once the fund was wound down. This meant that before Guy Pool, Professor Marshall or Dr. Gidsen saw a single dollar, every effort would be made to ensure that investors got at least their initial capital contributions back. Fundraising for PC1 closed on time in early September with the remaining $400,000 contributed by friends and family.
Fortunately, there was no shortage of entrepreneurial ideas in 1968 to invest in. The second field criterion guided them initially and pointed towards financing businesses that promoted the development of information systems. However, this proved to be so broad as to be of little use as an investment criterion. After much discussion, they decided to devote most of PC1 to funding computer component and hardware manufacturers. Their reasoning boiled down to their belief that although things like programming languages and software might come and go, the demand for the components and hardware needed to run them would probably remain. This guided the fund’s investments in general and their decision to finance a Santa Clara startup called NM Electronics in particular. The young company’s innovative approach to computer memory, which replaced conventional magnetic cores with electronic components made of silicon, was arguably the future. Although semiconductor-based computer memory was much more expensive at the time, costs were falling rapidly and were on track to make NM Electronics’ products competitive with magnetic core memory within a few years. Furthermore, silicon-based memory was widely seen as faster and more reliable. This especially resonated with Guy Pool, who remembered the complexities associated with magnetic core memory from his years in corporate development at Digital Equipment Corporation.
After speaking with the startup’s management team, reading their business plan, running some numbers and talking with leading venture capitalists who spoke glowingly about the young company’s prospects, Guy Pool was convinced. He then walked Dr. Marshall and Dr. Gidsen through what he thought was the promise that the technology represented; and secured agreement to invest the lion’s share of PC1 in NM Electronics. Guy Pool’s stomach was doing somersaults as he cut the $600,000 check, but he knew investing in the startup would ultimately turn out to be a sound decision. Pacific Capital’s first investment closed the following day on a handshake in return for preferred shares. Fairly soon thereafter, NM Electronics changed its name to Integrated Electronics. Soon after that, it became known simply as Intel.
As 1968 drew to a close, most of PC1 had been invested with all of the money going to finance companies specializing in computer components. In addition to monitoring and advising those portfolio companies, Guy Pool also attended industry conferences. It was during an event in early December when he saw the future. The Stanford Research Institute’s Augmentation Research Center (ARC) provided a demonstration that, among other things, showcased a precursor to the graphical user interface, as well as what would eventually be known as the computer mouse. Although the ARC demonstration was intended for computer experts, it led Guy Pool to conclude that the ever increasing power and miniaturization of electronic components created the potential for computers to become everyday consumer products like telephones, record players and televisions. He saw applications and devices in the demonstration that he believed would eventually allow anyone, not just engineers, scientists, information technology professionals and hobbyists, to use a computer. And within it, he also saw the seeds of a decentralized information systems network that could one day make the second field criterion a reality. Although there were still eight years left until their first fund ended, his gut told him that the ARC demonstration was a preview of the technologies he’d be financing with their second fund.
Venture capital’s outsized returns came only through exposure to significant risks. There was no greater truism to Guy Pool than that. Like many venture funds, PC1 had its share of failures. Around twenty percent of the capital originally committed financed new technologies that never saw a profit and in some cases never even made it to market. Nonetheless, once it’d officially wound down in September of 1976, Pacific Capital I was a resounding success. Largely because of their early-stage financing of Intel, each dollar invested in PC1 netted its limited partners $25 after eight years, translating into an annual return of 50%. Guy Pool and Dr. Marshall almost doubled their already sizeable personal fortunes; and Dr. Gidsen, the firm’s only partner who hadn’t been born into affluence, became financially independent overnight.
Though no one went on a binge, they did spend their money. Guy Pool used some of his return for a modest ceremony to finally tie the knot with Piper Finesine. She’d just begun teaching at Berkeley and so, for alliterative reasons, opted to keep her maiden name. He also funded scholarships for local high school students seeking a college education in engineering or the sciences. To offset the fact that most of Pacific Capital’s business activities benefited the West Bay, he made his scholarships available specifically to East Bay high school students. To administer it, he established a non-profit called the Allen Foundation. As for Dr. Marshall, aside from making generous donations to alumni funds and getting a new Jeep Wagoneer to accommodate his growing family, he chose to invest most of his windfall in Pacific Cap
ital’s next fund. Dr. Gidsen likewise donated some of his money to his alma maters and to his wife’s charities, but reinvested most of it in their second fund. Given Pacific Capital I’s impressive returns, fundraising was much easier for Pacific Capital II; and it closed on time in early September with $10 million in committed capital.
If asked, Guy Pool would’ve admitted that the firm’s newfound success was exhilarating. Along with many of his fellow venture capitalists, he was lauded for helping fuel the engine of capitalism and even hailed in a few newspapers as a local hero. It was an effort not to let it get to his head. Nonetheless, he managed to stay humble, and was careful to maintain a low profile for himself and the firm. Most importantly perhaps, he never lost sight of Pacific Capital’s mission to help create a world where the remarkable technology he’d witnessed almost twenty years earlier in Pueblo could be safely developed, allowing Dr. Rys and his son to finally return home. Although the objective was the same, his thinking regarding how it would be realized had changed. His original vision of a powerful monolithic computer tracking Allen field activity worldwide evolved over time into one of a vast, highly decentralized network of thousands, or perhaps even millions, of computers spanning the globe. Consequently, well before fundraising for Pacific Capital II closed, he had a clear idea of where he wanted the investments to go. The only question in his mind was how best to communicate that vision to Dr. Gidsen and Professor Marshall, the firm’s other partners.
