In the 1970s, venture capital was almost unknown in the US, with total assets on the order of millions. Fifty years later, it has become a multibillion dollar industry. Perhaps more important than this rapid rise in financial success was the venture capitalist’s role as a cultural icon. In a way that feels different from previous forms of financing, the personalities of the venture capitalists have become a core part of their story. For example, in an interview of Tom Perkins, a notable early venture capitalist and founder of Kleiner & Perkins, attorney Thomas Kiley wrote that “Tom Perkins wears charisma in the easy way a fine Italian suit drapes the shoulders.” In the same interview, descriptions of Perkins by his introducers focus similarly on aspects of his interpersonal interactions and personal taste, as opposed to his financial acumen.

How did the venture capital investor achieve this role in culture — a role where their personality becomes idolized? One answer might be structural: as this line of argument goes, until the creation of the limited partnership structure in the mid-20th century, technology investors were indistinguishable from the wealthy funds and individuals they represented. In contrast, limited partnerships make a distinction between general partners, who actively make investment decisions, and limited partners, who provide them with most of the cash for investment. General partners tend to be experienced in the tech industry as entrepreneurs or financiers, whereas limited partners may include wealthy individuals, investment funds, and others without direct experience in the tech industry. With a limited partnership, then, general partners are given leverage to make decisions for the entire partnership and be rewarded for those decisions. By this line of thought, the modern professional venture capitalist could not exist without a limited partnership or similar structure.

But this answer — that the cultural role arises from a shift in organizational structure — would be oversimplified. Though separating the professional investor from the limited partner may be a necessary condition, this distinction alone is not enough to create a publicized image for the investor. After all, asset managers have often been separate from the owners of those assets. For example, consider managers of university endowments, who operate largely behind the scenes. A true answer must examine two factors — first, what was the narrative that VCs told about themselves, and how did they stand to gain from telling this story? Second, what was it about American culture that predisposed the media and technology industries to see venture capitalists in this highly individualized (and glorified) light?

The answer begins with concerted public relations efforts on the part of venture capitalists, which were then amplified by a cultural belief that technology would disrupt existing power structures and democratize wealth creation. More recently, the seeming utopianism associated with this belief has led to increased disillusionment, revealing a complicated dynamic between ideals and financial incentives — more than most other forms of capital, venture capital represents an ideas-driven business as much as it is a financial one. As a result, the industry’s financial returns are inseparable from its narrative and culture.

In many ways the rise of venture capital is captured by the history of Kleiner Perkins. Kleiner Perkins was one of the first modern venture capital firms, “modern” in that they structured themselves as a limited partnership. From its founding in 1972 to its peak around 2001, Kleiner Perkins made annual returns of over 40 percent year over year, making it (in Perkins’s words) “most successful financial institution in the history of the world.” Kleiner Perkins has all the elements of an archetypal VC story — risky contrarian bets and large returns, which funneled back to amplify the reputation of general partner Tom Perkins.

Kleiner Perkins was started in 1972 by Eugene Kleiner and Tom Perkins. By the time they founded their venture capital firm, both were well-known figures in the Silicon Valley tech scene. Kleiner was an engineer who had initially been recruited to the West Coast by William Shockley, a scientist who had co-created the transistor and sought to develop a transistor company by uniting a talent-dense group of scientists and engineers. About a year later, Kleiner and seven others left the firm due to disagreements with Shockley’s management style, launching the highly influential Fairchild Semiconductor Corporation. After earning a fortune through the Fairchild venture, Kleiner became an independent investor in Silicon Valley companies. Perkins, meanwhile, achieved most of his early renown as an early member of Hewlett Packard, where he scaled the computer division from zero to a global industry leader. Though they achieved success in positions of management, both men had strong technical backgrounds – with Kleiner studying industrial engineering at NYU and Perkins studying electronic engineering at MIT – and this technical experience soon characterized their focus as a venture capital firm.

In their 1972 prospectus “Kleiner Perkins: A Venture Capital Limited Partnership, Statement of Philosophy,” which seems to have been used to solicit limited partners for their fund, Kleiner and Perkins describe the features that make them well-suited for the industry. The prospectus lists the name and address of Robertson Colman & Siebel, an investment bank where partner Sanford Robertson had been the first to introduce Perkins to Kleiner. By choosing Robertson as an investment banking agent, Kleiner and Perkins’ began to establish a pattern where social connections blended with business partnerships, which became even more striking as they made their earliest investments.

The Kleiner Perkins prospectus places a heavy emphasis on the expertise of individual partners in venture capital. The authors argue that, in venture capital funds, “the experience, judgment and management capability of the operating general partners is the key element”. For Kleiner, this experience included being one of the eight founders of Fairchild Semiconductor and a co-founder of an educational technology company that was acquired by Raytheon. Perkins, meanwhile, was known for leading the mini-computer division at Hewlett-Packard from its inception, as well as the founder of a laser company that later merged with Spectra Physics. Throughout its introduction, the prospectus highlights Kleiner and Perkins’s “entrepreneurial” backgrounds, and the prospectus boasts of how the duo were “unique in venture capital in having strong entrepreneurially oriented operating backgrounds.” They identify three factors that they think make a good venture capital firm:

A. Exposure to a wide variety of potential investment opportunities;

B. Excellent judgment in selecting only the best situations;

C. The ability to develop the investment.

    	Two of these factors – “exposure” and “ability to develop” – have become central distinguishing factors in the image of venture capital compared to other kinds of investment.  For the former, the document references how Kleiner and Perkins were “widely known within their industries,” and that their “relationships… will more than amply assure the new Fund of exposure to a stream of above average opportunities of wide variety.” In other words, Kleiner and Perkins have exposure because of their connections. Meanwhile, “ability to develop” refers to Kleiner and Perkins’ operating experience, which they expected would be useful in advising their portfolio companies through serious operating problems. The prospectus as a whole features a notable lack of description for Kleiner and Perkins’s financial expertise, preferring to focus on their connections and entrepreneurial background – striking given venture capital’s status as a new corporate structure with many uncertainties around financial structure and equity distribution.   

Kleiner and Perkins’ focus on operating experience and personality played out almost exactly as described in their first successful investment, Tandem Computers. Tandem, a company focused on making computing more reliable by running multiple computers in tandem, was effectively an incubated startup, where Kleiner & Perkins served as the incubator. The company was founded by James Treybig, a limited partner of K&P, who collaborated directly with Perkins — in fact, Tandem was originally based in the K&P office — to start the company. Here, we see both the concept of “exposure,” through Perkins’ knowledge of James Treybig as a promising investment prospect, and the concept of “ability to develop,” via Perkins’ direct involvement in the early development of the company. Furthermore, Perkins continued to serve on the board of Tandem until its 1997 acquisition by Compaq, which later was acquired by none other than Hewlett-Packard, the company where Tom Perkins had served as a high-level manager and board member. In fact, many of Tandem’s early hires came directly from HP. Though one might see the prospectus’s focus on operating experience and connections as being overly personality-driven, the success of Tandem Computers provides evidence that the personalities of venture capitalists were indeed important in driving investment outcomes. 

Given such a personality-driven story, how much were venture capitalists’ images defined by others, and how much did they actively define their images? In the case of Kleiner Perkins, Tom Perkins was an avid marketer. With Genentech — one of Kleiner Perkins’s early successes — part of the IPO was financial, but it was mostly for their public image. Both Perkins and Genentech CEO Bob Swanson understood Genentech in relation to another biotechnology firm Cetus, which Perkins had invested in but by then considered “a high-class fraud,” and therefore a failed investment. Although Swanson was originally hesitant to make the IPO in 1980, Perkins convinced him by asking him: “How would you feel if [Cetus] got all the world publicity from being the first public biotech company?” Hearing this, Swanson came to agree with Perkins that only through the IPO could Genentech become “the hot guys, with the best this, the most aggressive that, the best science, the best patents, the best financial relationships, the best publicity,” a goal which the company mostly achieved in their successful 1980 IPO. On October 14, 1980, Genentech listed its stock on the public markets at an initial price of $35. By the end of the first day, the stock price had risen to $87 dollars. In an article the day after, the San Francisco Examiner remarked that “the result was one of the most spectacular one-day performances by a new stock in the past decade.” As further evidence of the IPO’s public-relations importance, Perkins himself notes that Genentech’s initial pricing was indeed too low from a financial standpoint, but that if you look at it “as a public relations move,” then “most people can recall the Genentech IPO, as wow, but probably not the drugs. So it worked.” At one level, the story of Genentech encapsulates how venture capital can sometimes align ideals with returns — at the peak of trading on the day of public offering, the value of Kleiner Perkins’ shares had increased 800 fold. At a deeper level, however, this story reflects how investors like Tom Perkins explicitly used the markets and media as a means of public relations. More than just to fundraise, Perkins and Swanson saw Genentech’s public offering as a way to cement both the public image of Genentech and Kleiner Perkins as category-defining companies.

These efforts at public relations were often successful. A telling representation for the public image of venture capitalists comes in a 1979 article by the San Francisco Examiner — which focuses again on the importance of connections and collaboration in this new industry. In an article entitled “The Bay Area experts who have made risk investing a fine art,” the author Peter D. Whitney writes that, for venture capitalists, “there’s little attempt to conceal or deceive, little jealousy.” Instead, “the partnerships willingly bring each other into their enterprises.” As a whole, this article praises the expertise and experience of the venture capitalists, describing in detail the resumes of Eugene Kleiner and Tom Perkins, as well as their collaborators Hambrecht and Quist. Taken together with the Kleiner Perkins prospectus and the firm’s early investments, this article demonstrates how West Coast venture capitalists were portrayed in explicit contrast to traditional East Coast financial institutions, with a culture that was more collaborative and focused on the entrepreneurial experiences of the general partners.

    	Even though they seem internally consistent, however,  the Kleiner Perkins prospectus and the Tandem and Genentech stories only reflect the narrative advanced by the general partners: that venture capital firms would succeed based on the operating background and connections of the general partners — and that this narrative would be advanced through explicit work in public relations. However, to fully understand the rise in the cultural importance of the venture capitalist, we must trace one step back — to the limited partners. At this level, we encounter two seemingly conflicting ideas of venture capital, which varied depending on who the limited partners (LPs) were. LPs, who provided capital to venture capital firms, broadly fell into one of two groups – either they were wealthy individuals, like the Rockefellers, or they were investment funds focused on diversifying their portfolios, including many university endowments and pension funds. It seems like these two kinds of LPs viewed their investments through different lights. Wealthy individuals like Laurance Rockefeller and J.H. Whitney saw their investments as socially responsible, in that venture capital supported small businesses and the creation of new value. When describing his investment strategy, Rockefeller once said: “I like doing constructive things with my money rather than just trying to make more.” Meanwhile, LPs like investment funds were more focused on maximizing returns, and saw venture capital as a way to achieve multiples unheard of in more traditional investment avenues. These two images – the profit-maximizing investor and the ideals-driven investor – converge on a central question – to what extent does venture capital represent noble ideals and the creation of new value, and to what extent does it represent a ruthless profit-maximizing enterprise?

In the sense of this first image – the story of venture capital as a democratizing and creative force – it’s useful to broaden our scope further and examine how Silicon Valley may have been predisposed to such a narrative. The 1960s were a time of cultural upheaval, with much of this change centered on California. In the face of the Cold War, where the public discourse seemed dominated by a military-political elite, young people sought ways to resist this perceived elite. Some of them, like the students of the Berkeley Free Speech Movement, turned to political action, while others turned inward to focus on consciousness — often through psychedelics — and increasingly on the potential of the personal computer as a decentralizing force. The second group, propelled by the ideas of academics like Norbert Wiener, would become increasingly relevant for the philosophy of the early tech industry. Steve Jobs, for example, was a notable member of this consciousness-focused movement, known for having made a pilgrimage to India and practicing frequent meditation in his search for spiritual fulfillment. Even as it aspired to ideals of spiritual unity and collective consciousness, the movement often failed to recognize how, by assuming classlessness and the irrelevance of different economic conditions, these pursuits were grounded in the perspective of the white, affluent, and young — an oversight that seems to have carried over in the philosophical underpinnings of the early tech industry, which featured a notable lack of ethnic and socioeconomic diversity.

Combining trends of countercultural resistance and the rise of personal computing technology yields us a picture of technology as a decentralizing force — a way of taking power from the establishment and democratizing it. Venture capital emerged as a new financial instrument enabling these contrarian innovators — the proverbial engineers in a garage — to challenge the established companies and power structures. Over the course of the 1990s, dot-com companies boomed as these ideals and financial instruments aligned to yield ever-greater valuations. At some point, however, these utopian visions must have become divorced from reality, a distortion that became clearly visible in the dot-com crash at the turn of the century.

Given this picture of technological utopianism, as well as the words of ideals-driven investors like Laurance Rockefeller and J.H. Whitney, we can understand the cultural role of the venture capitalist at two levels: at the direct level, venture capital firms like Kleiner Perkins see themselves as gaining most of their differentiating factor from the entrepreneurial experience and connections of their general partners — in the case of K&P, this could be seen in Tom Perkins’ direct involvement in both of their first two successes, Tandem Computers and Genentech. Moreover, Perkins focused explicitly on public relations and media coverage to ensure that their investments would tell the same narratives that the companies believed internally. At a direct level, then, it benefitted Kleiner Perkins both to believe in their personality-based differentiation and to propagate this story through their public-relations efforts. Meanwhile, however, we can also understand the cultural role of venture capital at a societal level, through both the incentives of LPs and of the consciousness-focused technological counterculture. Investors who sought to be socially responsible in their investments could use venture capital as a way to support what they saw as creative and disruptive endeavors, whereas those who were disillusioned with the bureaucracy of the Cold War era could see venture capital as a way to finance the disruption of these entrenched power structures. Over the course of several boom-and-bust cycles, however, venture capital, as well as venture-backed companies, have become a power structure in its own right, perhaps even eclipsing the bureaucratic structures they originally sought to disrupt.

Thus, the rise of venture capital’s financial success might indeed come to challenge its cultural success. At the direct level, firms like Kleiner Perkins are now managing billions of dollars in capital, requiring both more general partners — they now have five — and an expansion of supporting positions that might weaken the relationship between general partners and investment outcomes. The same weakening effect might occur as the sheer number of venture capital firms increases, by diluting the effect of each individual investor on the venture-backed company’s outcome. At a broader scale, problems with diversity, censorship, monopoly power, and exploitative labor practices have become emblematic of venture-backed technology companies at scale, undermining the decentralization-focused views that might have made venture capital seem like a force for good. Ultimately, the complicated mix of venture capital’s effects reflects the diversity of ideological contradictions that enable it. Indeed, the history of venture capital demonstrates how a unique combination of creativity, risk taking, and idealism created an industry where individual personalities — and the images of those personalities — took on a life of their own.

References

Thomas Perkins, “Kleiner Perkins, Venture Capital, and the Chairmanship of Genentech, 1976-1995,” interview conducted by Glenn E. Bugos, PhD, for the Bancroft Library at the University of California, Berkeley (2001).

Tom Nicholas, VC: An American History (Cambridge: Harvard University Press, 2019).

“Kleiner & Perkins: A Venture Capital Limited Partnership, Statement of Philosophy,” (San Francisco: Robertson Colman & Siebel, 1972).

October 15, 1980 (Page 20 of 136).” The San Francisco Examiner (1902-2007), Oct 15, 1980

Peter D. Whitney, “The Bay Area experts who have made risk investing a fine art,” The San Francisco Examiner (1902-2007), Feb 9, 1979, 1-6.

Fred Turner, From Counterculture to Cyberculture (Chicago: The University of Chicago Press, 2006)

Brent Schendler and Rick Tetzeli, Becoming Steve Jobs: The Evolution of a Reckless Upstart into a Visionary Leader (New York: Crown Publishing Group, 2016)