01 Jan 2003
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Greylock

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One of the country's most renowned venture capital firms, for nearly four decades Greylock has emphasized building businesses rather than stocks, providing hands-on assistance to entrepreneurs, and helping companies contribute new products and jobs to the nation's economy. Greylock places its bets on people. After all, according to Bill Elfers, one of the firm's founding partners, "The principal reason for accomplishment is dedicated and competent management."

Howard E. Cox, Jr., MBA 1969, General Partner
William Elfers, MBA 1943, Founding Partner
Daniel S. Gregory, MBA 1957, Founding Partner
Henry F. McCance, MBA 1966, General Partner
Charles P. Waite, MBA 1959, Founding Partner

Greylock: (left to right) Howard E. Cox, Jr., MBA 1969, General Partner; Charles P. Waite, MBA 1959, Founding Partner; Henry F. McCance, MBA 1966, General Partner; Daniel S. Gregory, MBA 1957, Founding Partner; William Elfers, MBA 1943, Founding Partner. ©2003 www.RockyThies.com
(From left to right) Howard E. Cox, Jr., Charles P. Waite, Henry F. McCance, Daniel S. Gregory, William Elfers.
©2003 www.RockyThies.com

HOWARD COX
Princeton University, 1964
A.B. Woodrow Wilson School of Public and International Affairs (Economics)
Columbia Law School (International Fellows Program), 1967, J.D.
"Pick a career that you will really enjoy. If your choice is based on just prestige and money, you may end up being very unhappy."

WILLIAM ELFERS
Princeton University, 1941
A.B., History
"Broaden your business education as much as possible through courses and real-life experiences. This will prepare you for your role as a general manager. Over time, you will also develop a focus on what area of business interests you the most. You should also remember that business is all about working with people, be they your associates or customers."

DANIEL GREGORY
Wesleyan University, 1951
B.S., Psychology
"Companies don't grow and succeed through some sort of miracle or because you put a lot of money into them. During the '90s, the process began to look ridiculously easy, but it's not. It involves hard work that takes a considerable amount of focus and dedication."

HENRY McCANCE
Yale University, 1964
B.A., Economics
"At HBS, I remember the challenge of analyzing difficult problems, making decisions, and articulating my point of view to an extraordinarily demanding group of fellow students and faculty. Developing the skills to listen carefully, think analytically, and communicate clearly is a requirement of leadership."

CHARLES WAITE
University of Connecticut, 1957
B.S., Industrial Administration
U.S. Army Command and General Staff College, 1969
(After active duty, rose to rank of Lt. Colonel in Reserves)
"No matter what business you're in, there is nothing more important than integrity and the reputation of your company. The post-bubble economy notwithstanding, there is always a role for an experienced, strategically oriented, and ethical professional to help the entrepreneurial process."

On October 25, Greylock, one of the country's most renowned and respected venture capital firms, will mark its 38th anniversary. There is considerable cause for celebration. In almost four decades, Greylock has helped build more than 250 companies and nurtured numerous leading-edge products in a wide range of areas, including information technology, health care, telecommunications, and software. In achieving all that, it has also set the standard for integrity in every phase of the venture capital process-from identifying and evaluating opportunities to working with founders and managers to sponsoring over 120 successful initial public offerings.

As well known as the venture capital industry is today, that was far from the case in 1965, when Greylock opened a small office in downtown Boston. More typically, entrepreneurs would look to friends and family to help them raise cash, and if they were really lucky, they would attract the interest of wealthy families such as the Rockefellers and the Whitneys. A mere handful of VCs were doing deals on the East and West Coasts, and they all paid homage to legendary HBS professor (and retired U.S. Army brigadier general) Georges F. Doriot, who had founded American Research & Development Corp. (AR&D) in 1946, the first public venture capital firm in the United States. As the American economy began to soar after World War II, Doriot saw the need for providing new enterprises with expertise as well as money, and thus the venture capital industry was born.

Among those joining AR&D in 1947 was a returning U.S. Navy veteran named Bill Elfers. Just four years later, he became vice president and was soon the number two man in the firm. By 1965, however, nothing had changed in the AR&D organization chart. After almost twenty years with the general, Elfers, then 47, decided to move on, soon to be joined by Dan Gregory, a former student of Doriot's who had been working for a traditional investment management firm in Boston. When Charlie Waite, who had gone to AR&D in 1960 after a year as Doriot's teaching assistant, came on board in 1966, the triumvirate of the new firm's founding fathers was complete.

Greylock-named after the street where Elfers lived in nearby Wellesley Hills-would be anything but traditional. Unlike AR&D, where Doriot ruled alone and which had to issue quarterly reports, it would be a private partnership that would work quietly with fledgling, sometimes fragile enterprises over the long term. "From the beginning, I believed in collegiality," says Elfers. "That would be a crucial element in selecting and developing the general partners and creating the framework for the firm's culture.

"Similarly," he continues, "I decided to lay Greylock's financial foundation by bringing together a group of limited partners who had some relationship with me and often with each other, rather than depend on the resources of just one family. And we would meet with them regularly-originally eleven times a year-to make sure there were no surprises, either good or bad."

In a matter of months, Elfers brought five prominent families into the fold, including inventor and financier Sherman Fairchild of Fairchild Camera and Instrument; Hotchkiss School classmate Arthur ("Dick") Watson and his brother Tom, the head of IBM; and several members of Cleveland's Corning clan, whose assets came from, among other things, oil and banking. In 1966, with the addition of the Ayer-Rice Trust, which oversaw the fortunes of two old New England families, the roster of original limited partners was in place. (By the 1980s, six more families had been added to the group.) At a time when venture capital was little more than a cottage industry that operated on a small scale and invested at a slow pace, Greylock launched its first investments with just under $10 million-a far cry from the $1 billion committed to its most recent fund.

The focus initially was on finding companies that had gone beyond the start-up stage-those that needed an infusion of working capital to enable them to continue to grow. "I knew that hitting a home run with a start-up-what AR&D had done with Digital Equipment Corp., for instance-was a way to make it big in this business," explains Elfers, who was in charge of the first investment portfolio. "But I felt that if Greylock were to be successful in the long run, we should be much more selective and risk averse at the beginning and concentrate on developmental capital and buyouts. If that worked, we could turn our attention to brand-new ventures later on, which we did."

"We started out as generalists," says Waite. "All through the '60s and '70s, there wasn't a product- or industry-focus in our approach. We might look at a shoe company one day, an electronics firm the next. That changed in the '80s, when members of the firm began to specialize to take advantage of the flood of new opportunities in information processing, telecommunications, software, and health care."

Greylock's initial investments were in companies as diverse as Fansteel Metallurgical Corp., Deseret Pharmaceutical Co., New England Nuclear Corp., and Velcro Industries. And by the summer of 1969, it was ready to hire its first associate, Henry McCance, fresh out of three years in defense systems analysis at the Pentagon, where he worked for Secretary Robert S. McNamara (MBA 1939). Two years later, Howard Cox followed the same route from the Office of the Secretary of Defense to Greylock as associate number two.

In the early 1970s, the firm also added to its list of innovations. Instead of locking the general and limited partners into one fund and concentrating its control in the hands of a single member of the firm, the three founders agreed to create a series of overlapping funds. Each general partner could then take responsibility for running one of them, with input from his colleagues-an especially important consideration as the firm grew and wanted to provide new hires with leadership opportunities. Equally important, the limited partners could now have some flexibility in their commitments.

At about the same time, the firm confronted the problem of sustaining Greylock's supply of capital as the tax rate on individual capital gains hovered prohibitively high. The solution was to tap into the resources of tax-exempt universities, starting, they hoped, with Harvard, whose chief investment officer was a friend of Dan Gregory's. "After we had given numerous dog-and-pony shows, Harvard agreed that our track record and hands-on commitment to building businesses made for a good fit," Gregory explains. "Dartmouth, Duke, and MIT also joined us, followed eventually by Princeton, Stanford, and Yale."

Among the enterprises that Greylock has worked with for years is the Stryker Corporation in Kalamazoo, Michigan, which started out making specialized hospital beds and power tools for orthopedic surgeons. It provides a case study of Elfers's dictum that the venture firm's forte should always be "strong support of portfolio companies and long-term goals of building shareholder value."

"We invested in Stryker in 1974 and immediately helped to organize the business and put together a strong board," explains Cox, who has been a director of the company for nearly three decades. "When the chief executive died in a plane crash, we led the search for a successor. Urging the new CEO to concentrate on the latest developments in orthopedic technology, we struck a deal to hire two entrepreneurs who had made important advances in hip and knee replacements."

Thirty years ago, Stryker had revenues of $8 million; today it is the world's largest orthopedic company, with sales of $3.5 billion. "We view ourselves as invited guests who have to earn our place at the table every day," notes McCance, who is currently Greylock's chairman. "The star is the entrepreneur. We want to win the award for best supporting actor."

Other successful scenarios have played out numerous times in Greylock's history, from Teradyne, Continental Cablevision, and Tellabs (a maker of telecommunications products) in the late 1960s and 1970s to more recent investments such as Red Hat (a global provider of Linux and open-source technology), Internet Security Systems, online advertising specialist DoubleClick, and Avid Technologies (a leading manufacturer of video editing equipment for television and movies). Cox likens the art of picking winners to a Rorschach test. "You see a lot of spots out there," he says, "but you have to be able to say at some point, 'This one looks like a picture.' There's no formula for doing that." And although business plans are useful exercises for concentrating the thoughts of entrepreneurs, they don't turn the heads of Greylock partners, who place their bets on people. "The principal reason for accomplishment is dedicated and competent management," adds Elfers. "General Doriot was fond of repeating that he would prefer a first-class manager with a second-class idea, rather than the other way around."

Although Greylock's sights were first set on the eastern half of the country, Waite went west in 1968 and began establishing the firm's presence in San Francisco and the area around Palo Alto that only later came to be known as Silicon Valley. "In those days, the West Coast wasn't nearly the money center it is now," he says. "Entrepreneurs there wanted East Coast money and involvement. To fulfill both those needs, I flew to California three or four times a month for fifteen years before moving there in 1985." With six partners now based in San Mateo, Greylock maintains its strong influence west of the Mississippi. More recently, the firm has also helped young companies in Israel and Europe move their sales and marketing units to this country. "No matter how good their technology is," Cox observes, "these businesses realize that their home markets alone aren't big enough to let them grow their companies."

For nearly four decades, Greylock has remained true to its founders' principles of "establishing a quality reputation, proving that we could achieve a favorable, consistent financial rate of return, forming a team of the best people we could identify and attract, and building businesses rather than just stocks." "It is a privilege to do this work," McCance concludes. "Every day we help companies that improve people's lives and contribute jobs and value to our economy." Risk does indeed have many rewards.

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Featured Alumni

Featured Alumni

Class of MBA 1969, Section C
Class of MBA 1959, Section D
Class of MBA 1966, Section F

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