PALO ALTO, Calif. – In the days when door-to-door sales calls were in vogue, Franklin “Pitch” Johnson and his colleague Bill Draper would canvass the business district of Palo Alto, Calif., knocking on doors, meeting with business owners and inquiring about the need for financing.
Back in the early 1960s, Commercial and Industrial streets formed the epicenter of start-up business in northern California, in the years before silicon put this region on the map.
Johnson left a job in a steel mill to join Draper in starting Draper and Johnson Investment. In those days, budding venture capitalists didn’t go seeking money from their limited partners. Mostly they raised it themselves, with a little help from friends and family. Draper and Johnson each raised $75,000 and the government provided matching funds as part of the Small Business Investment Company program.
“We didn’t have much leverage. You lost your own money first,” Johnson says.
The men worked together for a couple of years before Draper went off to co-found Sutter Hill Ventures and Johnson started Asset Management. Nearly four decades later, Johnson, 73, is still working at Asset Management, still looking to invest in start-up companies.
The difference now is that entrepreneurs come to his office, not vice-versa.
In the annals of Silicon Valley venture pioneers, there may be those who have enjoyed more financial success than Pitch Johnson, or had a greater impact on the industry. But few could match the breadth and depth of experience that Johnson has carved out.
Whether it was creating a course on VC at Stanford Business School or traveling to Cuba to meet with Fidel Castro on the benefits of industry privatization, Johnson has enjoyed a full and robust career.
“My wife said I couldn’t retire, because I wouldn’t sit still,” he says.
Johnson has many interests outside of venture capital. He has piloted his own planes for decades. For years, he used to fly to Seattle or Los Angeles about once a week in his Astra SPX and make a European crossing once every two or three months.
He is a huge track and field fan (his father was a hurdler in the 1924 Olympics), loves gold and charity work. He is the chairman of the San Francisco Opera and he and his wife, Cathie, are major donors to the Opera and numerous other area organizations.
Asset Management, a private VC firm that invests its own money, is a seed- and early-stage investor in the $100,000 to $2 million range. Its time horizon is four to seven years to maturity, and its strategy is to be active in all aspects of start-up’s development, including strategy, recruiting, partnerships, financing and operational advice.
Johnson’s VC experience gives him the kind of historical perspective that makes him a featured speaker at many industry conferences. He calls the dotcom bubble the “most dramatic rise and fall [of a sector] since I’ve been in the field. I’ve seen the phenomena before but not the amplitude. It was foolish behavior, it was easy money, it was a get it while you can mentality.”
Johnson notes that while everyone knew the good times couldn’t last, that it was a temporary phenomenon, “at the same time you have a duty to your limiteds to [invest], especially when everyone was getting unbelievable IRRs.
“It wasn’t that VCs were all that dumb. The thought had gotten around that we can’t just stand around, we have to put the money to work. Everyone got caught up in the frenzy, even gullible professional investors. You can question the judgment if you’d like.”
Like many of his brethren, Johnson likens 2001 to a return to normalcy in venture capital, when companies with sound management and a true path to profitability will get funded. “You can raise money from new investors when you show them a really strong profit plan and a way to get ahead, but companies won’t go public in the technology area until they achieve profitability,” he says.
He offers these back to the future tips: Invest through the downturn, build real companies, do your homework, your prospecting, make realistic deals, work with management of your portfolio companies, and emphasize ethical standards.
“The flow of capital will decrease sharply but the venture business will stay big,” he says. “It’s here to stay.”
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