Tom McConnell: At Service to the Venture Community –

MENLO PARK, Calif. – How many venture capitalists on Sand Hill Road could explain the nuances and potential ramifications of Senate Bill 11 or Assembly Bill 36? The answer: Probably not too many.

That’s disappointing to folks like Tom McConnell, a general partner with New Enterprise Associates who is also serving as chairman of the National Venture Capital Association.

To McConnell, the outcome of such legislation on small businesses and start-ups could negatively impact the venture capital industry if left unchecked. Some of this legislation could radically change the way in which civil litigation discovery is conducted in California. If passed, SB 11 and AB 36 would force companies to disclose all confidential information involved in a lawsuit and make this information, as well as business trade secrets, public.

This isn’t the first time McConnell has been in this type of role. Before becoming NVCA chairman, a one-year position that expires next spring, he had served on the NVCA board since 1996 and was also a past president of the Western Association of Venture Capitalists (WAVC).

Despite sitting on the boards of 12 companies and busily scouring Silicon Valley for telecommunications companies worth financing, McConnell devotes a good portion of his time to the NVCA, and says he feels privileged to be chairman.

John Taylor, vice president of research at the NVCA, says there is a fear of Washington among many in the venture community, so when a leader like McConnell steps to the fore, “It’s a great thing for the industry. With Tom, what you see is what you get. He’s been a strong contributor to the board.”

McConnell’s objective is to spend at least one day a week on NVCA-related work. That entails talks with NVCA president Mark Heesen and helping to coordinate the association’s agenda. The agenda on public policy currently lists a dozen proposals, including the fight to reduce capital gains tax and helping to ensure that employee stock options are not viewed as compensation, and aren’t expensed to the company.

When Congress holds hearings on these issues, its members want to speak with real-life VCs, not figureheads, Taylor notes. As such, McConnell becomes an important person.

McConnell said he is personally trying to involve more West Coast-based VCs in the NVCA. Ten of the 27 board members are from the West Coast, and McConnell would like to raise that number, particularly among the younger VCs. “It’s their duty,” he said. “The tendency in Northern California is to focus on business and allow others to work on public policy.”

NEA Culture

McConnell joined NEA in 1985 as an associate, after calling many VCs in Silicon Valley in search of a job. He arrived with sterling credentials, having graduated summa cum laude at Dartmouth College, where he received an A.B. in engineering science; and earning an M.B.A. with honors from Stanford University. He worked with Apple Computer and with a consulting company before securing the position with NEA, where he has risen from associate to general partner.

McConnell says the culture at NEA, created by its three founders [Richard Kramlich, Frank Bonsal and Chuck Newhall], makes it a special place. NEA refers to its people as “capital partners,” a reference to the way they work in-step with their portfolio companies. “Dick [Kramlich] has always had a knack for helping companies through difficult times. This environment distinguishes those type of companies,” McConnell said.

Founded in 1978, NEA has grown to 10 partnerships managing $4.8 billion of capital. The firm has invested in more than 400 companies, of which two-thirds have either gone public or been acquired.

McConnell said the industry’s focus on early-stage investing and the lack of liquidity events have created “a huge gap in the middle for expansion-stage companies that might be capital-intensive. It is a challenge.”

In the first part of his venture career with NEA, McConnell invested in medical devices and biopharmaceuticals. He has been recognized as a leading investor in the medical device sector between 1990 and 1997 based on the market value of companies where he served on the board. McConnell now invests in communications equipment and optical components.

His recent investments include Celeste Optics, Clarendon Optics, Clarendon Photonics, Corona Networks, Gluon Networks, Network Elements, Occam Networks, Onstation, RAINfinity, Sparkalor, SwitchON Networks (acquired by PMC-Sierra), Vpacket Communications and Xtera Communications.

NEA is still doing deals, albeit carefully. McConnell, who is looking at two projects quite closely, said one of the burning questions for him is when will carriers spend again? “That’s the big debate. The second half of 2002 is the consensus, but the jury is still out on how soon in 2002.”