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TR: What was your experience there?
Metcalfe: Well, we had this model that there would be a research center, and then there would be this advanced academic development laboratory, and then there would be engineering departments, and there would be these products. So the guys in the science groups, where I was, kept throwing these ideas over the transom, and the guys on the other side either kept dropping them, or they were proud of their own work, so they would ignore everything we did and start over. But they would come up with what we considered to be dreck. So a few of us started migrating downstream, taking the ideas with us instead of trying to get them adopted by throwing them over the transom.

TR: The two of you have been both basic researchers and entrepreneurs. Now, in your role as venture capitalists, do you look for both those capabilities in one person?
Gilbert: We seldom look for that. It’s too hard to find. A more typical pattern in a startup company is that one has a technical group, including the people who came up with the idea, and also someone else who’s trying to push the business, worrying about the money-raising, creating the capital.

TR: What is the investment climate like now in venture capital?
Metcalfe: A tremendous investment stream has been created to about five or six hundred venture capital firms, about three or four hundred of which are completely screwed up, and most of them are going to die. And the limited partners, the pension funds and so on, who provide the funding for the venture capital firms are saying, “Okay, we’re going to invest in the two hundred firms that didn’t screw up.” But that can actually create a problem in that the limited partners want to give your firm more money than you can reasonably deal with right now.

TR: Some would say it’s a funny time to become a venture capitalist. We’ve just been through this great big “new economy” bubble, and everybody’s feeling burned. So why did you two distinguished innovators decide to try it now?
Metcalfe: It has to do more with my personal life cycle than with the state of the markets. I had finished my previous career as a journalist, and venture capital was the next thing. I like entrepreneurs and I like high tech. This is another way-as journalism was before-to stay with those topics and those people. Just another way. New and challenging things to learn but still pretty much involved with innovation.
Gilbert: Well, actually, this is a great time to be a venture capitalist. Valuations are low, so it’s an excellent time to buy a company. Too many people think that if valuations are low, that means they’re going to stay low in the future, as opposed to “valuations are low today, but the cycle will take us back up again.” In my case, I’ve been very interested in small companies. I’ve founded a number of small companies in recent years, and so I stepped back and said, “Well, maybe I shouldn’t just ask for money, I should participate in the venture capital structures that give money to these companies.”
metcalfe: I heard this from a man named Paul Deninger, who runs Broadview, which is a major mergers-and-acquisitions company, and his advice was, “Forget what happened over the last two years, because there’s nothing to be learned from it.”

TR: Nothing?
Metcalfe: Nothing. It was just a crazy aberration, and if you try to learn something from it you will be misled and distracted. Delete it from your memory, because it was just such an extreme speculative bubble. The trouble is, there’s now an army of zombies whose thoughts about how the world works were formed during this period. They’re doomed, because for the rest of their lives, they will try to re-create that situation, which won’t recurat least for a long time. You see them occasionally when they come in, expecting a pre-money valuation of $175 million because there’s nine of them and they’re really charming.

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