Markkula Center of Applied Ethics

Reputation and Venture Funding

An Interview with Floyd Kvamme

What attracts venture funding? The killer application? The innovative business plan? The identification of new markets? According to Floyd Kvamme, all of those take second place to reputation. We asked him what importance venture capital firms place on the founders’ track record in terms of their values:

Frankly it's the most important thing. You know the adage in the venture capital business is similar to the adage in the real estate business. They say, "Location, location, location." We say, "People, people, people." A C team of people will screw up an A idea. An A team will sometimes make a C idea work. You’re really investing in people and what people think they can get done. You try to look for the person who's too promotional, who's not that credible, and you don’t invest in that person….

According to Kvamme, the importance of an ethical track record has increased as the kind of risks involved in Silicon Valley start-ups have changed over the past few years.

Through about the mid-90s, the greatest preponderance of venture start-ups were technology risk projects, meaning there was some technical thing that the persons who were starting the company knew—such as how to make a better integrated circuit for a certain purpose or how to do a better biotech drug for a certain purpose.

The example that’s frequently used to explain technology risk is if somebody walks into your office and says they have the cure for cancer. You don't need a market study; you don't need a sales force; you've got to know whether they have the cure for cancer.

In the early days in the valley, through about 1995, 80 plus percent, maybe even 90 percent of the companies we saw were in the technology risk area. The dot-coms were a new phenomenon because the principle risk there was market risk. Market risk is when you’re starting something for which there are no market data. For example, when people started to build PCs, nobody knew how many PCs would need to be produced; when Jeff Bezos, the founder of, walked into Kleiner Perkins and wanted to sell books over the Internet, nobody knew if people would even buy books over the Internet…. It was a totally new market. When people brought out Palm Pilots, how would you know how many people would want Palm Pilots? That’s a market risk situation—there’s not a lot of technical risk there; they knew how to build the Palm Pilot. The problem was, If you build it, will they come?

What we did [at KPCB] in response was we said, "Okay, what qualifies the people who are starting this company to build a brand?" because in a market risk investment, one of the principle things you need is to build a brand. At the end of the day, the object of most businesses is not to sell products. It's to make customers who will continue to want to deal with you. That's the essence of building a brand. If you don’t have a way of dealing with customers that in their view is ethical, they won't come back.

A partner in the venture capital firm Kleiner, Perkins, Caufield & Byers, Floyd Kvamme is a member of the Advisory Board at the Markkula Center for Applied Ethics. He was one of five members of the team that joined National Semiconductor in 1967 and built it into a $1 billion company. He served as president of the National Advanced Systems subsidiary, which designed, manufactured and marketed large computer systems. He left National to become executive vice president of sales and marketing for Apple Computer, where he worked until joining KBCB.