Pando

PandoMaps: Four startup ecosystems, visualized

By David Holmes , written on August 21, 2013

From The News Desk

fairchildMAFIA

When Sarah Lacy started PandoDaily, she used the metaphor of the Pando tree to describe what she loved about startups:

Measuring 43 hectares and weighing 6,000 tons, they’re pretty impressive above ground. But what really matters is what is happening below. The interconnected root system is the oldest living organism in the world. No matter what happens above ground, that root system stays alive, and continually shoots up new trees.
If each startup is the individual root in this metaphor, then the 6,000 ton tree trunks are the great families of Silicon Valley. Fairchild. Paypal. Oracle. Netscape. "Mafias" we call them today. The number of companies that have sprung out of these four giants and their founders, whether through acquisition or investment, is staggering.

But how do you visualize this ecosystem? How do you display the hundreds of tangled startup roots yet make it comprehensive?

To overcome these challenges we tapped students of Jay Rosen's Studio 20 digital journalism class at NYU. During the Spring Semester, Rosen and his students embarked on a project called "The Networked Beat." Rosen's basic thesis is that journalists can more effectively cover their beat by identifying and giving voice to the smartest experts and observers in a given field. To do this, journalists should use whatever technology and techniques are available, whether that means crowdsourcing on Twitter or writing an algorithm that collects and sorts publicly-shared information.

To test these theories, Rosen assigned small groups of students to media organizations including Fast Company, the Wall Street Journal, Quartz, Mashable, and us. I had the pleasure of working with students Simran Khosla, Jesse Kipp, and Nuha Abujaber (the developer Jonathan Soma helped build the visualizations that the students designed).

Here's what they did: First the students researched each mafia and tracked down as many startups and organizations connected to them as possible. We knew it'd be impossible to identify with absolute certainty every single startup connected to each Mafia. So we included a crowdsourced element. Is your company -- or do you know one -- that a member of the Fairchild mafia invested in or acquired? Fill out the form and if the information checks out we'll add it to the map. The students and Soma created an ingenious method allowing the visualization to be updated live as simply as adding a few fields of data to a spreadsheet (for most of this data we used Crunchbase)

Then comes the visualization part. Using HTML5, Soma was able to map out each connection, whether it's an acquisition, a merger, or founding, or an investment, and do it over time so users can drag a scroller across the decades to see more and more companies spring up out of the original Mafiosos (that's the fun part).

So here's where we begin our four-part series on the four great families of Silicon Valley. First up is the Fairchild Mafia, the so-called "Traitorous Eight" who left Shockley Labs to start Fairchild Semiconductor in 1957, setting the stage for nearly every modern tech company and forever altering the course of Silicon Valley history.

Check out the visualization below then read our brief history of the semiconductor company that changed the world.

[studio20 company="fairchild"]Click here to see every startup that sprung out of the Fairchild Mafia[/studio20]

(startup descriptions pulled from Crunchbase)

Is your company or a company you know missing? Click here to submit your information and get on the map!

Fairchild: A History

They don't call it Silicon Valley for nothing.

One of the earliest companies to attract top technical talent to the Bay Area was Shockley Labs, a manufacturer of silicon semiconductor devices that started in 1954. But the story of Shockley truly began seven years earlier at MIT's Bell Labs, when scientist William Shockley helped invent the first transistor. The device was a half-inch slab of germanium and gold and could amplify a signal's output to a degree greater than its input. It was enormous compared to today's semiconductors, which can pack millions of transistors onto a single chip. Nevertheless it was a monumental discovery that would spark the computer revolution and earn Shockley a Nobel Price.

But after the invention, things between Shockley and Bell Labs turned sour. Shockley demanded to be the sole name on the transistor patent, because he came up with the original idea, even though the device Walter Brattain and John Bardeen eventually developed was significantly different. He petitioned Bell's lawyers which turned out to be a fatal move. The lawyers discovered a patent from the 30s for a device very similar to Shockley's idea. As a result, not only would Shockley fail to be the sole assignee on the patent, his name wouldn't appear at all.

In 1953, Shockley left Bell Labs and headed West to Pasadena. At the time, Dallas-based Texas Instruments was hard at work developing commercial silicon transistors. Shockley wanted a piece of the action, and with financial backing from Arnold Beckman, the inventor of the pH meter, Shockley founded the Shockley Semiconductor Laboratory in Mountain View, California, the company that would help give Silicon Valley its name.

From 1955 to 1956, Shockley hired some of the brightest engineers in the country, including Gordon Moore, who coined the phrase Moore's Law to describe the exponential growth of computer power over time, and Eugene Kleiner, who would go on to become a pioneer in venture capital.

By 1957, however, Shockley's relationships with colleagues were once again strained. Shockley's paranoia, which included demanding lie detector tests to find out who left a broken thumbtack in a door that accidentally cut a secretary, has been well-documented in Broken Genius. It all came to a head on September 18 of that year when Moore, Kleiner, Julius Blank, Victor Grinich, Jean Hoerni, Jay Last, Robert Noyce, and Sheldon Roberts (who Shockley famously called "The Traitorous Eight") started their own company called Fairchild Semiconductor with the backing of aviation magnate Sherman Fairchild.

Fairchild made its first big breakthrough in 1958 when Robert Noyce and his team (assisted by Texas Instruments research) invented a way to fit an entire circuit, not just the transistor, onto a single silicon chip. Thus the integrated circuit was born. Before long Fairchild was generating $130 million a year in revenue, according to PBS.

But Fairchild's innovations extended beyond technology. CNN's Leslie Goff writes, "The creation of Fairchild Semiconductor would establish a model for entrepreneurs for the rest of this century. Each of the men was promised stock options, a then unheard-of arrangement. They dispensed with job titles and had an open working relationship."

The integrated circuit and silicon chips have arguably done more to shape modern living than any other invention of the past hundred years. And Fairchild's template for the modern startup, where every employee is a stakeholder, continues on today. As our visualization shows, the influence of the traitorous eight extends far beyond the work done at Fairchild Semiconductor.

Moore and Noyce would go on to start Intel, today the largest semiconductor chip maker in the world, based on revenue. Kleiner started venture firm Kleiner Perkins Caulfield & Byers, which made key investments in some of the most important technology companies of all time, including Google, Amazon, Netscape, Twitter, Genentech, and Sun Microsystems, not to mention hundreds of diverse startups from SoundCloud to Square to Dollar Shave Club.

Each of these eight left his mark on the world beyond Fairchild. Jean Hoerni founded Intersil, one of the earliest microprocessor manufacturers. Victor Grinich became CEO of Identronix, an early pioneer in radio frequency identification (RFID). Julius Blank launched technology firm Xicor, which sold in 2004 for $529 million. Sheldon Roberts founded electronics manufacturer Amelco, which was acquired by the now-billion dollar tech conglomerate Techdyne. And Jay Last founded the Archeological Conservancy. It preserves prehistoric and historic archaeological sites in the United States. (Okay, not very tech-y, but still cool.)

Fairchild, Paypal, Oracle, and Netscape are more than just important companies. They've bred other endeavors and advancements, either through investment or acquisition or inspiration. But it was Fairchild that set the template for the "tech company mafia."

Oracle Mafia

[studio20 company="oracle"]Click here to see every startup that sprung out of the Oracle Mafia[/studio20]

(startup descriptions pulled from Crunchbase)

[Visualization built by Simran Khosla, Jesse Kipp, Nuha Abujaber, and Jonathan Soma]

Is your company or a company you know missing? Click here to submit your information and get on the map!

The history of Oracle

Many of you may know that Elon Musk served as the inspiration for Robert Downey Jr.'s portrayal of executive-turned-superhero Tony Stark. But did you know Oracle founder Larry Ellison helped shape the character, too? He even made a cameo in the second Iron Man movie alongside Musk.

Maybe the reason Musk's Starkness gets all the attention is that Ellison doesn't build spaceships and sports cars. He makes database management systems. Computer hardware systems. Enterprise software. Sexy, right?

But while Musk supplied the character's immense intellect and love of futuristic gadgetry, Ellison supplied Stark's yacht-rocking, mansion-collecting opulence, not to mention the "5 o'clock shadow plus blazer look." Ellison is party in the front and business in the back, like a reverse mullet. And just as Ellison's outsized personality runs counter to Oracle's wonky product line, there's more drama behind the company and the companies it helped spawn than any enterprise software company should have a right to claim.

In 1977, Ellison started the company that would become Oracle, focusing on relational database management software (If you really want to know how relational databases differ from regular databases, start here). Making software for businesses was a much different game than making semiconductors like the ones Fairchild manufactured. With semiconductors, there was a constant technological arms race to fit more and more transistors on smaller and smaller chips. But with enterprise software, you didn't have to be the best, you just had to sell it. Sarah Lacy describes this atmosphere in a secret never-released ebook she wrote on the five families of Silicon Valley:

Unlike the slavish master of semiconductor physics, enterprise software has a pretty long shelf life. By the early 2000s, billions had been spent on software that was implemented but never used and millions more spent on software that was never even implemented. A lot of it just didn’t work.

But it didn’t matter. Once a company had bought it, it was stuck. It was way more expensive and a bigger hassle to rip it all out and start with a new vendor, and truth be told, all enterprise software had problems. There was no guarantee a competitor would be any better. Salesmen frequently didn’t even know what they were selling. So companies sucked it up and kept paying maintenance fees and upgrades for new versions of software they had to have to stay competitive but openly loathed.

But while Oracle was raking in the dough, all was not well in the land of Ellison. Like William Shockley, whose paranoia and management style caused eight of his best employees to leave and start Fairchild, Ellison was not always the easiest boss to get along with. In the book Softwar, Ellison tells author Matthew Symonds, "I invented my own style of management called MBR. MBR stands for 'management by ridicule.'"

Some would argue that ridicule-driven management makes for a toxic work environment, but it's hard to argue with results. So many of Ellison's underlings have gone on to do huge things. Tom Siebel, who worked at Oracle for six years, used his millions in commissions to start a competitor to Oracle, Siebel Systems. And although Oracle eventually bought out his old rival's company, it had to pony up $5.8 billion to do it.

Another one of his employees, Marc Benioff (who like Siebel, had a longstanding feud with Ellison) started software giant Salesforce.com. Evan Goldberg, who founded Netsuite, was another of Ellison's guys. Even Gregory Maffei, who only lasted a few months at Oracle, has left his mark on companies as diverse as Microsoft, Barnes and Noble, and Starbucks.

In many ways, the Fairchild Mafia and the Oracle Mafia couldn't be more different. While Ellison ruled by ridicule, reveled in opulence, and made billions playing the software game, Fairchild pioneered the Valley's culture of equality and modesty, quietly slaving away on tiny semiconductors, the DNA of the computing revolution. But what they have in common are the staggering number of successful businesses that shot off from their core founders and employees. And if two businesses as different as Oracle and Fairchild can spawn such rich ecosystems by sheer concentration of talent, then it's proof that the notion of a great Silicon Valley family, while rare, is more than just a one-off anomaly.

netscape mafia

[studio20 company="netscape"]Click here to see every startup that sprung out of the Netscape Mafia[/studio20]

(startup descriptions pulled from Crunchbase)

[Visualization built by Simran Khosla, Jesse Kipp, Nuha Abujaber, and Jonathan Soma]

Is your company or a company you know missing? Click here to submit your information and get on the map!

Netscape's circle of influence

Before Chrome, before Firefox, even before Internet Explorer, there was Mosaic.

Mosaic wasn't the first web browser ever created, but it was close. The first was Tim Berners-Lee's WorldWideWeb, which in 1990 was literally the only way to surf the Web. 1993's Mosiac, however, was the first to resemble the browsers we use today. It was easy to install, it worked on the preeminent operating system of the day, Windows, and it included many of the simple features we take for granted today, like a URL bar, forward and back buttons, and graphics that display in the same windows as text. You can still download it here.

The co-creator and team leader behind Mosaic? It's a guy who, if you read PandoDaily with any regularity you'll instantly recognize: Marc Andreessen.

Today, Andreessen is one of the most prolific venture capitalists in the world, investing in companies as diverse as Facebook and, well, PandoDaily. But in 1993, he was a 22-year-old computer science student at the University of Illinois (where Oracle's Larry Ellison also attended before dropping out), still a few classes shy of a Bachelor's Degree and working at the school's National Center for Supercomputing Applications (NCSA). His boss at the time, Dr. Ping Fu who helped create the groundbreaking computer graphics in Terminator 2, asked Andreessen to make a web browser. His response? "What's a web browser?"

From those humble beginnings came what Internet historians James Gillies and Robert Cailliau called, "The spark that lit the Web's explosive growth." Built with the help of his coworker, Eric Bina, Mosiac proved that Web browsing wasn't just for techies at CERN or the Department of Defense. No, the browser of the future would have attractive graphics, low barrier of entry, and be compatible with existing consumer products. And it would make people very very rich.

Guessing at the commercial possibilities of web browsing, Andreessen left the NCSA and headed to California to start the company that would become Netscape. Jim Clark, founder of Silicon Graphics, Inc., helped secure funding through Kleiner Perkins Caulfield & Byers. (More cross-mafia connections: Eugene Kleiner was part of the Fairchild Mafia, the first family of Silicon Valley).

In October of that year, Netscape released its first browser. Less than a year later on August 9, 1995, it went public. Opening at $28 a share, the stock soared as high as $75 before settling down at $58.25 by the end of the day. Netscape was the fastest growing software company of all time, growing from $5 million to $10 million to $20 million to $40 million over the four quarters of 1995. Andreessen told Wired, "No one had ever seen anything like that. It was faster than Lotus' first year, which was the previous record in software. Shit! That's it! We are a hit!"

But although Netscape created a monumentally important product that helped shape modern life at least as much as Fairchild did, its lightning-fast growth, massive IPO, and the breathless attention it received from the press, made it symbolic of the dotcom bubble. And indeed, through a series of developments, many of which were out of the company's control, Netscape forever altered how companies raise capital while also pioneering the rock-star iconography associated with Silicon Valley entrepreneurs today. As Sarah Lacy writes in an unpublished ebook on Silicon Valley families,

Netscape’s IPO was considered the seminal moment that opened the Internet liquidity floodgates, and changed all the rules of what a venture backed-IPO could be and coincided with how the stock market worked.

Part of that was timing, as Andreessen notes above. The IPO coincided with a greater democratization of stock market investing. It wasn’t the banks that caused that spectacular first day pop, it was the everyday retail investors flooding brokerages to buy a piece of a product they loved. And thanks to an unprecedented crush of press, Andreessen became a symbol to every hacker or geek that you could move to Silicon Valley and build something huge in a matter of months, something that had seemingly never been possible in business before.

But the good times wouldn't last forever. There's a reason no one uses Netscape any more and that reason is Microsoft. Between 1998 and 2000, as Microsoft continued to bundle Internet Explorer into its Windows operating system, Netscape's share of the browser market fell from 80 percent to less than 40 percent. Part of Netscape's biggest legacy is the role it played in the 1998 Microsoft antitrust case. Though not officially a plaintiff, Netscape was one of Internet Explorer's biggest competitors and thus was cast by some as the David to Microsoft's Goliath.

But Netscape's influence and bloodlines extend far beyond the Microsoft case. Andreessen, along with another Netscape executive Ben Horowitz, started Andreessen Horowitz which has invested billions of dollars in over a hundred companies including Facebook, Twitter, Skype, Zynga, and Groupon. The duo also founded a software company called Opsware in 1999 that eventually sold to Hewlett-Packard for $1.6 billion. Another Netscape executive, Ram Shriram, was a founding board member and angel investor in Google who also worked for Amazon and served on StumbleUpon's board. Peter Currie, Netscape's CFO at the time of its IPO, served as Facebook's CFO and sat on Twitter's board. Executive Mike McCue cofounded the "voice browser" TellMe, which sold to Microsoft for a rumored $800 million, and is now the CEO and cofounder of Flipboard. And the list goes on...

Was there something about the culture at Netscape that allowed it to spawn so many successful entrepreneurs and investors? Perhaps. Netscape's culture was like a cross between Fairchild's and Oracle's. On one hand, Andreessen could be a pretty volatile guy like Ellison (One of the first emails Horowitz ever received from Andreessen was signed, "Fuck You.") On the other hand, there was a humble Midwestern mentality that informed Netscape's culture, just like at Fairchild. (Both Andreessen and Fairchild's Robert Noyce were born in Iowa). Andreessen described the culture at Netscape to Sarah Lacy in her unreleased ebook like this: “Egalitarianism, stock options, the value of hard work and building things versus patent trolls. Practicality, fairness and taking responsibility. People saying things how they are. That all made its way to the Valley from the Midwest."

Netscape may have lost the browser wars to Microsoft, but while Microsoft finds itself without a CEO and playing catchup in both hardware and software, the founders and executives of Netscape helped shape some of the biggest companies of the past ten years by making smart bets on social and search. And yet there's a circular quality to the Netscape mafia. Facebook, Google, and every other successful consumer web product wouldn't be possible without Andreessen's Mosaic browser. Mosaic brought the web to the masses, a development as significant as Fairchild's semiconductors.

PayPal Mafia

[studio20 company="paypal"]Click here to see every startup that sprung out of the PayPal Mafia[/studio20]

(startup descriptions pulled from Crunchbase)

[Visualization built by Simran Khosla, Jesse Kipp, Nuha Abujaber, and Jonathan Soma]

Is your company or a company you know missing? Click here to submit your information and get on the map!

From spaceships to social media

Each mafia we've covered, from Fairchild to Oracle to Netscape, has spawned great companies. But there's something uniquely special about the PayPal Mafia. Despite the importance of establishing an imperfect yet workable payments infrastructure on the Web, there's a good argument to be made that the financial and cultural impact of the companies PayPal spawned far outstrips that of PayPal itself. Maybe it's because it's the first Mafia to arise after the Internet had been fully established. Maybe it's because its members still kept very close ties with one another, even when working in fields as divergent as spaceships and social media.

But whatever it is, it's what happened after PayPal that's really interesting. As a result of the company's sale to eBay, its founders and principals became hugely rich. This allowed them to chase after even more ambitious ideas, like building electric-powered sports cars, jumpstarting the video revolution on the Web, and taking social media from a niche field dominated by college students to a worldwide phenomenon. And that's what makes PayPal perhaps the most convincing proof of the startup root theory: The luminaries behind PayPal accomplished their greatest work not when concentrated at one company, but at separate companies helping each other out as investors and advisors. If Oracle is the Beatles, spawning solo acts that were impressive but never as good as the original, then PayPal is more like John Mayall & the Bluesbreakers, a decent band that helped spawned the careers of Eric Clapton, Cream's Jack Bruce, the Rolling Stones' Mick Taylor, and three members of Fleetwood Mac.

So how did it happen?

In 1998, Max Levchin, Peter Thiel and Luke Rosek started the company that would become PayPal, Confinity. They took the PayPal name after merging with Elon Musk's X.com. Bringing payments into the digital age was no easy feat; PayPal faced many of the same challenges the bitcoin enthusiasts go through today, like dealing with fraudsters and money launderers.

It was also an expensive feat. According to early employee Eric Jackson, PayPal was burning through $10 million a month in 2000. Nevertheless, it was also growing exponentially fast, having hitched its wagons to eBay's booming business. Finally, in 2002, PayPal sold to eBay for $1.5 billion. Depending on who you ask, it was either a shrewd exit that made millionaires out of its employees during a time of great upheaval in the Valley or "the worst tech decision in the last ten years."

Could the PayPal Mafia had made more money had they stuck it out? Maybe. But think of what we could've potentially lost: Steve Chen, Chad Hurley, and Jawed Karim's YouTube. Elon Musk's Tesla and SpaceX. PayPal executive Jeremy Stoppelman founded Yelp, which came out of an incubator run by Levchin. Thiel (an investor in PandoDaily) became the first investor in Facebook. Reid Hoffman founded LinkedIn and made a series of prescient bets on social media, going so far as to buy all of the core social media patents so they couldn’t be used against this generation of companies. David Sacks founded Yammer. Keith Rabois made key investments in YouTube, Eventbrite, Palantir, and served as COO at Square until his role came to an unceremonious end. Roelof Botha became a partner at Sequoia Capital where he sits on the board of Eventbrite, Square, Tumblr, and many others.

And they did it all by helping, not fighting, one another. None of our Mafia visualizations is more tangled and convoluted than the PayPal one. And while it's hard to prove this, I think that's one of the biggest reasons the PayPal Mafia has experienced as much success as it has. Yes, these people are talented, smart, and hardworking. But more importantly, they know how to work together, as opposed to the Oracle Mafia which spawned feuds and infighting and threats to crush one another.

If there's a lesson to be found here, it's that there's plenty of innovation and money to go around in Silicon Valley, and that the best discoveries happens when egos are set aside.

[Illustrations by Simran Khosla]