How the World Got Wired · Routers and the People Who Built Them

Sequoia

The investor who eventually said yes was named Don Valentine. He worked at a firm called Sequoia Capital, which is a venture capital firm — a company that exists to give money to small, fast-growing companies in exchange for a share of their ownership.

You should understand how this kind of deal works, because it shapes almost every technology company you have ever heard of.

Sandy and Len owned 100 percent of Cisco. They needed cash. Sequoia agreed to give them $2.5 million. In exchange, Sequoia got about a third of the company. Sandy and Len now owned two-thirds. That sounds like a lot to give up. But Sandy and Len decided it was worth it, because with $2.5 million they could build a much bigger company much faster, and even one-third of a much bigger company would be worth more than 100 percent of a tiny one.

That part of the calculation turned out to be right. Cisco grew enormously. By 1990, just three years later, the company was big enough to sell its shares to the general public — a process called an initial public offering, or IPO. After the IPO, Sandy and Len were, on paper, multi-millionaires.

But there was a catch.

When you take money from a venture capital firm, you also usually take their advice on how to run the company. In Cisco’s case, Don Valentine and the other investors had brought in a professional CEO — a man named John Morgridge — to manage the business. Sandy and Len were still co-founders. Sandy was the marketing director. Len was a senior engineer. But they were no longer in charge.

Tensions built. Sandy, in particular, had strong opinions about how Cisco should be run, and clashed with Morgridge and the board. In August of 1990, less than a year after the IPO, the board fired Sandy.

Len followed her out the door the next day in protest.

They sold their remaining shares — for about $170 million — and walked away from the company they had founded in their living room. Cisco, six years old, no longer had its founders.

This is a hard story to read. Sandy and Len had built something extraordinary. They had been pushed out of it by investors they had let in to help. It is the kind of story that makes some people very cynical about venture capital.

But it is more complicated than that, and I want to tell you the full version.

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