Rock of Ages: Part One
In the beginning...
In the beginning, the valley south of San Francisco was formless and empty.
Orchards of pear and French plum dotted its surface. Bucolic air wafted from tree to tree, blown by the westerly wind down the hillside and out over the Bay.
But on this early June afternoon in 1957, the spirit of change hovered in the air.
Out of the mist an airplane touched down, its passengers weary after a nearly 10-hour transcontinental trek from New York’s Idlewild Airport. Two figures—a partner at an investment bank and his 30 year-old report—emerged from the plane’s door.
Buttoning a well-cut suit, the younger man took a breath of the late spring air, speckled with engine fumes. Though his steely, almost avian visage betrayed nothing, he knew that something special was afoot.
The beauty around him was about to play host to the greatest technological revolution known to mankind.
And he—Arthur J. Rock—would be at its center.
Several weeks before the trip west, a fateful letter found its way to Rock’s desk. It had been signed by seven disgruntled engineers who were working under noted physicist and recently minted Nobel laureate William Shockley at Mountain View lab, where they were developing silicon semiconductors.
The engineers needed help.
Shockley had become a paranoid—and at times abusive—boss, subjecting his employees to lie detector tests among other humiliations. The engineers, early in their careers though they were, felt so demoralized by the toxic work environment that they were ready to quit their coveted positions.
They hoped that someone at Rock’s investment bank—Hayden, Stone—might be able to place them at another company. Their greatest contribution, they explained, would be from their continued co-employment.
A group feeling arose to the effect that rather than leave one by one, we would much prefer to stay together. We believe that we are much more valuable to an employer as a group.
– Eugene Kleiner (letter to Hayden, Stone, 1957)
Because this kind of placement lay outside the traditional purview of an investment bank, Rock’s higher ups were unsure how to respond.
In the white space, Arthur Rock saw an opening.
I was very anxious to make my mark.
– Rock on early days at Hayden, Stone (Arthur Rock oral history, The Bancroft Library, 2009)
Despite not being a technologist himself—Rock graduated college with a degree in business and politics—he had covered several other successful science-based companies as a securities analyst, and even worked on a deal for early germanium transistor manufacturer General Transistor. Whether or not he fully understood the possible applications for silicon semiconductors, he knew that the returns on such enterprises could be enormous.
Rock also knew of Shockley’s stature and, ironically enough, it was the fact that Shockley had hand-selected these engineers in the first place that most piqued Rock’s interest in finding the refugees a new home, safe from Shockley’s tyranny.
Interviewer: What...sparked your interest the most?
Rock: It was definitely the Shockley connection. These people had worked for Shockley and had been selected by Shockley. I thought that there was a possibility there.
Arthur Rock oral history, Chemical Heritage Foundation, 2002
Rock successfully made the case to his Hayden, Stone superiors that the seven (soon to be eight) defectors deserved, at the very least, a trip west.
Now, getting off the plane in California with his boss, Alfred J. “Bud” Coyle, to meet the engineers for the first time in person, Rock still didn’t know how exactly the situation would be resolved. But he felt certain of its potential.
And it was (mostly) good
Rock and the Traitorous Eight found success.
Rather than placing the Eight within another company, Rock helped them start a new venture (which would later become a division of Fairchild Camera and Instrument) called Fairchild Semiconductor. There, the group successfully developed and manufactured the first commercially practicable silicon semiconductor.
Their invention inaugurated the digital age.
While Fairchild was revolutionizing technology, Arthur Rock was busy pioneering the financial apparatus which would enable the thousands of young, scientific companies that followed in Fairchild’s footsteps.
He would call it venture capital.
Rock’s partnerships were the first to employ the now-standard 80/20 LP/GP profit distribution model. His companies were among the first to extend equity grants and options to all employees—which would become a crucial incentive for generations of underpaid innovators.
He is also responsible for introducing a more personal, though no less consequential change to the role of the money man—that of therapist and advisor.
I literally had one company president coming to my house once a week. He would lie down on my couch and talk about his problems.
- Rock (BusinessWeek, 1970)
He even sent one of his executives an exercise bike. “If you’re going to stay around very long,” the accompanying note read, “you’re going to have to get some regular exercise and keep doing that.”
VCs providing counsel of this kind has become hallowed tradition as well.
Rock’s alchemy of capital and high-tech talent ignited an explosion of innovation.
The ‘Fairchildren’ themselves—whose ranks would expand to include employees like Don Valentine and Mike Markkula—emerged as the first true “mafia” of Silicon Valley, a network of talent who would go on to found, fund, and lead companies like Intel, Apple, and Sequoia Capital. Stanford historian Leslie Berlin has identified eight semiconductor companies alone that were started by Fairchildren.
For his part, Rock would take advantage of the network’s subsequent companies, their capital, and their technological investment advice to position himself for a series of celebrated and lucrative deals.
His high-tech success with Fairchild also helped him to crystallize the decidedly low-tech investment philosophy which would guide the rest of his nearly seven-decade career.
Well, look—I’m not a scientist, so I don’t understand all of the science they’re talking about, so I’ve got to decide on some method of making evaluations, so it occurred to me that I’d do that based on people.
– Rock (Bancroft)
People running companies, Rock felt, should be judged first and foremost on their intellectual honesty. His focus on people stood in contrast to fellow early venture capitalists Don Valentine, who looked for big markets, and Tom Perkins, who lasered in on products.
Fittingly, Rock worked with several of the most talented people of his era.
Besides the Eight, Rock would serve as confidant, mentor, and counselor to three of the most celebrated CEOs of all time: Henry Singleton, Steve Jobs, and Andy Grove. The three are recognized as the pre-eminent capital allocator, visionary, and manager, respectively, that the business world has ever known.
I want to build great companies. That’s how I get my kicks. I look for people who want the same thing.
– Rock (Harvard Business Review, 1987)
In the two decades following his initial meeting with the Traitorous Eight, Rock would help lead the funding of Scientific Data Systems (SDS), Teledyne, and Intel. He would serve on the board of the latter two for over thirty years and on the board of Apple Computer for almost a decade and a half.
His first fund would boast returns of roughly 30 times over its seven year run—results credited with drawing institutional money into venture capital for the first time.
They also earned him a flurry of wide-eyed coverage in the financial press.
Looking back, Rock’s CV reads like a Forrest Gump of the early digital age—in the background driving its most transformative companies; companies responsible for developing its most transformational technology; technology that in turn transformed everything.
But Rock is a different kind of legend—one not given to holding forth on park benches. Or indeed to anyone else, not least reporters.
The handful of times he has agreed to sit for interviews, Rock, rarely photographed sans tie, answers questions with a slow, steady, just-the-facts curtness.
Interviewer: How did you come up [with the term venture capital]?
Rock: It just seemed like a natural [thing] to me.
Interviewer: Because…?
Rock: That’s what we were doing, we were investing capital in venture deals.
Something Ventured, 2011
Interviewer: Why did you work at Wertheim & Company?
Rock: Because they offered me a job.
(later in the interview)
Interviewer: Why [did you go to work at] Hayden Stone?
Rock: Well, they were looking for somebody.
Bancroft
He is famous for this breviloquence—even among those who have known him for a long time.
He’s not a man of many words.
– Gordon Moore (acquaintance of nearly 65 years) on Rock (Something Ventured)
Those of you who know me know that I’m not known for being verbose.
– Rock, addressing audience (Computer History Museum, 2016)
“...laconic...”
– Basically every journalist describing Rock
For those who take the time to pry past Rock’s 6’ something, impassable facade, his life and career yield invaluable lessons.
One such lesson: understanding a person properly takes time.
I’d spend a lot of time with entrepreneurs, trying to figure out whether they have what it takes to run a company. You never find out in the first hour or two. You’ve got to talk to them over and over—we had the luxury, in those days, of spending a lot of time with them, over several weeks or months, trying to figure out whether they come back with the same story, or whether they contradict themselves, or how badly they really want to do this.
– Rock (Bancroft)
For his part, Rock’s reticence to do press makes understanding him difficult—but not impossible. This multi-part profile is the result of a rigorous review of more than 1000 source pages, including oral histories with Rock, interviews with his partners and competitors, contemporaneous news reports, and other primary sources previously unreported on. We believe it to be the most thorough account of his life and career available—starting with his childhood in Syracuse, NY, exploring the evolution of his investment philosophy, the personal relationships behind his biggest deals, and more.
Such an exploration inspires a newfound appreciation of Rock’s accomplishments and stature.
[In the mid-70s]...a telephone call from Arthur Rock was viewed by other venture capitalists, underwriters, commercial bankers, and stockbrokers as the financial equivalent of white smoke emerging from a Vatican chimney.
– Mike Moritz (The Little Kingdom)
At 95, Rock will most certainly be remembered for his achievements—for the advent of venture capital, and for funding the most impactful companies in the most innovative era in human history.
But great legacies are not built on perfection. And though Rock’s failures haven’t received the coverage of his successes, they merit attention too.
For example, Rock had two partnerships with men who would go on to become legendary venture capitalists in their own right: Tommy Davis, who would later found the Mayfield Fund, and Dick Kramlich, who would found New Enterprise Associates (NEA). Both Davis and Kramlich have expressed personal misgivings about Rock as a partner.
Following his partnerships, as a director at Apple, Rock—whom Steve Jobs thought of as a father figure—effectively voted to remove Jobs from the company in favor of former Pepsi CEO John Sculley. The episode is thought by many observers to have led to Apple’s near collapse in the early 90s and is often considered a cautionary tale about the dangers of removing young founder-CEOs in favor of “adult management.” Though the Jobs rift is Rock’s most public fracture, his relationships with Andy Grove, Jean Hoerni, and even the mild-mannered Gordon Moore could be at times tumultuous.
Finally, in 2009, following the collapse of Bernie Madoff’s Ponzi scheme, it was revealed that Rock had invested an untold portion of his net worth with Madoff through five separate trusts. Whether his money was in Madoff’s legitimate brokerage or a victim of Madoff’s $50 billion Ponzi scheme has not been revealed to date. Either way, a legendary people-first investor would prefer to avoid the resulting headlines.
Just as a rock climber brushes debris off his next handhold in order to get a better grip, studying Rock’s failures better defines the contours of his career, helping ascendant investors determine which aspects of his approach offer solid intellectual holds. The acrimony of his partnerships, in the first case, calls into question parts of Rock’s personal philosophy of ethical deal-making. The latter two implicate his focus on people—and raise the question of whether consistently and accurately assessing the potential of individuals is even possible.
Rock’s failures are worthy of study because he is worthy of study—the view from the top will be worth it. We promise.
The Rise of RembeRock
Rock’s later years have been shaped by his philanthropic partnership with his wife, Toni Rembe. Rembe was the first female partner at the prominent, then-San Francisco based law firm Pillsbury Whitman. She has sat on a number of corporate boards, including that of AT&T.
Rembe was advising Intel on international tax planning when she met Rock, and the two married in 1975.
Rembe and Rock share a deep-seated shyness. But where Rock’s introversion is often perceived as standoffishness, Rembe’s is said to bely an abiding warmth.
I don’t know many people who would describe Arthur Rock as a people person. Arthur Rock is a very intelligent guy who is a very successful venture capitalist, but he’s not warm and fuzzy. He’s married to a warm and fuzzy gal.
– Bill Draper (Something Ventured)
The two also share a commitment to philanthropic causes, which include education, with major gifts to the non-profit charter school network KIPP and a $9 million gift to the California Academy of Sciences; ethical corporate governance, anchored by a $10 million donation to Stanford Law School to start the Rock Center for Corporate Governance; and entrepreneurship, with a $25 million gift to Harvard Business School to establish the Rock Center for Entrepreneurship.
Together, they are benefactors of the van Löben Sels/RembeRock Foundation, which provides legal services to disadvantaged communities.
They have made investments in San Francisco’s cultural life as well. Rock’s lifelong fascination with contemporary art led the couple to donate $5 million to the San Francisco Museum of Modern Art to help fund free admission for visitors 18 years of age and younger. Rembe’s interest in theater—which goes back to her childhood—has led the couple to support Magic Theatre, a renowned local playhouse known for fostering new plays and up-and-coming playwrights. They have also contributed to the San Francisco Opera, the San Francisco Ballet, and the Commonwealth Club of California.
As Arthur Rock was winging his way across the country that day in June 1957, he would have looked out across a patchwork of farms as he departed the Northeast, giving way to the old, low-slung Appalachians. From there, he would have soared over what was once considered the frontier, then across the winding Mississippi River—the engine of progress in its day—and across the endless Great Plains. And, no doubt feeling a touch of turbulence, he might have looked down on the Rocky Mountains, whose craggy slopes he would one day carve on his skis (“I’d rather be known as a skier than a financier,” he’d tell BusinessWeek in 1970).
Finally, he would have seen the vast emptiness of the Southwest laid out before him, where he would later hike and mountain climb, turning—at the last possible moment—into the verdant hills of the Bay. If he had looked a bit further East as his turboprop-powered chugged toward the runway, he might’ve seen the construction site of Candlestick Park, where his one-day part-owned San Francisco Giants would play.
As far as we know, it was his first trip West.
He would have seen all this for the first time, unaware that his trip would set in motion a series of events that would irrevocably change all he saw. His bridging of Eastern capital with Western technological talent would allow the advent of high-tech, GPS-enabled farming; would bring the internet to Appalachia; would spur a revolution in trade, seeing America exporting not just wheat, cotton, and soybeans down the Mississippi River, but semiconductors made by Intel and personal computers by Apple.
The digital revolution would even touch his beloved sports: skiing, where 3D modeling would enable better, faster, more enjoyable skis (he would be involved in this revolution too, albeit in a smaller way), and baseball, where the resulting data science renaissance would forever change the game.
All this for a child of immigrants from upstate New York.
ORIGINS: The founding funder’s seed years
Rock was born to a Jewish immigrant family in Rochester, NY. His mother, Reva Cohen, was a first generation immigrant born to Polish parents. Rock’s father, Hyman, had fled the Russian pogroms and sought a better life in upstate New York, which was home to a sizable Jewish immigrant population.
The young Rock family strove for assimilation, working hard to speak English at home in front of their two children. They struggled with setbacks: Rock suffered from polio, and a third child passed away at a very young age. For Rock, the older of the two children, expectations were set high from the beginning.
Well, if you’re familiar at all with immigrant parents—all they were interested in was the success of their children, and there was never a question that I wouldn’t go to college or that I wouldn’t be a success. That was absolutely their motive in life.
– Rock (Bancroft)
Rock’s younger brother by 12 years, David Rock, became a lawyer in Atlanta. Though the younger Rock would follow the other to Syracuse University, and share many interests, such as alpine skiing and outdoor activity, the two are not close today.
From an early age and by necessity, Rock experienced the grit of an entrepreneurial life.
His father owned a small store. Alternately described by Rock as a “candy store” and a “drugless drug store,” Rock worked there beginning early in his childhood. That he would provide for his “very poor” family was a “given,” he said.
In order to supplement the family’s income, Rock also served as a clerk at other drug stores in the area and sold weekly magazines door to door—including the Saturday Evening Post and Liberty.
For Rock—despite being an introvert stuck doing people-facing, and no doubt grueling, work, he does not describe this period negatively. In fact, work seems to be just about the only thing young Rock enjoyed. He liked taking part in what he referred to as “the commercial life.”
Though Rock hasn’t discussed it in interviews, it’s possible that the family’s fortunes improved slightly over time. By the 1940 census (when Rock was 13), the family reported one servant, a Dorothy Joyce, living in their home—a 3 bedroom duplex in the Park Avenue neighborhood of Rochester. If the family’s circumstances had changed, the improvement wasn’t significant enough to pay for Rock’s college; he has said that he would not have been able to attend without the assistance of the GI Bill, which provided funding for military veterans to attend college.
Perhaps it was these early, formative experiences providing for himself and his family, performing roles usually reserved for adults, that led him to develop a distaste for the confines of traditional hierarchy—and a respect for entrepreneurs.
His rebellious want and headstrong nature (“I have very strong opinions on almost everything”) meant that Rock and school were headed for a collision.
I was not a good student at all…[I was a] very poor [student]. I can remember my eighth grade teacher saying that I’d better take commercial courses in high school instead of academic courses.
– Rock (Bancroft)
In 1944, Rock turned 18 and graduated high school. With World War II still raging across the Atlantic, and the draft looming, Rock says he volunteered for the army.
For a man known for his military-like discipline and decorum later in life, the army—like school before it—did not suit him.
Rock: I hated the army! The army and I agreed not to get along.
Interviewer: Was it the regimentation?
Rock: Yes, of course. And having to report to people who I felt were not too bright.
Bancroft
The War wound down before Rock could be called abroad, but his service still allowed him to take advantage of the GI Bill. The military would play a large role in his later life, as well, as he invested in companies started by military founders and made millions from his firms’ defense contracts.
For college, Rock stayed close to home—attending Syracuse University “because they accepted [him].”
At Syracuse, Rock’s record of unexceptional academic performance persisted. He later admitted to not trying very hard in his classes.
Despite this, Rock found a niche at Syracuse—in student government. Rock describes himself as having been “quite active” in the student politics scene—but decided not to run for student council president when asked. His involvement foreshadowed his later work on the 1952 Eisenhower-Nixon campaign and his later political donations.
To this day, Rock discusses many of his interests in political terms. Donating to education causes, for example? To keep the United States ahead of geo-political competitors.
You know Tom Friedman wrote a book called The World is Flat: [A Brief History of the Twenty-first Century], well, it isn’t. It’s tipped toward China, Japan, India, etc. And the reason that these kids don’t do well, in my opinion, is that they’re not taught well…
– Rock (Bancroft)
After graduating with a degree in finance and a minor in political science, Rock joined Vick Chemical Company, the maker of Vick’s Vapor Rub (fun fact: Dan is related to the inventor of Vick’s! So you could say, without Dan’s family, there would be no Silicon Valley), as an accountant in New York City. Rock called the accounting work “too confined” for his taste—again lacking the autonomy he craved.
Besides his unexceptional grades, Rock left Syracuse with a close relationship with the dean of the College of Business Administration, Thomas H. Carroll. Carroll was a recent arrival from Harvard Business School where he had served as an assistant dean.
According to Rock, Carroll made a call to the HBS admissions office on his behalf—and next thing the young accountant knew...
So I don’t know if I would have gotten in [to HBS] without that recommendation or not, but in any event—there I was.
– Rock (Bancroft)
For an introverted Syracusan, Harvard was a culture shock. But his new surroundings gave him a glimpse of what might be possible.
I had no idea that the kind of things that they were teaching, and the people—I could reach that kind of level. I knew nothing about that life. And that’s the main thing I got out of Harvard, I think.
– Rock (Bancroft)
Harvard also gave Rock a lifelong friend in Fayez Sarofim, the noted Egyptian, Houston-based financier. Sarofim would co-invest in many Rock deals like Apple and Teledyne, serve on the board of Teledyne with him, and co-fund HBS’s first professorship in the field of entrepreneurship.
Ambition seeded, Rock graduated HBS in 1951, with a plan to return to New York to seek his fortune on Wall Street. Rock joined Wertheim and Company, an investment banking and brokerage firm located at 120 Broadway, across from Zucatti Park (now defunct).
Rock didn’t stay long. After roughly nine months at Wertheim, Rock left to work for the New York Young Republican Club on behalf of the 1952 Eisenhower-Nixon campaign—a return to the political streak of his college days. Rock was likely also involved with The National Youth for Eisenhower Campaign, an organization founded by John A. Lindsay, who would later become a prominent congressman and the Mayor of New York City.
His involvement in the Nixon-Eisenhower campaign also demonstrated his early predilection for moderate and liberal Republicans. Rock would later support John A. Lindsay, who was famous during his time in the House for liberal positions, including supporting Medicare; and Pete McCloskey, who ran for president in 1972 on an anti-Nixon, anti-Vietnam War platform. Rock would be one of McCloskey’s largest and most significant backers.
Though Rock returned to the Street—this time at an investment bank called Shields and Company—Rock kept a close ear to political rumblings.
In 1954, the House’s failure to pass a reinsurance bill proposed by President Eisenhower to expand health insurance coverage to many of America’s uninsured earned Rock’s ire—and a sharp letter to The New York Times.
Rock’s new home on the Street, Shields and Co., was a partnership founded in 1923 by a pair of yacht-racing obsessed brothers, Cornelius and Paul V. Shields. Paul Shields was the chairman of the Curtiss-Wright Corporation (as in the Wright brothers!), which was considered by some to be a spiritual predecessor to Teledyne and, coincidentally, would become one of Teledyne’s largest holdings.
But Rock, as had become a pattern with his early engagements, “didn’t get along too well with some of the people there.” After roughly three years at Shields, Rock quit for investment bank Hayden, Stone & Co—one of New York’s largest and most prestigious investment banks.
Rock joined Hayden, Stone in what he describes as an analyst-like role researching securities. He soon found a niche in technology and science-based companies. (Incidentally, Hayden, Stone had first grown to prominence around the turn of the century for what was then a forward-looking investment: positions in copper mining during the electrification of America.)
As for why Rock grew interested in science firms?
It was interesting and I thought there was an opportunity, and sure enough there was.
– Rock (Bancroft)
Rock had also seen the scale of returns technology firms could generate.
As a securities analyst, Rock helped with a private placement of $50,000 worth of General Transistor stock, and watched the company’s growth skyrocket. The original stock price of $3 dollars a share quickly reached $90.
General Transistor was a leading manufacturer of germanium-based transistors and the first publicly held, independent transistor firm. In the 1950s, the company’s transistors were primarily used in hearing aids, though they were just starting to be used in computers as well. Herman Fialkov, the founder of General Transistor, would later become a limited partner in Rock’s venture capital firm as well as a friend and frequent coinvestor.
“ ...it became obvious to me, while we were doing the General Transistor deal that these transistors were going to be used in more than hearing aids. And they were just starting to be used in computers. I had no idea, of course, that computers would become as widely used as they are today...but it was obvious that there was a future there.”
– Rock (Computer History Museum, 2007)
Rock’s interest in the space was thoroughly piqued—just in time for the letter that would change everything.
Thanks for reading this far! We hope you enjoyed the first part in our series on legendary venture capitalist Arthur Rock. If you did, we’d love if you would send this to a friend, or, if you’re on Twitter, give this a retweet.
Be sure to subscribe to Cloud Valley to get parts 2-6 (maybe more ;) ) hot off the presses and straight to your inbox. We’ll be working on them over the coming months and we’ll get into Rock’s stratospheric rise from analyst to chairman; his landmark Scientific Data Systems, Intel, and Apple deals; and his, well, rocky partnerships with Tommy Davis and Dick Kramlich.
In part two, we’ll be taking a look at how Rock’s investment strategy developed over time—starting with his days as a securities analyst in New York, through his venture partnership years in San Francisco, and ultimately as a solo investor. Don’t miss it!
Meanwhile, if you have any suggestions for parts of the Rock story we should be sure to cover, or if you have any original information about Rock or his career, we would love to hear from you.
Finally, stay tuned for our next profile in which we will take a trip to the Magic Kingdom. If you have any stories about working with or interacting with Bob Iger, give us a holler!
After Bob, we’ll be covering a variety of technologists, financiers, and operators. We’ll be kicking it off with Mike Maples Sr., Josh Wolfe, Steve Jurvetson, Martine Rothblatt, and Cyan Banister. If you know any of these people and feel moved to give us warm introductions, or even just personal stories, please reach out over email or Twitter.
Until next time,
Dan Scott and KG
Great beginning to the Arthur Rock story. I look forward to the additional parts. By way of suggestion, I would love to see as much as makes sense to your overall story about Rock's engagement as both an investor in and board member of Teledyne. I am especially interested in anything related to the Teledyne board. That board broke nearly, if not all, every rule of modern day "good governance" which in my view is a really good thing.
Great piece. Some candidates for future pieces that I think have thus far not been covered thoroughly (at least not in English): Vincent Bollore, Eddie Lampert, Carlos Slim. All followed a similar path of initially being public equity focused and then evolving into business owners / managers. Cheers