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Special Silicon Valley Issue | Angels and VCs

Band of Angels, Still Humming

These Groundbreaking Silicon Valley Investors Survived the Bust by Choosing Carefully During the Boom. They're Still Providing Seed Money, and Watching for the Next Big Thing.

March 09, 2003|Michael A. Hiltzik | Michael A. Hiltzik is a Times staff writer who last wrote for the magazine about Nobel laureate Francis H.C. Crick.

It may have been the drone of the earlier speechifying, or the narcotic effect of the prime rib entrees, but it was not until Mike McNeilly stepped to the podium that the audience at the Los Altos Golf & Country Club shook off its torpor and listened up.

McNeilly is a tall, barrel-chested man with a booming voice and the self-confidence that comes from having made a few thousand investment pitches in his career. He is also a member of Silicon Valley aristocracy, having founded the illustrious high-tech company Applied Materials in 1967 and remained an active investor since.

On this occasion his audience was the Band of Angels, among the most distinguished investment groups in Silicon Valley. Comprising scores of wealthy entrepreneurs who deploy their own money to nurture new high-tech ventures, the Band meets once a month to hear investment pitches and trade stories from the venture capital trenches. Lately, socializing has been more of a draw than investing, the valley having been the epicenter of one of the great investment bubbles of all time. And yet the Band has survived.

By the time McNeilly took a laser pointer in hand, his audience had heard an hour of rather dreary programming: a too-long speech by State Treasurer Phil Angelides proclaiming the resilience of a California economy; an investment pitch by a broadband company called ManyStreams ("If there's anything unique or proprietary about this deal, they haven't mentioned it yet," one listener groused); and a pitch from a group proposing a private bank that left it unclear whether they were trolling for investors or customers.

But McNeilly got the room's attention. His pitch was for NanoSpin, a company developing a new way to deposit microscopic copper wiring on silicon wafers, an increasingly exacting step in semiconductor manufacturing. His slide show was laced with chemical symbols and schematics of semiconductor chips, as well as assurances that Dow Chemical, Intel and IBM were prepared to finance NanoSpin's scientific discovery with millions in research and development funds. He was offering the Band a $500,000 piece of the action, and from the vigorous technical and financial questions that followed, it was clear that he had touched a nerve.

This was hard-core technology of the kind that had made Silicon Valley famous, not the Internet frenzy that had made it infamous. After two years of dot-coms, of kids without a day of operating experience giving investors a half-hour to put up or shut up, of vacuous new-economy concepts like "mind share" and "eyeballs" and "first-mover advantage," of start-ups that hadn't generated a dime of profit projecting they'd be worth $20 million next year and $100 million the year after, it was a hint of how this region's future might look like its past. One could feel a fresh breeze sweep the room.

I first became acquainted with the Band of Angels in 1996, when it was a few months old. The Silicon Valley craze was well under sail. Start-up companies were going public at an amazing rate, years ahead of where they would be in a more rational era. The region was awash in money. Venture capital firms were raising nine-figure grubstakes from institutional investors, and public investors wanted in on the party. "If you couldn't make money in the venture business in the last two years," said Jack Carsten, one of the Band's founders, at the time, "you should find another business."

By then the boom already appeared to be mature--how much higher could things go?

But 1996 was merely a taste of things to come: The technology bubble would raise Silicon Valley to worldwide attention, turn middle-aged engineers and youthful MBAs into storied millionaires, then bring them and the rest of the stock market crashing down even faster. So now, nearly seven years on, it seemed time to see how the Band of Angels had fared.

Things had changed, large and small. The group's membership swelled from 60 to 180 during the bubble, and finally eased back to about 120. In the bear market many members saw their net worth suffer what was charitably called a "haircut," but these were genuine long-term investors. Few suffered the devastating losses of novice individuals investing for the first time at the market peak. The downtown Palo Alto restaurant where the group originally held its dinners had been torn down for a dot-com's office building. The dot-com had failed and the new building was vacant: bubble and bust in microcosm.

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