Wizards of the Coast [a big role-playing game maker] is here! It almost didn’t matter which area…grunge, cellular telephony, a whole variety of key things, many of which involved technology, some of which didn’t. But there was a local community that created all of that and completely changed the world.
Although some of those things have waned a bit—grunge, Kurt [Cobain] is still dead—those things are still impacting the rest of the world. Why Seattle? I don’t know. But there was some combination of opportunity, people, culture—something—that made this place the dynamic center of all of those things, all virtually simultaneously. Now that’s continuing. Amazon and a whole variety of Web companies are continuing to push. Tons of tremendous innovation is ongoing in the area. It doesn’t have the fame in those respects that some areas like Silicon Valley have. I’m not sure why about that either. It’s possible that if you fixed one of those problems you’d screw up the other one. It is a fantastic local community. It’s also one that I think people here tend to take for granted a little bit.
X: How so—what’s an example of that?
NM: University of Washington Medical Center has got more government grants for medical research than any place in the country except Harvard. The dean of the medical school will quote that statistic. He’ll also tell you he’s never met anyone in Seattle who believes it, or would possibly have guessed it. My guess is UW would have a higher profile outside Seattle. We think, “That’s just the kind of decent local place”… it’s actually great! But you tend not to think of it that way.
When I started to go to New York for Microsoft in the 1990s, there were all these New Yorkers who viewed New York as the center of the world. And of course for technology it was a backwater, it’s still a backwater, slightly less today than it was then. They of course had exactly the opposite view, that New York was the only place that was important in the whole world, and they were going to be friendly as an outreach program to this provincial guy [me] who came in with mud on his logging boots from Seattle. And they’d say things that led me to think, “No, you have it backwards—this is my outreach program, the 21st century is calling a decade early!”
X: So, how does Intellectual Ventures fit into the various models for funding technology and innovation?
NM: The history of the last 30 years in a variety of financial markets has been about building liquid capital markets around interesting new assets. Venture capital is one such thing. From a financial standpoint, it was about creating a model where you could do this crazy thing where you invest in a company that doesn’t exist yet. If you think about the way the world was oriented in the 1960s when venture capital got started, it was public companies, it was big military-industrial complexes. That sort of thing was how people viewed business. The idea of investing in a company that doesn’t exist yet sounds like an oxymoron. But it worked. People figured out models. Tens of thousands of companies have been funded. There’s a whole algorithm—you come up with an idea, you get some people around it, you go to Sand Hill Road, and if you have the patience, you could take a thousand meetings. And if you have a decent idea, you’re going to get funded. Even if you have a bad idea, you might get funded!
Out of those tens of thousands of companies, we’ve utterly changed the world. Most of them didn’t, but that doesn’t really matter. What the world needed was a way to apply capital and expertise to the problem of starting new companies, and a standard marketplace where you’d go to get that. It’s possible to start a high-tech company without venture capital, some people do that today. (You can borrow money. Hewlett and Packard got started without venture capital, by borrowing money from their professor. However, it took lots of luck.) Xconomy is an interesting institution to be talking to about this, because you’re about what happened in this kind of marketplace…When you create an ecosystem or food chain in which these things interact, you can get something pretty amazing.
Private equity is a similar model. Private equity was about creating a way for companies that weren’t appropriate for venture capital, weren’t appropriate for public markets—typically the owner didn’t know what the hell to do with them. What do you do with those? People came up with a model for that starting in the 1960s, but it was really in the ’70s when it got going. That’s also changed the world in a very positive way. What private equity did was it allowed firms that had lost their direction to get some [direction].
What Intellectual Ventures has done is we’ve come up with a couple of models, one similar to venture capital, one similar to private equity. Just like those, except totally different!
X: From what I understand, you’re about creating a marketplace for inventions.
NM: We invest in inventions that don’t exist yet. You can say, this is like reinventing venture capital, but with the idea that the unit of asset is an invention instead of a company. You can also look at it and say, that’s totally different. It’s true, it is totally different. We invest in inventions, period. We assume once we have the invention we’ll be able
