In-Depth
Profile: Tallwood Quietly Cultivates Success
Without even a sign outside the door of its Palo Alto office, Tallwood Venture Capital flies under the radar. But it''s run by several of Silicon Valley''s most noteworthy semiconductor entrepreneurs, including industry veteran Ron Yara.
Tallwood Venture Capital will impress no one with its size or flash. Its first institutional fund, raised in 2002, was a relatively modest $180 million. Tallwood has a mere three general partners, three executives in residence, and a handful of support staff. It invests in just one industry at one stage of development: early-stage semiconductor companies.
Tallwood doesn't even have a sign outside the door of its Palo Alto office. Now that's running under the radar.
"There are multiple investment styles that work," says general partner Ron Yara. "We picked this way because we believe in it and we enjoy it. It's not that we sat and thought, 'What is the best thing for three people in a small startup to do? Semiconductors!'"
It happened to be what they knew. Yara and general partner Dado Banatao are two of Silicon Valley's most noteworthy semiconductor entrepreneurs. Together they founded Chips and Technologies in 1985 (the company was later sold to Intel for $430 million) and S3 in 1989. A third general partner, George Pavlov, worked with Banatao at Mayfield Fund in the 90s.
Dave Shepard, CEO of Tallwood portfolio company Sequoia Communications, says that Tallwood's real-world business expertise, domain expertise, and commitment to long-term investing "really set it apart from the rest of the VC world. It's what separates a real-life view of the world from a business-school view."
Tallwood officially began as an investment entity in 2000, consisting solely of Banatao as both limited and general partner. Pavlov helped put the formal investment structure in place.
At the time, Yara was "retired." He wasn't starting up any companies of his own, but he was involved with Silicon Valley Community Ventures (now called Pacific Community Ventures), a nonprofit group that invests in small businesses in low-income communities. By mid-2001, Yara was ready for something new, and Banatao was thinking about shifting his investment practice from his own money to institutional investors. Thus was born the Tallwood we know today.
"Was it good timing from a macro standpoint? No. But for us it was good," Yara recalls. "Funds were reducing in size, they weren't collecting on commitments, and limited partners were not happy. So it was very tough for any new [entrants] to get funded, but at the same time LPs were looking for alternative forms of VC"—namely the sort of small, operationally experienced, industry-specific kind of VC that Tallwood intended to practice.
That experience informs everything, according to Yara. "Unless you have worked in semiconductors, it's difficult to have the instincts ... that are very much a part of helping the entrepreneur build a company." After years in the industry, a person can know "whether a design approach feels right, whether the development is on track or not, whether your read of the customer and the market is right." All of those factors can make the crucial difference between a merely good idea and a great company.
Dave Shephard agrees. "Tallwood's extensive semiconductor and real-world business experience ... brought a level of maturity and experience to the boardroom that would not have been there otherwise," he says. "They have helped me as a CEO see critical decisions from various angles. [And its] great reputation in the investment and semiconductor industry has also helped us attract other investors and partners." Those investors include Motorola, Nokia Venture Partners, and Gabriel Venture Partners.
Yara and his partners put together a toolkit of best practices tailored to fabless semiconductor companies. The toolkit covers the development cycle from marketing to engineering milestones, product planning to operational planning. "We make that available to our portfolio companies," he explains. "They're not required to use it, but they have to have some sort of plan in place."
Those best practices appear to have served several portfolio companies well. Cyras Systems, Newport Communications, Stream Machine, and Marvel Technology Group have all been acquired or gone public. Others, such as Alphion and Inphi, continue to develop their products and attract investment.
"We're a startup, and we view ourselves as a startup, continually building out and learning how to build out the practice," says Yara. And, because the partners all come from operating backgrounds, they take a practical approach to investment. "We set out and define what we want to do, do it, and measure the results."
Tallwood Venture Capital
http://www.tallwoodvc.com/
Founding date: 2002
Partners: Dado Banatao, George Pavlov, Ron Yara
Funds under management: $180M
Focus: Early-stage semiconductor companies