Venture capitalist checks his inklings
- Andy Giegerich And Harry Lenhart
- Portland Tribune - News
Portland venture capitalist Ralph Shaw makes a handsome living peering into the future.
With a crystal ball consisting of three parts painstaking research to one part shrewd guesswork, he looks for fledgling businesses that he thinks have what it takes to grow into big moneymakers.
Among his biggest finds in a long career of finding winners: a little Seattle-based startup called Costco, for which his firm, Shaw Venture Partners, provided seed money two decades ago.
Shaw also has headed Oregon's Council of Economic Advisors, in addition to serving on the Governor's Committee on Economic Development and as a director of the Oregon Resource and Technology Development Corp.
He is more than a little gloomy about the state's economic prospects, he explained just before Christmas when he sat down with Tribune reporters and editors. What follows are excerpts from that conversation, edited for length and clarity.
How is Oregon going to dig itself out of the economic doldrums?
It may be more difficult to dig ourselves out (than it was from the last serious recession in the early 1980s).
I think we have a tendency to believe that if we just hold on, that this is just a cycle and that it's all going to come back Ñ and that a year from today, whether we do something or we don't do something, it's all going to be OK.
And my question is: Will it? My answer is: I'm not so sure.
Why are you so pessimistic?
In 1982, Tektronix had 25,000 workers here in Oregon. (It) was our primary source of new business, new entrepreneurs and business development. Out of Tektronix we ended up with companies such as Integrated Measurement Systems, Lattice Semiconductor and on and on.
Today, Tektronix has 1,900 or fewer employees. It's a shadow of what it was. It's no longer the dominant factor in its industry. People (in its ranks) who want to try new things (are no longer offered the money and incentives to create spinoffs as they once were). Today they say to people who want to try new things: 'We don't want you to even think about it.'
We had a period starting in 1983 and going through the early 1990s when we had lots of spinoffs from three companies: Tektronix, Intel and Floating Point Systems. Floating Point is gone, Intel is still very very healthy and profitable, but you see virtually no companies coming out of Intel now.
So to expect the same (economic upsurge) to happen again is I think somewhat Pollyanna-ish.
Also, starting in the mid-'90s, we started to see semiconductor companies (from Japan and elsewhere) move to Oregon. We had in one year more capital expenditures in Oregon by the electronics industry than the entire rest of the United States combined. I don't think we're going to be able to repeat that.
What has caused this situation?
The reason I'm concerned that an economic recovery will not lead to long-term growth in Oregon at the same level as it did in the past is this: If you look at the patterns in today's electronics industry, you find that companies are contracting out more and more of their manufacturing overseas.
It started a long time ago in the apparel industry. With semiconductors, it's happening en masse. The reason is that the governments of Taiwan and China (and other countries) are putting up the $3 billion to $4 billion apiece it costs to build new semiconductor facilities. So our companies here are moving their production to Asia. The LSI Logics, Fujitsus, Toshibas, Wacker Siltronics and SEHs of the world are moving on. Which, of course, is normal in history.
But the difference between Oregon today and the rest of the United States in the aggregate is that in the past our educational facilities always graduated people who came out with new ideas, which replaced ideas being implemented overseas now. Oregon doesn't have the ability to graduate people who can now replace the technologies that are leaving.
There are signs that are illustrative and somewhat of a warning: LSI Logic, for example, was one company we attracted to Oregon. It's a maker of application-specific integrated circuits. They announced that their next technology will be implemented not in the United States but by Taiwan Semiconductor. LSI Logic will (only) do the sales and marketing (of the resulting product) in the United States. They don't say this is permanent. But once you decide to step out of the arena, you're out of it.
Are you losing faith in this region's ability to develop new technologies?
We have seen growth here primarily because of the growth of the electronics industry. And that industry is moving its manufacturing overseas.
Hewlett-Packard has closed down its printer facility; it's now overseas. Epson has closed down; it's now overseas. InFocus no longer makes projectors in the United States; it's now overseas. Fujitsu, NEC, Toshiba, one after another Ñ they're all gone.
What comes next? In the past we've always had opportunities to replace (a departing industry). But where it gets replaced is with new companies implementing new technologies. Where do new technologies come from? They come from the universities.
Mentor Graphics just announced it's going to invest $40 million in software development in India. When I asked why, they said they can't hire anyone graduating from engineering schools here because they're just not prepared, they're just not ready to go into that sophisticated end of the business.
What about nanotechnology?
Everyone's getting into nanotechnology. It's all across the world. It'd be wonderful to do it, but we don't have any skill sets in that. Nanotechnology is an interesting opportunity, and it'll be big. But we don't have any advantage over anyplace else.
The problem is, we're using buzzwords. Nanotechnology is a buzzword, and wishing it'll happen here won't make it so.
Won't our local educational systems help?
Oregon's universities have 10 patents altogether. That speaks volumes. I told the Oregon Graduate Institute (when I served on its board) to give me a call whenever they saw anything coming out of there that might have commercial opportunities. In 10 years, I didn't get one call.
Is Oregon's public sector capable of making the changes that are necessary?
I think it starts right at the top. I don't know what Gov. Kulongoski's going to do. I didn't sense any real understanding of the need for leadership in our current governor (John Kitzhaber) or the previous governor. É We were basically using up the wealth we'd built up. So I don't have a lot of confidence.
Oregon Health & Science University says it has a plan to make biotech a growth industry that eventually could employ 10,000 people here. What's your opinion of that plan?
The biotech industry in Seattle, which is one of the top four or five biotech centers in the country, employs less than 6,000 people total, according to the Washington Biotech Association.
What I'd suggest is, ask for the business plan of what they're going to do, what areas they'll work in. I've asked for it, and I haven't received it.
I was told (by a state senator) that if we put in $200 million for biotech, OHSU has promised us they'd have four drugs in a 10-year period that would do $1 billion (apiece in yearly sales). Once they do that, they wouldn't need to come back to the Legislature for any money.
I said, Gee, that's terrific. The only problem is, today there are only three drugs in the industry that do $1 billion apiece. Two of them are controlled by one company that spends $4 billion a year on research.
It takes on average 14 years to get a drug through the Food and Drug Administration to the market. So, there are only three drugs in the industry today that do $1 billion, and Genentech, the second-largest company in the industry, doesn't have one. It takes 14 years, yet OHSU will do it in 10 years.
Maybe they will. I don't know.