So Here’s What I’ve Been Thinking…

I was interviewed at the Stanford Business School and in listening to the podcast, I realize I repeated some of my usual soundbites but embedded in the conversation were a few things I’ve never shared before about service.

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Steve Blank on Silicon Valley, AI and the Future of Innovation

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The Endless Frontier: U.S. Science and National Industrial Policy: Part 6a The Secret History of Silicon Valley

The U.S. has spent the last 70 years making massive investments in basic and applied research. Government funding of research started in World War II driven by the needs of the military for weapon systems to defeat Germany and Japan. Post WWII the responsibility for investing in research split between agencies focused on weapons development and space exploration (being completely customer-driven) and other agencies charted to fund basic and applied research in science and medicine (being driven by peer-review.)

The irony is that while the U.S. government has had a robust national science and technology policy, it lacks a national industrial policy; leaving that to private capital. This approach was successful when U.S. industry was aligned with manufacturing in the U.S., but became much less so in the last decade when the bottom-line drove industries offshore.

In lieu of the U.S. government’s role in setting investment policy, venture capital has set the direction for what new industries attract capital.

This series of blog posts is my attempt to understand how science and technology policy in the U.S. began, where the money goes and how it has affected innovation and entrepreneurship. In future posts I’ll offer some observations how we might rethink U.S. Science and National Industrial Policy as we face the realities of China and global competition.

Office of Scientific Research and Development – Scientists Against Time
As World War II approached, Vannevar Bush, the ex-dean of engineering at MIT, single-handledly reengineered the U.S. governments approach to science and warfare. Bush predicted that World War II would be the first war won or lost on the basis of advanced technology. In a major break from the past, Bush believed that scientists from academia could develop weapons faster and better if scientists were kept out of the military and instead worked  in civilian-run weapons labs. There they would be tasked to develop military weapons systems and solve military problems to defeat Germany and Japan. (The weapons were then manufactured in volume by U.S. corporations.)

In 1940 Bush proposed this idea to President Roosevelt who agreed and appointed Bush as head, which was first called the National Defense Research Committee and then in 1941 the Office of Scientific Research and Development (OSRD).

OSRD divided the wartime work into 19 “divisions”, 5 “committees,” and 2 “panels,” each solving a unique part of the military war effort. These efforts spanned an enormous range of tasks – the development of advanced electronics; radar, rockets, sonar, new weapons like proximity fuse, Napalm, the Bazooka and new drugs such as penicillin and cures for malaria.

OSRD

The civilian scientists who headed the lab’s divisions, committees and panels were given wide autonomy to determine how to accomplish their tasks and organize their labs. Nearly 10,000 scientists and engineers received draft deferments to work in these labs.

One OSRD project – the Manhattan Project which led to the development of the atomic bomb – was so secret and important that it was spun off as a separate program. The University of California managed research and development of the bomb design lab at Los Alamos while the US Army managed the Los Alamos facilities and the overall administration of the project. The material to make the bombs – Plutonium and Uranium 235 – were made by civilian contractors at Hanford Washington and Oak Ridge Tennessee.

OSRD was essentially a wartime U.S. Department of Research and Development. Its director, Vannever Bush became in all but name the first presidential science advisor. Think of the OSRD as a combination of all of today’s U.S. national research organizations – the National Science Foundation (NSF), National Institute of Health (NIH), Centers for Disease Control (CDC), Department of Energy (DOE) and a good part of the Department of Defense (DOD) research organizations – all rolled into one uber wartime research organization.

OSRD’s impact on the war effort and the policy for technology was evident by the advanced weapons its labs developed, but its unintended consequence was the impact on American research universities and the U.S. economy that’s still being felt today.

National Funding of University Research
Universities were started with a mission to preserve and disseminate knowledge. By the late 19th century, U.S. universities added scientific and engineering research to their mission. However, prior to World War II corporations not universities did most of the research and development in the United States. Private companies spent 68% of U.S. R&D dollars while the U.S. Government spent 20% and universities and colleges accounted just for 9%, with most of this coming via endowments or foundations.

Before World War II, the U.S. government provided almost no funding for research inside universities. But with the war, almost overnight, government funding for U.S. universities skyrocketed. From 1941-1945, the OSRD spent $450 million dollars (equivalent to $5.5 billion today) on university research. MIT received $117 million ($1.4 billion in today’s dollars), Caltech $83 million (~$1 billion), Harvard and Columbia ~$30 million ($370 million.) Stanford was near the bottom of the list receiving $500,000 (~$6 million). While this was an enormous sum of money for universities, it’s worth putting in perspective that ~$2 billion was spent on the Manhattan project (equivalent to ~$25 billion today.)OSRD and Universities

World War II and OSRD funding permanently changed American research universities. By the time the war was over, almost 75% of government research and development dollars would be spent inside Universities. This tidal wave of research funds provided by the war would:

  • Establish a permanent role for U.S. government funding of university research, both basic and applied
  • Establish the U.S. government – not industry, foundations or internal funds – as the primary source of University research dollars
  • Establish a role for government funding for military weapons research inside of U.S. universities (See the blog posts on the Secret History of Silicon Valley here, and for a story about one of the University weapons labs here.)
  • Make U.S. universities a magnet for researchers from around the world
  • Give the U.S. the undisputed lead in a technology and innovation driven economy – until the rise of China.

The U.S. Nationalizes Research
As the war drew to a close, university scientists wanted the money to continue to flow but also wanted to end the government’s control over the content of research. That was the aim of Vannevar Bush’s 1945 report, Science: the Endless Frontier. Bush’s wartime experience convinced him that the U.S. should have a policy for science. His proposal was to create a single federal agency – the National Research Foundation – responsible for funding basic research in all areas, from medicine to weapons systems. He proposed that civilian scientists would run this agency in an equal partnership with government. The agency would have no laboratories of its own, but would instead contract research to university scientists who would be responsible for all basic and applied science research.

But it was not to be. After five years of post-war political infighting (1945-1950), the U.S. split up the functions of the OSRD.  The military hated that civilians were in charge of weapons development. In 1946 responsibility for nuclear weapons went to the new Atomic Energy Commission (AEC). In 1947, responsibility for basic weapons systems research went to the Department of Defense (DOD). Medical researchers who had already had a pre-war National Institutes of Health chafed under the OSRD that lumped their medical research with radar and electronics, and lobbied to be once again associated with the NIH. In 1947 the responsibility for all U.S. biomedical and health research went back to the National Institutes of Health (NIH). Each of these independent research organizations would support a mix of basic and applied research as well as product development.

The End of OSRD

Finally in 1950, what was left of Vannevar Bush’s original vision – government support of basic science research in U.S. universities – became the charter of the National Science Foundation (NSF).  (Basic research is science performed to find general physical and natural laws and to push back the frontiers of fundamental understanding. It’s done without thought of specific applications towards processes or products in mind. Applied research is systematic study to gain knowledge or understanding with specific products in mind.)

Despite the failure of Bush’s vision of a unified national research organization, government funds for university research would accelerate during the Cold War.

Coming in Part 2 – Cold War science and Cold War universities.

Lessons Learned

  • Large scale federal funding for U.S. science research started with the Office of Scientific Research and Development (OSRD) in 1940
  • Large scale federal funding for American research universities began with OSRD in 1940
  • In exchange for federal science funding, universities became partners in weapons systems research and development

More in the next post, “The Secret Life of Fred Terman” Part 6b of the Secret History of Silicon Valley.

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The Pay-It-Forward Culture

Foreign visitors to Silicon Valley continually mention how willing we are to help, network and connect strangers.  We take it so for granted we never even to bother to talk about it.  It’s the “Pay-It-Forward” culture.

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We’re all in this together – The Chips are Down
in 1962 Walker’s Wagon Wheel Bar/Restaurant in Mountain View became the lunch hangout for employees at Fairchild Semiconductor.

When the first spinouts began to leave Fairchild, they discovered that fabricating semiconductors reliably was a black art. At times you’d have the recipe and turn out chips, and the next week something would go wrong, and your fab couldn’t make anything that would work. Engineers in the very small world of silicon and semiconductors would meet at the Wagon Wheel and swap technical problems and solutions with co-workers and competitors.

We’re all in this together – A Computer in every Home
In 1975 a local set of hobbyists with the then crazy idea of a computer in every home formed the Homebrew Computer Club and met in Menlo Park at the Peninsula School then later at the Stanford AI Lab. The goal of the club was: “Give to help others.” Each meeting would begin with people sharing information, getting advice and discussing the latest innovation (one of which was the first computer from Apple.) The club became the center of the emerging personal computer industry.

We’re all in this together – Helping Our Own
Until the 1980’s Chinese and Indian engineers ran into a glass ceiling in large technology companies held back by the belief that “they make great engineers but can’t be the CEO.”  Looking for a chance to run their own show, many of them left and founded startups. They also set up ethnic-centric networks like TIE (The Indus Entrepreneur) and the Chinese Software Professionals Association where they shared information about how the valley worked as well as job and investment opportunities. Over the next two decades, other groups — Russian, Israeli, etc. — followed with their own networks. (Anna Lee Saxenian has written extensively about this.)

We’re all in this together – Mentoring The Next Generation
While the idea of groups (chips, computers, ethnics) helping each other grew, something else happened. The first generation of executives who grew up getting help from others began to offer their advice to younger entrepreneurs. These experienced valley CEOs would take time out of their hectic schedule to have coffee or dinner with young entrepreneurs and asking for nothing in return.

They were the beginning of the Pay-It-Forward culture, the unspoken Valley culture that believes “I was helped when I started out and now it’s my turn to help others.”

By the early 1970’s, even the CEOs of the largest valley companies would take phone calls and meetings with interesting and passionate entrepreneurs. In 1967, when he was 12 years old Steve Jobs called up Bill Hewlett the co-founder of HP.

In 1975, when Jobs was a young unknown, wannabe entrepreneur called the Founder/CEO of Intel, Bob Noyce and asked for advice. Noyce liked the kid, and for the next few years, Noyce met with him and coached him as he founded his first company and went through the highs and lows of a startup that caught fire.

Steve Jobs and Robert Noyce

Bob Noyce took me under his wing, I was young, in my twenties. He was in his early fifties. He tried to give me the lay of the land, give me a perspective that I could only partially understand,” Jobs said, “You can’t really understand what is going on now unless you understand what came before.”

What Are You Waiting For?
Last week in Helsinki Finland at a dinner with a roomful of large company CEO’s, one of them asked, ”What can we do to help build an ecosystem that will foster entrepreneurship?” My guess is they were expecting me talk about investing in startups or corporate partnerships. Instead, I told the Noyce/Jobs story and noted that, as a group, they had a body of knowledge that entrepreneurs and business angels would pay anything to learn. The best investment they could make to help a startup culture in Finland would be to share what they know with the next generation. Even more, this culture could be created by a handful of CEO’s and board members who led by example. I suggested they ought to be the ones to do it.

We’ll see if they do.

——

Over the last half a century in Silicon Valley, the short life cycle of startups reinforced the idea that – the long term relationships that lasted was with a network of people – much larger than those in your current company. Today, in spite of the fact that the valley is crawling with IP lawyers, the tradition of helping and sharing continues. The restaurants and locations may have changed, moving from Rickey’s Garden Cafe, Chez Yvonne, Lion and Compass and Hsi-Nan to Bucks, Coupa Café and Café Borrone, but the notion of competitors getting together and helping each other and experienced business execs offering contacts and advice has continued for the last 50 years.

It’s the “Pay-It-Forward” culture.

Lessons Learned

  • Entrepreneurs in successful clusters build support networks outside of existing companies
  • These networks can be around any area of interest (technology, ethnic groups, etc.)
  • These were mutually beneficial –  you learned and contributed to help others
  • Over time experienced executives “pay-back” the help they got by mentoring others
  • The Pay-It-Forward culture makes the ecosystem smarter

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The Secret History of Silicon Valley Part 15: Agena – The Secret Space Truck, Ferret’s and Stanford

This post is the latest in the “Secret History Series.”  They’ll make much more sense if you read some of the earlier ones for context. See the Secret History video and slides as well as the bibliography for sources and supplemental reading.

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By the early 1960’s Lockheed Missiles Division in Sunnyvale was quickly becoming the largest employer in what would be later called Silicon Valley.  Along with its publically acknowledged contract to build the Polaris Submarine Launched Ballistic Missile (SLBM,) Lockheed was also secretly building the first photo reconnaissance satellites (codenamed CORONA) for the CIA in a factory in East Palo Alto.

It was only a matter of time before Stanford’s Applied Electronics Lab research on Electronic and Signals Intelligence and Lockheed’s missiles and spy satellites intersected. Here’s how.

Lockheed Agena

Thor/AgenaD w/Corona

In addition to the CORONA CIA reconnaissance satellites, Lockheed was building another assembly line, this one for the Agena – a space truck.  The Agena sat on top of a booster rocket (first the Thor, then the Altas and finally the Titan) and had its own rocket engine that would help haul the secret satellites into space. The engine (made by Bell Aerosystems) used storable hypergolic propellants so it could be restarted in space to change the satellite’s orbit.  Unlike other second stage rockets, once in orbit, the CORONA reconnaissance satellite would stay attached to the Agena which stabilized the satellite, pointed it in the right location, and oriented it in the right direction to send its recovery capsule on its way back to earth.

The Agena would be the companion to almost all U.S. intelligence satellites for the next decade.  Three different models were built and for over a decade nearly four hundred of them (at the rate of three a month) would be produced on an assembly line in Sunnyvale, and tested in Lockheed’s missile test base in the Santa Cruz mountains.

Agena Ferrets – Program 11
As Lockheed engineers gained experience with the Agena and the CORONA photo reconnaissance satellite, they realized that they had room on a rack in the back of the Agena to carry another payload (as well as the extra thrust to lift it into space.) By the summer of 1962, Lockheed proposed a smaller satellite that could be deployed from the rear of the Agena. This subsatellite was called Program 11, or P-11 for short.  The P-11 subsatellite weighed up to 350lbs, had its own solid rockets to boost it into different orbits, solar arrays for power and was stabilized by either deploying long booms or by spinning 60-80 times a second.

Agena Internals

And they had a customer who couldn’t wait to use the space.  While the CORONA reconnaissance satellites were designed to take photographs from space, putting a radar receiver on a satellite would be enable it to receive, record and locate Soviet radars deep
inside the Soviet Union. For the first time, the National Security Agency (working through the National Reconnaissance Office) and the U.S. Air Force could locate radars which would threaten our manned bombers as well as those that might be part of an anti-ballistic missile system.  Most people thought the idea was crazy. How could you pick up a signal so faint while the satellite was moving so rapidly? Could you sort out one radar signal from all the other noise? There was one way to find out. Build the instruments and have them piggyback on the Agena/CORONA photo reconnaissance satellites.

But who could quickly build these satellites to test this idea?

Stanford and Ferrets
Just across the freeway from Lockheed’s secret CORONA assembly plant in Palo Alto, James de Broekert was at Stanford Applied Electronics Laboratory. This was the Lab founded by Fred Terman from his WWII work in Electronic Warfare.

“This was an exciting opportunity for us,” de Broekert remembered. “Instead of flying at 10,000 or 30,000 feet, we could be up at 100 to 300 miles and have a larger field of view and cover much greater geographical area more rapidly. The challenges were establishing geolocation and intercepting the desired signals from such a great distance. Another challenge was ensuring that the design was adapted to handle the large number of signals that would be intercepted by the satellite. We created a model to determine the probability of intercept on the desired and the interference environment from the other radar signals that might be in the field of view, de Broekert explained.

“My function was to develop the system concept and to establish the system parameters. I was the team leader, but the payloads were usually built as a one-man project with one technician and perhaps a second support engineer. Everything we built at Stanford was essentially built with stockroom parts. We built the flight-ready items in the laboratory, and then put them through the shake and shock fall test and temperature cycling…”

Agena and Ferret Subsatellite credit: USAF

Like the cover story for the CORONA (which called them Discoverer scientific research satellites,) the first three P-11 satellites were described as “science” missions with results published in the Journal of Geophysical Research.

Just fifteen years after Fred Terman had built Electronic Intelligence and Electronic Warfare systems for bombers over Nazi Germany, Electronic Intelligence satellites were being launched in space to spy on the Soviet Union.

Close to 50 Ferret subsatellites were launched as secondary payloads aboard Agena photo reconnaissance satellites.

Ferret Entrepreneur
After student riots in April 1969 at Stanford shut down the Applied Electronics Laboratory, James de Broekert left Stanford. He was a co-founder of three Silicon Valley military intelligence companies: Argo Systems, Signal Science, and Advent Systems,

In 2000 the National Reconnaissance Office recognized James de Broekert as a “pioneer” for his role in the “establishment of the discipline of national space reconnaissance.”

See part 16 “Balloon Wars” of the Secret History of Silcon Valley here

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Balloon Wars: Part 16 of the Secret History of Silicon Valley

In the 1950’s the U.S. Military and the CIA enlisted balloons (some as tall as a 40-story building) as weapons systems targeting the Soviet Union. Throughout the decade they launched a series of Top Secret/codeword balloon projects and thousands of balloons, to gather intelligence about the Soviet Union. The individual stories of these programs are interesting but an unexpected consequence of their secrecy was that they created a mythology that outlasted the missions.

Why Balloons?
In the 1950’s balloons had attributes that airplanes couldn’t match. In the days before satellites they could stay aloft for a long time (days or even weeks,) they could reach altitudes where airplanes couldn’t fly (100,000 feet,) and they could go places that were too dangerous for manned aircraft (flying over the Soviet Union.)

The Search for Soviet Nuclear Weapons
Project MOGUL was an Air Force balloon program to detect Soviet nuclear tests by listening to sound waves traveling through the upper atmosphere. During World War II, scientists had discovered the existence of an ocean layer that conducted underwater sound for thousands of miles. They thought that a similar sound channel might exist in the upper atmosphere. If they could put microphones in the upper atmosphere, the U.S. thought they might be able to hear Soviet nuclear tests and even detect ballistic missiles launches heading toward their targets. Designed to test this theory, Project Mogul balloons carried microphones up to the sound channel to “listen” and radio transmitters to send the sound to the ground. At first, project MOGUL flights involved trains of small weather balloons up to 600 feet in length. Later MOGUL flights used the large polyethylene balloons developed for the Navy’s SKYHOOK.

Flying Sandwich Bags – SKYHOOK
SKYHOOK balloons, funded by the Office of Naval Research, were designed to stay at a fixed altitude (~100,000 feet) and carry a payload of thousands of pounds. They were huge, 400 feet high, made possible because the then new material called polyethylene.  These “flying sandwich bags” were built by a company that had experience using this material in packaging – General Mills (the same company that makes Cheerios.)

Sniffing for a Reactor – Nuclear Air Sampling – ASHCAN
In 1957 the Air Force started Project ASHCAN (using SKYHOOK class balloons at 100,0000 feet) to take high altitude air samples and search for nuclear particles and trace gases in fallout from tests in the Soviet Union. For the first time, U.S. intelligence could estimate the amount of plutonium being produced by Soviet weapons production reactors. These balloons were secretly launched from Brazil and the Panama Canal Zone, and from air force bases in the U.S.  Over time, U.S. intelligence also used reconnaissance planes like the U-2, RB-57’s, and C-130 aircraft to collect air samples.

Genetrix Launched from the U.S.S. Valley Forge

Ballooning Over the Soviet Union – GENETRIX
While the nuclear detection balloons did their spying while flying above the U.S. or allied countries, the next series of balloons flew over the Soviet Union.

In the 1950’s, while U.S. reconnaissance aircraft flew around the periphery of the Soviet Union, U.S. military planners still had virtually no information about what was going on in vast areas of the Soviet territory. While there were a few overflights of the Soviet interior in the early 1950’s these missions were extremely risky and couldn’t provide enough information to assess Soviet military strength. Spy satellites and the
U-2 spy planes were still far in the future so the U.S. military became big fans of reconnaissance balloons as a solution to this problem.

In 1950 the Air Force thought that high-altitude balloons might be used to perform photo and ELINT spyflights over the Soviet Union.  They placed aerial reconnaissance cameras on the balloons and ran a series of test programs (code names of GOPHER, MOBY DICK, GRANDSON and GRAYBACK) launching 640 balloons from New Mexico, Montana, the West Coast, Missouri and Georgia. With the tests completed, the program name changed to GENETRIX and was given the designation of Weapons System 119L.

In late 1955 President Eisenhower gave the ok to launch the GENETRIX balloons over the Soviet Union. Hundreds of these balloons took off from secret sites in Norway, Scotland, West Germany, and Turkey carrying a gondola with two reconnaissance cameras.

The United States launched 516 of the GENETRIX balloons but only 44 or so made it out of the Soviet Union.  The rest landed on Soviet farms dumping 600-pound cameras in hayfields. We did get coverage of about 8 percent of the Soviet Union, but politically it created a lot of tension as cameras were popping up on Khrushchev’s desk.  “Oh, another balloon Mr. Premier.”  The Soviets put on a public exhibition of the equipment.

Bigger and Better- MELTING POT
Never one to give up, the military suggested a bigger and better balloon program. Since the GENETRIX balloons flying at 55,000 feet were relatively easy for Soviet fighters to intercept, the new balloons would be built around the Navy SKYHOOK design and fly at 100,000 feet for up to a month. These balloons would carry a new reconnaissance camera, built by the Boston University Physical Research Lab. Three of these balloons were launched in July 1958 from an aircraft carrier off the east coast of Japan (in those months the jet stream at the altitude went west to east.) All three accidentally dropped their gondolas over Communist territory.  President Eisenhower cancelled all the balloon overflights.

Unexpected Consequences – UFO’s in the 1950’s
All these balloon flights had an unexpected consequence on a jittery and paranoid nation in the Cold War. Before sunrise and after sunset, while the Earth below was dark, high altitude balloons were still lit by sunlight, and their plastic skin glowed and appeared to change color with the change in sun angle. Some of the Project Mogul balloon flights were launched from Alamogordo Air Base in New Mexico in 1947, and a few crashed nearby – one near a town called Roswell. The start of the Mogul balloon flights coincided with the first reports of UFO’s. To someone on the ground, these balloons may have looked like UFOs.

Because each of these separate balloon programs were highly compartmentalized programs it’s doubtful that there was any one individual who realized that the sum of the programs were putting thousands of high altitude balloons in the air in the 1950’s. The MOGUL, MOBY DICK, ASHCAN and GENETRIX programs were the CIA/military’s most closely guarded secret projects. Balloon sightings were dismissed with cover story: they were just weather balloons. Even as one part of the military tried to investigate these sightings, the other kept them away from the true purpose of the balloon missions.The reason for the denials – 1) the Soviets could have masked their nuclear tests and filtered their reactor emissions if they knew what we were sampling and 2) GENETRIX balloon flights over the Soviet Union were a violation of international law.

The thousands of classified balloon flights (along with the first flight of the high altitude CIA U-2 reconnaissance plane in 1955) are a possible explanation of of UFO sightings in the 1950’s and the claim of military cover-ups.

The Secret History of Silicon Valley Part 14: Weapons System 117L and Corona

This post is the latest in the “Secret History Series.”  They’ll make much more sense if you read some of the earlier ones for context. See the Secret Historyvideo and slides as well as the bibliography for sources and supplemental reading.

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The Soviet Union’s detonation of an atomic weapon in 1949 and the start of the Korean War in 1950 fed cold war paranoia in the military and political leadership of the United States. The U.S. intelligence community was determined to find out what was going on inside the Soviet Union. But Soviet secrecy had the country locked down tightly. Desperate for intelligence, the CIA would fly the Lockheed built U-2 spy plane into and over the Soviet Union on 24 missions from 1956-1960 taking photos of its military installations.

But even as the U-2 was beginning its overflights, the U.S. military had concluded that the future of intelligence over the Soviet Union would no longer be with airplanes, but would rely instead on spy satellites orbiting hundreds of miles above in space.

One company in what is today Silicon Valley would build most of them.

Weapons System 117L
In 1956 Lockheed Missiles had just won the contract to build the Polaris Submarine Launched Ballistic Missile (SLBM) for the U.S. Navy in Sunnyvale California, and down in Los Angeles, the U.S. Air Force was on a “crash program” to build land-based Intercontinental Ballistic Missiles (ICBM’s) – the Atlas, Titan and Minuteman.

In 1954, three years before the U.S. or the Soviet Union ever orbited a single satellite, the Air Force asked the RAND corporation to study what satellites could do for the military. Their answer: satellites would enable us to peer over the closed border and inside the Soviet Union.  In 1956, the Air Force organization building our ICBMs was assigned to build a family of satellites to spy on the Soviet Union from space. These satellites would be configured to carry out different reconnaissance missions, including photo reconnaissance, infrared missile warning, and Electronic Intelligence.

This military spy satellite program was called Weapons System 117L.

Spies in Sunnyvale
In 1956 the Air Force gave Lockheed Missiles Division in Sunnyvale the contract to build Weapons System 117L.

Over the next two years Weapons System 117L evolved into a large ambitious program with multiple satellites:

  • The Satellite and Missile Observation System (SAMOS) would take low resolution pictures of the Soviet Union from space and transmit the photos electronically to earth.
  • Another SAMOS version (called Ferrets) would collect electronic intelligence on Soviet radars and transmit the location and radar details electronically to earth.
  • The Missile Detection Alarm System (MIDAS) would provide early warning of the launch of Soviet missiles heading to the U.S. by looking for the hot exhaust (the infrared plume) of rocket engines and transmit the location of the launch electronically to earth.

Crisis
In 1957, a year after Lockheed got the contract to start building WS-117L, the Soviet Union tested an ICBM – one that could carry a nuclear warhead to the United States. They quickly followed with the launch of Sputnik, the first earth-orbiting satellite.

These two events jolted the U.S. intelligence agencies into crisis mode. The Soviet Union claimed they could turn out ICBMs like sausages, and the CIA desperately needed to know how many missiles the Soviets really had and where they were.

Not Good Enough
The photo reconnaissance satellite designed for Weapons System-117 would have let the U.S. military see objects larger than 100-feet from space.  This 100-foot resolution was sufficient for its original mission – to assess how effective the first wave of nuclear attacks on the Soviet Union had been. This “post-strike bomb damage assessment” would allow targets that had been missed by the nuclear armed SAC bombers to be retargeted for follow-on attacks. Because of the immediacy of the information, it required real-time electronic read-out of film developed on orbit.

The problem was that while 100-foot resolution was good enough to locate craters left in cities from space, it wasn’t sufficient for the new mission; to locate the new Soviet ICBM silos and bombers. In addition, the electronic read-out of film developed on orbit was nowhere near ready; it was too complex for its time and technology.

The CIA and Corona
The CIA convinced the Secretary of Defense that the best bet was to build a separate photo reconnaissance satellite carrying a camera that took pictures from space as it passed over the Soviet Union. Film from the camera would be de-orbited in a capsule that could survive the heat of re-entry from space. A parachute would slow the descent of the capsule, which would be snatched in mid-air over the Pacific Ocean by a recovery plane hooking its parachute.  The idea was that this film-based spy satellite would be a short-term project until the Lockheed electronic readout version was in better shape.

This Project was code-named Corona.

The Flamingo Motel
In March 1958 a few unassuming guests checked into the Flamingo Motel in San Mateo, California, near the San Francisco airport.  The CIA, and their primary contractors Lockheed, Kodak, Fairchild and GE, met to hash out their roles and the schedule. The CIA was the customer. Lockheed would integrate and assemble the satellites, Itek (which replaced Fairchild) would provide the camera, Kodak the film, and GE would provide the recovery system that would bring the exposed film through the fiery re-entry back to earth.

After the meeting, the Lockheed manager for Corona rented his own hotel room in Rickey’s Hyatt House in Palo Alto to start to plan the program. He needed to find a factory, separate from the already secret Polaris factory in Sunnyvale. He found an unused facility at the Hiller Helicopter factory on Willow Road in East Palo Alto which became the Lockheed “Advanced Projects” facility.

Deception
To hide the fact that we were launching high-resolution photo reconnaissance satellites over the Soviet Union, the CIA had the Air Force publically cancel the SAMOS photo reconnaissance portion of WS-117L. The program then was resurrected as a “deep black” “compartmentalized” CIA program. When the Corona satellites were launched the CIA used a “cover” story. They called the Corona satellites the  “Discoverer” program and claimed it was an experimental program to develop and test satellite subsystems and explore environmental conditions in space. The film recovery capsule was described as a “biomedical capsule” for the recovery of biological specimens sent into space as an early test of how humans would react to manned spaceflight.

East Palo Alto – Lockheed’s Satellite Factory
The Corona project was run like a startup – a small team, minimum bureaucracy, focussed on a goal and tightly integrated with customer needs. Starting in February 1959, only 12 months after the program began the Air Force launched the first  Corona reconnaissance satellite from the military’s secret spaceport on the California coast at Vandenberg Air Force Base. But the first 13 missions were failures. Yet the program was deemed so important to national security the CIA and the Air Force persevered. And when the first images were received they transformed technical intelligence forever. At first, objects as small as 35-50 feet could be seen from space, with later versions improving to be able to see 6-10 feet objects, over millions of miles of a formally closed country.

Corona Image of Stepnogorsk Bioweapons Facility

Over the life of the program there were 145 Corona launches – 120 were complete or partial successes. During that same decade the Corona program evolved into six different satellite models (the KH-1 thru KH-6) with three different intelligence objectives.

Lockheed turned the Hiller Helicopter plant in East Palo Alto into the control facility for all spy satellites and the Corona spy satellite assembly line – building about one a month and delivering ~145 Corona satellites over the life of the program.

Stanford, Jasons, WS-117L and Corona
In addition to Lockheed, Stanford University also had a hand in Corona. Sidney Drell, then a professor in the Stanford Physics department, was one of the dozen of young scientists who were founding members of the Jason Group (scientists working on national security problems.) His first project was understanding whether a Soviet nuclear burst in space could blind the infrared sensors on the Midas portion of WS-117L.  This research got him invited to be part of the President’s Scientific Advisory Council (PSAC). But it was when the CIA asked him to solve some technical problems with the film on the Corona spacecraft that his career became intertwined with photo reconnaissance. His studies convinced the CIA that photo interpreters needed an order of magnitude improvement in resolution, and Corona had been pushed to its limits. In the late 1960’s Drell, as a member of the Land Panel convinced the CIA that the next generation of photo reconnaissance satellites should transmit their images back to earth in real-time, and use CCD’s rather than film.

For his work, Drell, still at Stanford, was recognized as one of the ten founders of National Reconnaissance by the NRO.

Corona Firsts
While Corona had a number of technological breakthroughs, including the first photoreconnaissance satellite, the first recovery of an object from space, etc. it was Corona imagery in 1961 that told the intelligence community and the new Kennedy administration that the “missile gap” (the supposed Soviet lead in ICBMs) was illusory. By fall of 1961 Soviet Union had a total of six deployed ICBMs – we had ten times as many. In truth, it was the U.S. that had the lead in missiles.

Corona was just the beginning. Overhead reconnaissance would become an integral part of the U.S. intelligence community. Hidden in plain sight, Lockheed and the U.S. intelligence community were just getting started in Silicon Valley.

Next – Agena, Midas, Ferrets and the NRO in Part XV of the Secret History of Silicon Valley.

The Secret History of Silicon Valley Part 13: Lockheed-the Startup with Nuclear Missiles

This post is the latest in the “Secret History Series.”  They’ll make much more sense if you read some of the earlier ones for context. See the Secret History bibliography for sources and supplemental reading.

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The Future is Clear – Microwave Valley Forever
In 1956 Hewlett Packard, back then a maker of test equipment was the valley’s largest electronics employer with 900 employees. But startups were rapidly spinning out of Stanford’s Applied Electronics Lab delivering microwave tubes, components and complete electronic intelligence and electronic warfare systems for the U.S. military and intelligence agencies. The future of the valley was clear – microwaves.

1956 – Change Everything
In 1956 two events would change everything.  At the time neither appeared earthshaking or momentous. Shockley Semiconductor Laboratory, the first semiconductor company in the valley, set up shop in Mountain View. And down the street, Lockheed Missiles Systems Division which would become the valley’s most important startup for the next 20 years, moves its new missile division from Burbank to 275 acres next to the Moffett Naval Air Station in Sunnyvale.

Lockheed – Building Nuclear Missiles in Sunnyvale
Lockheed, an airplane manufacturer, was getting into the missile business by becoming the prime contractor to build the Polaris, a submarine launched ballistic missile (SLBM) developed by the Navy. The Polaris was unique: it would be the first solid-fuel ballistic missile used by the U.S.  Solid fuel solved the safety problem of carrying missiles at sea and underwater and also allowed for instant launch capability. Polaris launched SLBM’s would become the third part of the nuclear triad the U.S. built in the cold war –  the Polaris, the B-52 manned bomber, and the Minuteman, and Titan land-based Intercontinental Ballistic Missiles (ICBMs.)

Each Polaris missile carried a 600 kT nuclear warhead, (later Polaris versions carried three) and each ballistic missile submarine carried 16 of these missiles. 10 years after the program started the United States had built and put to sea 41 ballistic missile submarines carrying 656 Lockheed missiles (28.5 ft high, and weighing 29,000 lbs.) The company acquired a 5,000 acre missile test facility near Santa Cruz, and for years would test it’s missiles in the mountains above the valley.

One can assume that with spares, Lockheed built close to 1000 of these missiles in those ten years.  That’s 100 missiles a year, 8/month or 2 a week flying out of Moffett Field.

You Can Be Sure if It’s Westinghouse
Polaris submarines carried each missile in a separate launch tube. Down the street from Lockheed in Sunnyvale, another American corporate icon, Westinghouse became the developer of the launch tube for the Polaris missile.  To launch missiles from a submarine under water, Westinghouse had to solve several problems. The launch tube had to keep the missile snug in its tube until firing.  It had to eject the missile with sufficient velocity so it would head to the surface from a 100’ feet under water, and it had to protect the submarine when ocean water came rushing in to the now empty launch tube.  Oil-filled shock absorbers solved the cushioning problem and compressed air launched the missile out of the tube through a thin diaphragm that separated the missile from the ocean once the missile launch covers were opened.

Zero to 28,000 people – We Become “Defense Valley”
By 1965 Hewlett Packard, the test and instrumentation company, had grown ten-fold.  From 900 people in 1956 it now employed 9,000. Clearly it must have been the dominant company in the valley? Or perhaps it was Fairchild, the direct descendant of Shockley Semiconductor, now the dominant semiconductor supplier in the valley (80% of its first years business coming from military systems) with ~10,000 people?

Nope, it was the Lockheed Missiles Division, which had zero employees in 1956, now in 1965 had 28,000 employees in Sunnyvale.  The best and the brightest were coming from across the country to the valley south of San Francisco.

And they were not only building Polaris missiles.

By 1965 Lockheed factories in Sunnyvale, Stanford and East Palo Alto were building the most secret spy satellites and rockets you never heard of. While the 1950’s had made us “Microwave Valley,” the growth of Lockheed, Westinghouse and their suppliers had turned us into “Defense Valley.”

In the next post; Spy Satellites in East Palo Alto and Stanford – Corona, WS-117, Samos, Ferret’s and Agena in Part XIV of the Secret History of Silicon Valley.

In Victory: Magnanimity

“In War: Resolution. In Defeat: Defiance. In Victory: Magnanimity. In Peace: Goodwill.”  Winston Churchill

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In March I was the keynote at the In-Q-Tel Venture Capital Conference, giving a talk on the Secret History of Silicon Valley. (In-Q-Tel is the Central Intelligence Agency’s Venture Capital firm in Silicon Valley.)
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The gist of the talk was that the needs of electronic intelligence in the midst of the Cold War and a single Stanford Professor was a key catalyst for entrepreneurship in Silicon Valley.

There were about 300 people in the audience, about 150 from the U.S. intelligence community.

Irony
Last week I was the keynote at the American Business Association of Russian Speaking Professionals.

There were about 300 people in the audience, almost all from the old Soviet Union.

I presented the same Secret History talk, pointing out that the launch of the first Soviet satellite (Sputnik) galvanized the U.S. government to accidentally contribute to the start the Venture Capital industry as we know it.

Afterwards a few of the audience came up and told me stories about Soviet weapons systems that could have won someone an intelligence medal 30 years earlier.

I would have loved to have given the talk to both audiences at the same time.

Close enough.
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The Secret History of Silicon Valley 12: The Rise of “Risk Capital” Part 2

This post is the latest in the “Secret History Series.”  They’ll make much more sense if you watch the video or read some of the earlier posts for context. See the Secret History bibliography for sources and supplemental reading.

This is the second of three posts about the rise of “risk capital” and how it came to be associated with what became Silicon Valley.

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The First Valley IPO’s
Silicon Valley first caught the eyes of east coast investors in the late 1950’s when the valleys first three IPO’s happened: Varian in 1956, Hewlett Packard in 1957, and Ampex in 1958.  These IPOs meant that technology companies didn’t have to get acquired to raise money or get their founders and investors liquid. Interestingly enough, Fred Terman, Dean of Stanford Engineering was tied to all three companies.

Varian made a high power microwave tube called the Klystron, invented by Terman’s students Russell and Sigurd Varian and William Hansen. In 1948 the Varian brothers along with Stanford professors Edward Ginzton and Marvin Chodorow founded Varian Corporation in Palo Alto to produce klystrons for military applications. Fred Terman and David Packard of HP joined Varian’s board.

Terman was also on the board of HP. Terman arranged for a research assistantship to bring his former student, David Packard, back from a job at General Electric in New York to collaborate with William Hewlett, another of Terman’s graduate students. Terman sat on the HP board from 1957-1973.

Ampex made the first tape recorders in the U.S (copied from captured German models,) and Terman was on its board as well. Ampex’s first customer was Bing Crosby who wanted to record his radio programs for rebroadcast (and had exclusive distribution rights.) Ampex business took off when Terman introduced Ampex founder Alex Poniatoff to Joseph and Henry McMicking. The McMicking’s bought 50% of Ampex for $365,000 (some liken this to the first VC investment in the valley.) McMicking and Terman introduced Ampex to the National Security Agency, and Ampex sales boomed when their audio and video recorders became the standard for Electronic Intelligence and telemetry signal collection recorders.

Meanwhile on the West Coast – “The Group”  1950’s
When Ampex was raising its money, in 1952, an employee of Fireman’s Fund in San Francisco, Reid Dennis, managed to put $20,000 in the deal. Five years later Dennis and a small group of angel investors who called themselves “The Group” started investing in new electronics companies being formed in the valley south of San Francisco. These angels who were all working in their day jobs at various financial institutions, would invite startup electronics companies up to San Francisco to pitch their deals and they would invest an average of $75 -$300K per deal.

The Group is worth noting for:

  1. Investing their own private money,
  2. Reid Dennis would found Institutional Venture Partners in 1974
  3. First group specifically investing in the valley’s electronics industry

SBIC Act of 1958
During the cold war the launch of Sputnik-1 by the Soviet Union in 1957 both traumatized and galvanized the United States. Having the first earth satellite launched by a country that been portrayed as a third-world backwater with a bellicose foreign policy shocked the U.S. into believing it was behind the Soviet Union in innovation. In response, one of the many U.S. national initiatives (DARPA, NASA, Space Race, etc.) to spur innovation was a new government agency to fund new companies.  The Small Business Investment Company (SBIC) Act in 1958 guaranteed that for every dollar a bank or financial institution invested in a new company, the U.S. government would invest three (up to $300,000.) So for every dollar that a fund invested, it would have four dollars to invest.

While SBIC’s were set up around the country, companies in Northern California including Bank of America, Firemans Fund and American Express (Reid Dennis of the Group ran theirs), began to set up SBIC funds to tap the emerging microwave and new semiconductor startups setting up shop south of San Francisco. And for the first time, private companies like Continental Capital, Pitch Johnson & Bill Draper and Sutter Hill were formed to take advantage of the government largesse from the SBA. Like all government programs, the SBIC was fond of paperwork, but it began to formalize, professionalize and standardize the way investors evaluated risk.

SBIC’s were worth noting for:

  1. The good news – government money for startups encouraged a “risk capital” culture at large financial institutions.
  2. The better news – government money encouraged private companies to form to invest in new startups
  3. The bad news – the government was more interested in rules, regulations and accounting then startups (because some SBIC’s saw the government funds as a license to steal)
  4. By 1968 over 600 SBIC funds provided 75% of all venture funding in the U.S.
  5. In 1988 after the rise of the limited partnership that number would be 7%.

Limited Partnerships
By the end of the 1950’s there was still no clear consensus about how to best organize an investment company for risky ventures. Was it like George Doriot’s ARD venture fund – a publicly traded closed end mutual fund? Was it using government money as a private SBIC firm?  Or was it some other form of organization? Many investors weren’t interested in working for a large company for a salary and bonus, and most hated the paperwork and salary limitations that the SBIC imposed. Was there some other structure?

The limited partnership offered one way to structure an investment company. The fund would have limited life. It would charge its investors annual “management fees” to pay for the firm’s salaries, building, etc. In a typical venture fund, the partners receive a 2% management fee.

But the biggest innovation was the “carried interest” (called the “carry”.) This is where the partners would make their money. They would get a share of the profits of the fund (typically 20%.) For the first time venture investors would have a very strong performance incentive.

Venture Capital In 1958 General William Draper, Rowan Gaither (founder of the RAND corporation) and Fred Anderson (a retired Air Force general) founded Draper, Gaither and Anderson, Silicon Valley’s (and possible the worlds) first limited partnership. The venture firm was funded by Laurance Rockefeller and Lazard Freres, but after some dispute lost to the sands of time, Rockefeller pulled his financing, and the firm was dissolved after the first fund.

The first limited partnership that lasted for a while was formed by Davis and Rock in 1961. Arthur Rock, an investment banker at Hayden Stone in New York (who helped broker the financing of Fairchild) moved out to San Francisco in 1961 and partnered with Tommy Davis. Davis (an ex-WWII OSS agent) then a VP at the Kern Land Company got involved with investing in technology companies through Fred Terman. Davis’s first investment in 1957 was Watkins-Johnson (the maker of microwave Traveling Wave Tubes for electronic intelligence systems) where he sat on its board with Fred Terman. Rock and Davis would raise a $5M fund from east coast institutions and while they invested only $3.4 million of it by the time they dissolved their partnership in 1968 – they returned $90 million to their limited partners – a 54% compound growth rate.

Limited partnerships are worth noting for:

  1. By the 1970’s the limited partnership would become the preferred organizational form for venture investors
  2. The “carried interest” (the “carry”) assured that the venture partners would only make real money if their investments were successful. Aligning their interests with their limited investors and the entrepreneurs they were investing in.
  3. The limited life of each fund; 7-10 years of which 3-5 years would be spent actively investing, focused the firms on investments that could reasonably expect to have “exits” during the life of the fund.
  4. The limited life of each fund allowed venture firms to be flexible. They could change the split of the carry in follow on funds, add partners with carry in subsequent funds, change investing strategy and focus in follow-on funds, etc.

Silicon Innovation Collides with Risk Capital
Lacking a “risk capital” infrastructure in the 1950’s military contracts and traditional bank loans were the only options microwave startups had for capital. The first semiconductor companies couldn’t even get that – Shockley and Fairchild could only be funded through corporate partners. But by the 1960’s the tidal wave of semiconductor startups would find a valley with a growing number of SBIC backed venture firms and limited partnerships.

A wave of silicon innovation was about to meet a pile of risk capital.

More on this in Part XIII of the Secret History of Silicon Valley.

The Secret History of Silicon Valley 11: The Rise of “Risk Capital” Part 1

This post is the latest in the “Secret History Series.”  They’ll make much more sense if you watch the video or read some of the earlier posts for context. See the Secret History bibliography for sources and supplemental reading.

This is the first of two posts about the rise of “risk capital” and how it came to be associated with what became Silicon Valley.
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Building Blocks of Entrepreneurship
By the mid 1950’s the groundwork for a culture and environment of entrepreneurship were taking shape on the east and west coasts of the United States. Stanford and MIT were building on the technology breakthroughs of World War II and graduating a generation of engineers into a consumer and cold war economy that seemed limitless. Communication between scientists, engineers and corporations were relatively open, and ideas flowed freely. There was an emerging culture of cooperation and entrepreneurial spirit.

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At Stanford, Dean of Engineering Fred Terman wanted companies outside of the university to take Stanford’s prototype microwave tubes and electronic intelligence systems and build production volumes for the military. While existing companies took some of the business, often it was a graduate student or professor who started a new company. The motivation in the mid 1950’s for these new startups was a crisis – we were in the midst of the cold war and the United States military and intelligence agencies were rearming as fast as they could.

Yet one of the most remarkable things about the boom in microwave and silicon startups occurring in the 1950’s and 60’s was that it was done without venture capital. There was none.  Funding for the companies spinning out of Stanford’s engineering department in the 1950’s benefited from the tight integration and web of relationships between Fred Terman, Stanford, the U.S. military and intelligence agencies and defense contractors.

These technology startups had no risk capital – just customers/purchase orders from government/military/intelligence agencies.

This post is about the rise of “risk capital” and how it came to be associated with what became Silicon Valley.

Risk Capital via Family Money   1940’s
During the 1930’s, the heirs to U.S. family fortunes made in the late 19th century – Rockefeller, Whitney, Bessemer –  started to dabble in personal investments in new, risky ventures. Post World War II this generation recognized that:

  1. Technology spin-offs coming out of WWII military research and development could lead to new, profitable companies
  2. Entrepreneurs attempting to commercialize these new technologies could not get funding; (commercial and investment banks didn’t fund new companies, just the expansion of existing firms,) and existing companies would buy up entrepreneurs and their ideas, not fund them
  3. There was no organized company to seek out and evaluate new venture ventures, manage investments in them and nurture their growth.

Several wealthy families in the U.S. set up companies to do just that – find and formalize investments in new and emerging industries.

  • In 1946 Jock Whitney started J.H. Whitney Company by writing a personal check for $5M and hiring Benno Schmidt as the first partner (Schmidt turned Whitney’s description of “private adventure capital” into the term “venture capital”).
Jock Whitney writes himself a check to fund J.H. Whitney Co.

Jock Whitney writes himself a check to fund J.H. Whitney Co.

  • That same year Laurance Rockefeller founded Rockefeller Brothers, Inc., with a check for $1.5 million.  (23 years later they would rename the firm Venrock.)
  • Bessemer Securities, set up to invest the Phipps family fortune (Phipps was Andrew Carnegie’s partner,)

These early family money efforts are worth noting for:

  1. They were “risk capital,” investing where others feared
  2. They invested in a wide variety of new industries – from orange juice to airplanes
  3. They almost exclusively focused on the East Coast
  4. They used family money as the source of their investment funds

East Coast Venture Capital Experiments
In 1946, George Doriot, founded what is considered the first “venture capital firm” – American Research & Development (ARD). A Harvard Business School professor and early evangelist for entrepreneurs and entrepreneurship, Doriot was the Fred Terman of the East Coast. Doroit had the right idea with ARD (funding startups out of MIT and Harvard and raising money from outsiders who weren’t part of a private family) but picked the wrong model for raising capital for his firm. ARD was a publicly traded venture capital firm (raising $3.5 Million in 1946 as a closed-end mutual fund) which meant ARD was regulated by the Securities and Exchange Commission (SEC.) For reasons too numerous to mention here, this turned out to be a very bad idea. (It would be another three decades of experimentation before the majority of venture firms organized as limited partnerships.)

The region around Boston’s Route 128 would boom in the 1950’s-70’s with technology startups, many of them funded by ARD. ARD’s most famous investment was the $70,000 they put into Digital Equipment Corporation (DEC) in 1957 for 77% of the company that was worth hundreds of millions by its 1968 IPO. It wasn’t until the rise of the semiconductor industry and a unique startup culture in Silicon Valley that entrepreneurship became associated with the West Coast.

Georges Doriot the first VC

Georges Doriot the first VC

Doriot and American Research and Development are worth noting for:

  1. Some of the very early VC’s got their venture capital education at Harvard as Doriot’s students (Arthur Rock, Peter Crisp, Charles Waite.)
  2. ARD was almost exclusively focused on the East Coast
  3. ARD proved that institutional investors, not just family money had an appetite for investing into venture capital firms.

Corporate Finance
One of the ironies in Silicon Valley is that the two companies which gave birth to its entire semiconductor industry weren’t funded by venture capital. Since neither of these startups were yet doing any business with the military—and venture capital as we know it today did not exist, they had to look elsewhere for funding. Instead, in 1956/57, Shockley Semiconductor Laboratory and Fairchild Semiconductor were both funded by corporate partners —  Shockley by Beckman Instruments, Fairchild by Fairchild Camera and Instrument.

More on the rise of SBIC’s, Limited Partnerships and the venture capital industry as we know it today in Part XII of the Secret History of Silicon Valley here.

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