Greylock’s Henry McCance on Why the Firm Moved Its HQ to Silicon Valley and How Boston Must Find Its Google

Xconomy Boston — 

Greylock Partners is one of the world’s premier venture firms and a hallmark here in New England, so it was no small news in May 2009 when the storied firm announced it was moving its headquarters from the Boston area to Silicon Valley—giving New England yet another reason for Valley envy.

I recently sat down with legendary investor Henry McCance, now Greylock’s chairman emeritus, in the firm’s new Boston-area offices at One Brattle Square, just across the alley from Casablanca restaurant in Harvard Square, where it moved late last year from Waltham, MA. It was a rare interview for McCance, and we covered a lot of ground, backed up by some follow-up e-mail exchanges. McCance gave his own take on why the firm moved its center of gravity, his views on Boston’s innovation and startup scene (and hopes for a resurgence thereof), and, perhaps most interestingly, the four things great VCs can do to help startups (and therefore also the four things startups should look for in a VC). I’ve laid out my writeup in two parts. Today: what happened and how Boston can grow again. Tomorrow, McCance’s four-point list of what great VC firms do and some philosophical principles to guide them.

First, some history. Greylock Founder Bill Elfers, McCance told me, had been the No. 2 employee at American Research & Development, which was formed in Boston in 1946, right after World War II, and is widely considered the world’s first professional venture firm. But ARD operated as a public company, and when Elfers started Greylock & Co. in October 1965 with $10 million of capital, he created what was possibly the first venture firm that operated as a limited partnership, now the typical structure for venture firms.

“He [Elfers] had no template,” McCance says. “He was offered the entire funding by one family, which was the model used by the Rockefellers and other families, but he declined, preferring to raise the initial fund from six roughly equal limited partners.”

A second fund followed in 1973, and last November, what’s now called Greylock Partners announced it had closed the $575 million Greylock XIII (in contrast to the ever-smaller funds you mostly see these days, the 13th fund was bigger than the $500 million Greylock XII, which closed in 2005).

download_lowres_mccanceA rundown on all the star investments Greylock has made since its founding could by itself make up an entire article. But here is a very short list that spans tech and life sciences: Continental Cablevision, Teradyne, Prime Computer, Apollo Computer, Mentor Graphics, Tellabs, Stryker, Ascend Communications, Xircom, Spyglass, Raptor, Red Hat, Avid Technology, Data Domain, Vertex Pharmaceuticals, Millennium Pharmaceuticals, United Healthcare, Genetics Institute, Wise Technology, Constant Contact, LinkedIn, Facebook, Zipcar. Suffice it to say that, in the eyes of many, Greylock has been the premier East Coast venture firm, on a very short list of the world’s best, along with firms such as Sequoia, KPCB, and Accel.

Greylock has long maintained an office in Silicon Valley (right now it’s in San Mateo, but next month the firm is opening a new headquarters in Palo Alto). But given its roots here in New England, and its legacy, how could it move its headquarters there?

McCance’s basic answer won’t surprise anybody: it has to do with critical mass. But he still provides a lot of great perspective, and the insights of such an informed investor and builder of companies are important.

“We’ve concluded that the Boston area has not been as successful in spawning and sustaining great companies,” McCance sums up. He then ran through the last quarter century or so, comparing New England to the West Coast as an incubator for stellar companies in important fields. Take enterprise computing software: The biggies of Oracle, Peoplesoft (later acquired by Oracle), Microsoft—all are on the west coast. CAD/CAM software leaders like Cadence, Synopsis, and Mentor Graphics are also out west. Same thing for semiconductor leaders like Intel and personal computing/mobile computing leaders like Apple. Ditto for data and communications, where the leaders are companies like Cisco and Juniper. Then there’s the Internet: Amazon, eBay, Google, Facebook…You get the drift. “Even…in biotech,” McCance says, “Boston would come in second to the left coast.” And all too often, he says, Boston area firms in these same areas “merged or sold out.”

All of this fed into the Greylock decision to move its headquarters to the Valley. Of course, there are exceptions. McCance points to storage (where EMC is a world leader) as a notable one. And it isn’t that nothing happens in New England in other areas. But, he concludes, “You got to fish in the pond where the fish are, and there haven’t been many big fish in New England in the last 25 years.”

I asked him what he thinks happened to cause this situation. Part of the reason, he says, … Next Page »

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9 responses to “Greylock’s Henry McCance on Why the Firm Moved Its HQ to Silicon Valley and How Boston Must Find Its Google”

  1. Doug says:

    What about Akamai ?
    They invented the CDN space and currently dominate it.
    I believe that Akamai can be Boston’s Google.

    If VCs continue to believe that the Valley is the only place for startups, soon it will be the only place for startups.

    This is very disappointing.

  2. David says:

    Fantastic article…the conservative culture here is probably going to be the hardest thing to break here if there is a hope to establish a market for real tech startups.

    @Doug – there is the other issue that has always been a problem here. We are just not good at the tech PR for the region. There are actually quite a few interesting startups and established businesses here but we just have not been able to self promote correctly (not sure if Akamai is Google level but it’s big and a start).

  3. Drew says:

    Important article for New Englanders- we have work to do, and opportunity to make things work here. It will take the individual efforts of lots of people to fix, improve, and advance in each of the many areas mentioned.

  4. Thyaga says:

    Henry McCance said “Boston must have its Google”. It made me to think, did he mean a start-up which match the characteristics of google ? That is
    1. A business model which is highly scalable
    and profitable. Until Google, Microsoft was the yardstick. So it took 20-30 yrs for a dominant company to emerge.
    2. Highly committed & competent founders and early stage employees. Google’s founders got out of school and continued to build the business leveraging their phd work, ie 3-5 of work. I also guess they had not accumulated too much student debt.
    3. Highly competent management team to execute vision. It is very difficult for anyone with 15-20 yrs experience to bet their whole career on a start-up. They will also be risking their family’s economic future. Massachusetts residents are quite conservative, they will not agree.
    4. Google did ride on a new and emerging trend – the internet at it’s infancy. There has not been such opportunities in recent years, closest was the RFID which faded out in few years. Infact, Boston area was leading in RFID start-ups.

    My opinion: No one can expect to see a company like google emerge in next few decades. Boston area has a least chance to do so.

  5. Bakhus Saba says:

    Dear Henry

    Just wanted to share this caregivers song with you, if you can get behind this song in anyway please let me know.
    Good song for Tim McGraw to sing and be an advocate for Alzheimer’s, pass it on to him if you know him or can get it to him

    Here’s the link to the video Still a Child
    If you can post it on your site, facebook or pass it on to your friends
    it would be great

    Thank you
    Bakhus Saba
    Cell 519-322-6866