MR. LASHINSKY: Thank you, Jeff, and please welcome with me Frank Quattrone.
(Applause.)
MR. LASHINSKY: Frank, thank you so much for being here.
MR. QUATTRONE: It's a pleasure, Adam. Thanks for inviting me.
MR. LASHINSKY: You bet. I just wanted to kick things off by showing an illustration or a chart, rather, that's in the current issue of Fortune magazine, if we could get that up on the screen.
This is in our cover story about "Bubbles," and if you direct your sight to the bottom of this chart, the hot investment banker during the last banker, Frank Quattrone. The hot investment banker during the current bubble, if that's what it is, Frank Quattrone.
That's quite an accomplishment. So congratulations, first of all.
MR. QUATTRONE: Thanks, I think.
MR. LASHINSKY: Well, yes. Okay. There was some applause confirming that.
MR. QUATTRONE: Yes, appreciate it.
MR. LASHINSKY: So you know, I have this fond memory of my first week in Silicon Valley in 1997. I had a meeting with you, and I left the meeting and found an apartment about half a block from where your office was in Menlo Park. When I met with Frank, he was reading this book by Jim Carlton about Apple (AAPL), that was either just out or hadn't come out yet.
It made a big impression on me, because I thought I didn't even know this book existed, and yet this guy, who leads, you know, the top investment banking practice in the Valley, already is pouring through it, looking for morsels about what's going on in Silicon Valley. So the point is you've been a student of the Valley for a long time now.
MR. QUATTRONE: I was fortunate that I came out to the Valley in 1979, when I came out to go to Stanford Business School, and my very first assignment as a teaching assistant for an Investments professor was to -- he told me go down to this computer company in Cupertino called Apple.
It was the year before they went public. Go get an Apple 2e and bring it back here, and import an investment program from the HP mini-computer onto this Apple 2e. I said "Okay, I can do that." So when I opened it up, there really wasn't much inside other than, you know, the single board computer with a keyboard, and this green screen that didn't have any word processing or database or applications of any kind. It just had the basic programming language.
So I thought yes, small mini-computer. What's the big deal? Then a year later, that same Investment professor had a class that I attended in the fall of 1980, as Apple was going public. He brought the then 25 year-old Steve Jobs into our classroom, to tell us all about how PCs were going to change the world, and how they were going to be used to communicate, as well as to do commerce and all this other stuff, and how he had traded in his Volkswagen van for a few hundred bucks to get the company started.
I was also 25 at the time. I thought I was kind of a hotshot, because I had had two years of work experience at Morgan Stanley, and I was about to get my Stanford MBA. Here's a guy my age, who had just created a company that Wall Street was about to value at a billion dollars.
So that's what got me really focused on, you know, people who like to change the world in Silicon Valley.
MR. LASHINSKY: So let's talk about what you're focused on right now. Frank has a several year old firm, what now three, four years old?
MR. QUATTRONE: Three and a half, yeah.
MR. LASHINSKY: Three and a half year-old firm called Qatalyst Partners. It is primarily engaged in M&A advisory. They do a little bit of other things, but significantly you do not do what you did for the entire first part of your career, which was securities, securities underwriting.
Just a small handful of the deals that your firm has done recently, you sold Pop Cap to EA, Zong to PayPal, Go Daddy to a consortium of private equity firms, National Semiconductor to TI, Atheros to Qualcomm, Cosmics to Wal-Mart, Palm to HP, Data Domain to EMC.
Not only have you been busy, but my question is are you letting the competition have any deals?
MR. QUATTRONE: There's plenty of deals to go around the competition. We're a very small firm and we're very focused, and we're trying not to be a deal factory, but to try to pick some themes that we think are going to generate a lot of change in the industry, and advise both the very top companies in the industry, the kind of, you know, medium-sized companies that could either be bought or sold, and some of the venture-backed start-ups that are really trying to change the world.
We don't have sales trading, brokerage, capital lending, any of those kinds of things that got some of the Wall Street firms a little bit in trouble. What we have is experienced advisors who have been around the technology industry 15 to 25 or 30 years, and we focus on the strategic stuff that's going on in the industry, and try to be a proactive catalyst, if you will, for change among the people who want to improve their position or defend their position in the industry.
MR. LASHINSKY: It seems obvious to me, but why not do all that other stuff? I mean there's money to be made here, isn't there? The competition is still doing it.
MR. QUATTRONE: Sure. But you know, if you consider what's going on in the venture world, for most of my career, the venture community got liquidity sort of half from IPOs and half from M&A. In the last ten plus years, it's been more like 90 percent M&A and ten percent IPOs.
So there's just fewer of them. Not that it's not an exciting or important product. But I think there's a lot more interesting stuff going on within industry structure and across the industry structure, whether it's in enterprise, cloud, the data center, mobility, the web. Everyone's attacking one another, which is great for us.
MR. LASHINSKY: Good business opportunities.
MR. QUATTRONE: Yes.
MR. LASHINSKY: So last night at dinner, we heard Larry Summers espouse what I will call the Andreeson-Horowitz perspective on whether or not we're in a bubble right now. Andreeson-Horowitz are willing to say no. Larry Summers sort of gave a qualified no, and I'd like your perspective on this, especially given the length of time that you've just explained to us you've been in this industry.
You know, are we in a bubble? I know it's not a yes-no answer, so go ahead and have at it.
MR. QUATTRONE: Terrific. So I really respect Mark's point of view on this. We first met when he was a very young guy on that chart you showed. He had a lot of hair then. I actually sent him a message the other day and said did you really have all that hair back then? I should remember, but I'm too old. He said you couldn't see through that mustache. That's why.
MR. LASHINSKY: Which you still have.
MR. QUATTRONE: But Mark, as one of the founders of Netscape, which we took public when I was at Morgan Stanley in 1995, it really feels to me more like 1995, which is the beginning of a new era of IPOs. The new era is called social, mobile, local, real time, all these new trends that public investors really want to invest in.
But there's really not very many stocks to do it. So like when we took Netscape public, if people wanted to invest in the web, that was the only stock that they could do it by investing in. So Netscape's market value was higher than it probably otherwise would have been, if there were lots of other ways to play that theme.
I'd say, you know, some people might say the same about Linked-In today. But it wasn't until four years had passed, that enough Internet companies came public after Netscape, that you started to see the really more speculative kind of things happen. It wasn't until another year after that, 2000, that the market really peaked.
So it feels to me like Linked-In is sort of the Netscape of its era, and there's going to be a lot more interesting companies come out. Obviously, everybody's waiting for Facebook and many, many other really high quality companies. What's different is that these companies are by and large larger, with significant revenues, significant revenue growth, business models that really make sense, and I don't think we're anything close to a bubble, if you define bubble as a company with, you know, no accomplishments whatsoever being able to go public. We're nowhere close to that.
What I worry a little bit about is the late stage venture capital private financing market, where it seems like, you know, a lot of people are trying to raise money at a billion dollar plus valuation at very early stages. To me, and you usually don't see that in a cycle until the IPO market becomes much more robust. To me, this time, the private market led the IPO market in driving up those valuations.
MR. LASHINSKY: And but why is that concerning? Isn't the -- I remember John Doerr telling me that the Kleiner rule, I think, is that if someone's passing hors d'ouevres around the party, you take them and that's why private companies should raise as much money as they can when they get the opportunity.
MR. QUATTRONE: Yes. I think Eugene Kleiner said the best time to eat is when they're passing around hors d'ouevres at the cocktail party.
MR. LASHINSKY: Thank you for clarifying that.
MR. QUATTRONE: That's right. But I'm not criticizing the companies. What I'm saying is that a lot of investors and a lot of new funds are being formed, with a specific purpose of investing in these hot things. Unless the IPO market does follow through, and unless these companies really perform quite well over a number of years, some of those valuations might not hold up.
What's what we saw a lot of. For the companies that got late stage venture funding in the `98-`99 time frame, when the IPO window shut, a lot of people who had invested in illiquid late stage private investments got caught holding the bag.
MR. LASHINSKY: You know, you raise an interesting issue that I haven't seen anyone explore, which is what was obvious -- in retrospect, what was scary about the `99-2000 time frame is that every technology company's valuation was high, from venture-backed start-ups to new IPOs, to Sun and Oracle (ORCL) and so on. They had stratospheric valuations.
So now today that's not the case. The big cap tech stocks do not have high valuations. They're very low valuations. Was that the case in `95 as well?
MR. QUATTRONE: In `95, I'd say the valuations in general were more moderate across the board. But there were some high growth darlings that had, back then they were PE multiples, in sort of the 30's or 40's, and the more mature growth companies had PE multiples in the 20's.
Today, the leading technology companies that are the largest ones, by and large, have PE multiples more like 10 or 12. Somebody told me the other day Cisco (CSCO) has an EBITDA multiple of four and a half.
So the companies that had been the standard-bearers of the last generation of enterprise computing on premise in the Wintel instruction set-compatible world, are viewed as companies that most of them have had trouble making the transition.
A couple have made a stronger transition. I think IBM (IBM) and Oracle, you know, have added to market cap since 2007. A lot of the others have lost market cap.
MR. LASHINSKY: Do you think you could sell Cisco at a four and a half to EBITDA multiple?
MR. QUATTRONE: Send me on coach.
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