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Tech innovation is under threat

The Big Interview: Former chief executive of 3Com and Palm, Eric Benhamou, says that despite the rise and rise of Google, tech innovation isn't what it was
Written by Cath Everett, Contributor

Eric Benhamou, former chief executive of both 3Com and Palm, has just joined the board of Finjan and taken a minority stake in the web security company through his venture capital fund, Benhamou Global Ventures.

The fund, which is intended to give high-tech entrepreneurs a helping hand, was set up in 2004. This was shortly after Benhamou had stepped down from the chief executive position he held for two years from October 2001 to October 2003 at mobile device specialist Palm, where he remains as chairman.

But Benhamou also acts as chair for 3Com which he joined in 1987 when it acquired Bridge Communications – another networking company which he had co-founded six years earlier. He eventually took over the helm of 3Com in 1990 and within 10 years, he had grown 3Com from a $380m company to a $5.8bn one. He eventually moved from 3Com to helm Palm which he spun off from the networking giant in 2000 and floated on the Nasdaq stock exchange.

These are not the only strings to Benhamou's bow. Not only is he chairman of a third company, Cypress Semiconductor, but he is also on the board of a host of high-tech companies, including RealNetworks and GO Networks. He also serves on the boards of three academic institutions: the Insead School of Business in Fontainebleau, near Paris; the Ben Gurion University of the Negev, which awarded him one of his four honorary doctoral degrees; and Stanford University's School of Engineering in California. He gained a Master's degree in engineering and computer science from Stanford in 1977 and also teaches a six-week course in entrepreneurship there each year.

Other activities, meanwhile, include membership of the board of Washington DC-based think tank, the New America Foundation, and serving on the executive committee of high-tech lobby group, TechNet.

Not bad for a graduate who obtained his engineering degree 30 years ago from the Ecole Nationale Supérieure d'Arts et Métiers in Paris, after moving to France from Algeria during its war of independence in 1960 when he was five years old.

Why did you decide to invest in relatively unknown company such as Finjan?
Finjan is just the right type of company for me. It focuses on network security and they're technical innovators who have discovered very sophisticated algorithms to assess the security of websites. So if you want to access a website, their technology can tell you whether it's okay or not and whether you run the risk of being infiltrated by malware such as Trojan Horses. Today, the internet is no longer built on the trust model it used to be, so it's important for people to have the technology to keep them in safe zones.

Also, Finjan is at the stage where it's clearly got good technology and products, it's got a good customer base and it's ramping up. But it's at a phase where I can help the chief executive to build this foundation into a successful company.

Another thing is that Finjan has a good management team and that's part of the package — you can't just take what you want and reject the rest. But I like the chief executive, who's called Asher Polani. He's not a newcomer — he's been in the industry for 20 years, but he hasn't yet really built up a company to a certain stage as chief executive. So there are a few things I can coach him on. For example, most of the company's experience has been based in Europe and Israel, but the big market is the US. So I hope to help in giving him a few pointers on how to build up a salesforce in the US.

After you established your venture capital fund, why did you decide to continue being chairman of three companies and on the board of others?
I wanted to have a balance in my professional life and I didn't think I would be satisfied just working with young start-ups. I still wanted to be exposed to large publicly traded companies. They've been through a momentous period over the last few years with deep governance reform and the way a company is run at board level now is very different to 10 years ago. So the job of chair is far more challenging than before and more interesting, which is why I choose to spend a third of my time on that type of activity.

What was your best and worst moment running large, publicly traded companies?
My best moment was probably just after I became chief executive of 3Com. I was brought in to do a turnaround in the early 1990s and I was betting the recovery of the company on a new router — NETbuilder — which combined Risc processors and Asics for the first time. I remember visiting the labs in 1992, having discussions with the engineers and realising that the product was going to be a winner. It was a moment of exhilaration, realising that it was going to work and get the company back on track.

As for the worst moment, I don't really have one because difficulties are all part of life. But a very intense moment was on 1 March, 2000 when Palm went public at the peak of the dot com bubble. We'd made the decision to IPO in May 1999 and by 1 March, we were ready to go. The trading on the Nasdaq was over 5,000 and the IPO offering was over-subscribed by several hundred times.

I asked the bankers to increase the price of the offering, but it was a very difficult choice to make because I knew the market had gone crazy and the value attributed to the company was untenable. But it wasn't for me to tell the market…

… what to do and so we were caught up in the frenzy. Palm went public on the day the market peaked, but it was more of a curse than a blessing. At some point, it was worth more than Ford and General Motors combined, and it was a lesson on how crazy the markets had become.

But I wished I'd known that it could only go down, that reason would prevail and the people who got hurt would probably be staff and investors. I didn't feel responsibility for the investors because that was their decision, but I felt bad for the staff because all their stock options on the day of the offering were worthless. For years after the IPO, we were a different company. We've now bounced back and become profitable again, but for the first two or three years afterwards, it was very difficult and it hit people's motivation.

How do you see the IT industry developing over the next few years?
In general, I feel that the last few years have been pretty good for the IT industry, although the general pace of innovation has slowed down compared with the 1990s — certainly in the networking industry, anyway. Instead I feel that there's quite a lot of business rather than technical innovation taking place. The next generation of web companies are attractive, not because they're breaking new technical ground, but because they're creating new business models and services. Areas such as social networking, for example, are figuring out new ways of leveraging the web.

The only pessimistic note, I feel, is that technical innovation is not as healthy today as it was a decade ago because we don't have the right policies to nurture it. We haven't maintained adequate funding for research in universities such as Stanford, but it's not just in the US. The education system is also continuing to have problems attracting enough interest in scientific disciplines, so there aren't enough smart, competent scientists and engineers. So other countries such as China and India are progressing faster, which is another sobering note.

I feel that many of our policies in the US are hurting young innovators. So much energy has been put into destroying stock options by regulators and accountants that we've lost a precious tool to motivate entrepreneurs. People are waging fights, but they're unaware of the unintended consequences. They're probably going after ridiculous compensation packages for chief executivess, but it's hitting IT entrepreneurs. Sarbanes-Oxley is also very onerous for small companies. The motivation was to improve the trust and integrity of the business community, but it's not a very enlightened policy from a high-tech point of view.

So I'm doing what I can, which is not very much, to try and give a voice to the high tech sector in this area. I'm active in the TechNet lobby group created by John Doerr because young entrepreneurs don't have a voice loud enough to be heard over that of politicians and accountants. The slowdown in innovation isn't obvious to non-experts because they see successful companies such as Google and think everything must be all right. But if you're an insider and see how the pace of innovation has changed, you understand that the ground isn't as fertile as it once was

You've done a tremendous amount in your life — what is it that drives you?
I enjoy what I do — that's essential. Your motivation is high if you do the things that you enjoy doing. I was also fortunate enough to be in Silicon Valley for the last 25 years, which has been a centre of innovation more than any other place during that period. The final thing is that I have a great ability to compartmentalise. I don't carry stress from one situation to other things I do, and I can focus on things in different parts of my mind. So I can take on tasks that to other people might seem large.

How do you manage to fit so much in? You must be good at time management.
The key is to ensure your portfolio is balanced. What you learn in one environment can be helpful in another. So a lot of case material from the course [at Stanford] is pulled directly from my professional experience, which makes it more interesting and means that my students learn things from situations that have taken place in real life. I also learn things from questions that the students ask and I haven't necessarily thought about before.

But many governance issues I have to deal with on company boards also help me to set new governance frameworks in a more informed way, for the organisations I work with through Benhamou Global Ventures. And that way, I learn what small companies do to be innovative, fast and nimble, which helps me to keep the large companies I work with honest regarding bureaucratic matters.

It can all be managed if you stay away from conflicts of interest. But I am very busy, although I do find I work better if I have a full schedule and I'm under stress. I don't play golf though, so I don't need a lot of leisure time!

Why did you set up a venture capital fund?
I created Benhamou Global Ventures a few years ago to give me an investment vehicle to work interactively with IT companies. It's a venture fund, but it doesn't have limited partners. I invest my own money. The reason I made that choice was to preserve personal flexibility so I organise it as a portfolio of activities.

When you invest in other companies, that responsibility has to be taken very seriously and the people investing generally want a very high return. When I make an investment, it's not just about that. It's also for the pleasure of working with entrepreneurs to learn a few things and discover new technology. Benefits like that don't necessarily accrue to limited partners so to invest in that way, I have to invest my own money.

But in general, I don't make passive investments. They're only active and so come with an opportunity to, at the very least, operate at board level and build close working relationships with the founder. I sometimes play the role of mentor to try and help the company become more successful because, at this stage of my life, I'm trying to both learn and teach at the same time. So being at the forefront of IT, I can discover new people and things. This means that I can learn, but I've also made enough mistakes that I can teach some of the pitfalls to a new generation.

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