Editor’s note: Rhett Morris is the director of Endeavor Insight, the research arm of Endeavor, a nonprofit that supports more than 900 entrepreneurs in 20 countries. He edits a blog and monthly newsletter on entrepreneurship ecosystems here.
In 1957, eight entrepreneurs decided to do something that seemed crazy. They launched a new tech company called Fairchild Semiconductor in a small town south of San Francisco. The entrepreneurs had a difficult start, but Fairchild eventually became the first major computer chip company in the region.
Although many people are familiar with Fairchild’s success, few know the full extent of its impact. During the last year, our team at Endeavor Insight has traced the story of Fairchild and gathered intriguing new data. We uncovered something that was quite surprising: if the value Fairchild created is measured in today’s dollars, we believe the firm would qualify as the first trillion dollar startup in the world.
Fairchild’s Launch and Early Success
The achievements of Fairchild’s co-founders are even more impressive when you consider where they occurred. The San Francisco Bay Area is now a thriving tech hub, but it was a very different place in the mid-1950s. At that time, there were no venture capital investors in the region. Stanford University did not produce any of the major research on computer chip components and immigrants made up only a small percentage of the population.
As the chart below illustrates, the San Francisco area was far behind other U.S. cities in the development of the transistor companies that made up the early computer chip industry. No one expected the region to become a hub for these technology businesses.
Seven of the eight co-founders of Fairchild had recently moved to the San Francisco area from cities with more established transistor firms and investors. Three of these entrepreneurs – Jay Last, Bob Noyce, and Sheldon Roberts – had earned PhDs from MIT in Boston. Eugene Kleiner and Julius Blank were engineers in New York City, and Jean Hoerni and Gordon Moore had worked at Caltech near Los Angeles. (The final co-founder, Victor Grinich, was a former researcher and PhD student at Stanford.)
They leveraged their professional networks in these cities to find two key supporters who helped them raise capital and sign contracts with their first customer. These connections set them on the path to success. After just three years, Fairchild’s annual revenues were over $20 million. By the mid-1960s, the group had invented a new product, the integrated circuit, and was generating $90 million in annual sales. Yet, this was only the beginning of the co-founders’ accomplishments.
The Fairchild Valley
As Fairchild started to grow, employees began to leave the firm to launch new spin-off businesses. Many of these firms also grew quickly, inspiring other employees still working at the company.
“You got these guys leaving and starting companies and the companies are running, working,” a former manager recalled. “You get a look around and look in the mirror and say, ‘Well, you know, how about you? What are you going to do?’”
The eight co-founders supported a number of these new businesses. Kleiner encouraged an employee to start a company that made the glass components Fairchild used in its manufacturing process. Noyce served on the board of Applied Materials, a local electronics equipment manufacturer, and mentored the company’s young founder.
It wasn’t long before the entrepreneurs at Fairchild began to create their own spin-off firms. “That experience of starting this company and watching it grow – I thought I’d like to do that again,” recalled Last. In 1961, he partnered with three of his Fairchild co-founders to create Amelco, a new business that produced specialized devices. Two other co-founders, Moore and Noyce, left Fairchild several years later to start the computer chip firm Intel.
The eight co-founders also reinvested their capital into a number of new local startups. In 1961, four of them helped to fund the Bay Area’s first venture capital firm. Another founder provided the financing that helped a former employee launch AMD. When Moore and Noyce launched Intel, the other six co-founders helped to fund the new business.
The growth of these new companies started to reshape the region. In just 12 years, the co-founders and former employees of Fairchild generated more than 30 spin-off companies and funded many more. By 1970, chip businesses in the San Francisco area employed a total of 12,000 people.
“That’s part of the legacy of Fairchild that maybe doesn’t get the attention it should,” Moore has said. “Every time we came up with a new idea, we spawned two or three companies trying to exploit it.”
The achievements of these companies eventually attracted attention. In 1971, a journalist named Don Hoefler wrote an article about the success of computer chip companies in the Bay Area. The firms he profiled all produced chips using silicon and were located in a large valley south of San Francisco. Hoefler put these two facts together to create a new name for the region: Silicon Valley.
Hoefler’s article and the name he coined have become quite famous, but there’s a critical part of his analysis that is often overlooked: Almost all of the silicon chip companies he profiled can be traced back to Fairchild and its co-founders.
Adding Up Fairchild’s Impact
Fairchild’s success continued to fuel the growth of companies in the Valley in the years after Hoefler’s article was published. When Steve Jobs was starting his career in the 1970s, he often rode his motorcycle to Noyce’s house and spent hours listening to the older entrepreneur’s advice. According to Noyce’s wife, Jobs also had a unique habit of calling their home around midnight. The first investor in Apple was also a former Fairchild employee.
The 92 public companies that can be traced back to Fairchild are now worth about $2.1 trillion, which is more than the annual GDP of Canada, India, or Spain.
In 1972, Kleiner co-founded the venture firm Kleiner Perkins, which has gone on to invest in hundreds of companies, including Google and Symantec. While Kleiner was starting Kleiner Perkins, a former Fairchild executive named Don Valentine was launching another venture firm called Sequoia Capital, which has also invested in several hundred companies, such as Cisco and LinkedIn.
Many of the companies funded by these two firms were led by entrepreneurs and executives who have gone on to become important investors. Companies like Sun Microsystems, Netscape, and PayPal spawned investment firms such as Khosla Ventures, Andreessen Horowitz, Founder Collective, and 500 Startups.
Our team at Endeavor Insight recently worked to quantify the impact of Fairchild Semiconductor and its co-founders. We identified over 130 Bay Area tech companies that were trading on the NASDAQ or the New York Stock Exchange. Our analysis indicates that about 70 percent of these firms can be traced directly back to the founders and employees of Fairchild.
The total impact of these businesses is staggering. The 92 public companies that can be traced back to Fairchild are now worth about $2.1 trillion, which is more than the annual GDP of Canada, India, or Spain. These companies also employ over 800,000 people.
If we look beyond the publicly traded businesses listed above, Fairchild’s impact is even greater. In total, we can trace over 2,000 companies back to the firm’s eight co-founders. This includes companies such as Instagram, Palantir, Pixar, Nest, WhatsApp, Yammer and YouTube.
The story of Fairchild illustrates how entrepreneurs can reshape their local communities. When successful founders generate new spin-off companies, mentor others and act as early-stage investors it increases the opportunities available to new generations of entrepreneurs. The intellectual, social, and financial capital that successful founders reinvest into new companies strengthens the local entrepreneurship community and enables successful hubs, like the original Silicon Valley, to develop.
Fairchild trades on the NASDAQ with a market capitalization of around $2 billion. However, the full value of the company can only be measured by tracing the way the firm’s success has been reinvested into new founders and companies. By this measure, Fairchild is the Valley’s first trillion-dollar startup. It might even be the most important entrepreneurial company of the last hundred years.
This post has been condensed and excerpted from a new report by Endeavor Insight that was created through the support of Omidyar Network. For more detailed information on the growth of Fairchild Semiconductor and the impact of its founders, you can download the full report entitled “How Did Silicon Valley Become Silicon Valley?” here.