Corrections or additions?
These articles by Barbara Fox were prepared for the
April 25, 2001 edition of U.S. 1 Newspaper. All rights reserved.
At Princeton: Class X Space
If Edison is offering Class A space to its portfolio
companies, Ed Zschau provides Class F or even X space. A software
firm called Onclave is the first occupant in what used to be a
in the power plant on the university’s Forrestal Campus. On the day
a reporter went there, the ceiling had leaked, leaving a puddle on
the tiled floor. The "conference room" is what used to be
the cafeteria’s kitchen, and its centerpiece is the stainless steel
worktable. The rest of this run-down territory is furnished in vintage
Salvation Army. Only the laptops, the high speed data lines, and the
whiteboard look up-to-date.
Indeed, this 3,000-square-foot territory is supposed to be the
of a garage, says Zschau, in a cell phone interview on his way to
the airport. He commutes to Princeton from Nantucket, where he lives
with his wife. "I don’t want people to like it here. I want them
to want to move out into better quarters. Once a company gets
they graduate, and go get real space."
Zschau is a gregarious, politically savvy leader who likes a good
challenge, whether in sports or in business. Growing up in Omaha,
Nebraska, Zschau was treated to piano and figure skating lessons by
his parents. His father, an electrical engineer turned chamber
and his mother, a secretary, managed to fund ice skating summers in
Rochester and Colorado Springs that led to his trophies in national
freestyle and dance championships.
His skating career ended when he enrolled as a freshman at Princeton
University in 1957, and he no longer pursues that sport. "After
you’ve been good at skating, the thrill of sailing through the air
is not replaceable," he says. He points to the nine marathons
he has run, the 13 soccer teams he coached when his children were
growing up, and now he does serious weight training and bicycle
At Princeton he switched from physics to the philosophy of science,
then earned a Stanford MBA and a PhD in business administration, and
taught at both Harvard and Stanford, leaving academe in 1968 to found
a computer products company in what would soon be called Silicon
Zschau helped redraft the tax code to reduce the 50 percent
tax on investment earnings to a 28 percent tax, paving the way for
billions of venture capital investment dollars for high-tech firms,
and paving the way for him to go to Washington.
In the early 1980s he spent four years representing the Silicon Valley
in the House of Representatives, where he worked on export laws.
the time they were controlling everything, even stuff that didn’t
really matter, and weren’t doing a good job. In 1994 I helped to focus
on what really mattered, and freed up what wasn’t of military
After narrowly losing a Senate bid in 1986 to incumbent Alan Cranston,
he went into venture capital with the Silicon Valley office of
Associates, and then took over as CEO of a Brentwood portfolio
company, Censtor Corporation, that did advanced magnetic recording
In 1993 he joined IBM, at the time when Lou Gerstner came to transform
the company. Zschau slashed his division, storage products, in half
and redid the product line, opening an original equipment manufacturer
(OEM) disk drive business. "I learned a lot from that
Zschau says, "but it is true I find starting companies more
than running them, and building companies rather than re-sizing
After just three years at IBM, he went back to teaching, this time
Zschau genuinely likes working with young people. "Looking back
at the 1986 Senatorial campaign that I lost by a razor-thin margin,
I consider it as dodging a bullet. I have had such wonderful
since then to do things that have been fun, interesting, and could
make a difference. What I am doing at Princeton with young people,
helping them start companies, this is where I belong." Each
70 students work with him on case studies, Harvard Business School
style. The students, seniors in the engineering school or in the
of engineering program, tend to be younger than those at Harvard,
and not jaded by B-school doublespeak.
"These students are idealistic, enthusiastic, polite, talented,
and are looking forward to what they will do with their lives,"
he says. Articulate, thoughtful, analytical, and verbal are also
he uses. Each must do either a business plan for a new company or
an in-depth analysis of a start-up company. Of the 365 Princeton
he has taught in seven semesters here, perhaps 25 or 30 have gotten
involved in start-ups.
Zschau invests in very early stage companies. "I don’t provide
a lot of money," he says. "I work very closely with the people
in order to develop a business plan and assemble the team." He does
this for more than one reason: "I want to leave footprints —
to help people create enterprises of value. And it is fun.
I wouldn’t do it if it were agony. It is particularly fun to work
with young people who have not had an opportunity to do this
Zschau is involved in nine startups, most of them in California. He
was an initial investor for TrueSan Storage Area Network, started
by student who dropped out of Stanford at age 19. Last year the firm
raised $27 million.
Zschau’s student from Harvard Business School started
which has grown to be the most popular website for military personnel
to exchange information.
He also invested in the company where one of his former Princeton
students is working (Live365.com). As the largest Internet radio
site, it lets would-be DJs create a show online and be listened to
Operating in stealth mode now is NanoOpto, a company that has a
licensing agreement with the university. It designs
optical components with features smaller than the wavelength of light,
and it manufacturers these devices by using miniaturization techniques
known as nanotechnology. It is based on Cottontail Lane in Somerset
and among its investors is Morgenthaler Ventures (www.nanoopto.com).
Because many of Zschau’s early investments are risky, he does not
get other people involved but provides all the initial funds himself.
"That way, I can pursue wild ideas. I am not investing anybody
else’s money. I can work with people I happen to like who may not
be as `investible’ (ready to invest in) as some would like to see.
Some of the people I work with have never done this before but have
the decision and the desire."
Not all his investments have played out well over the long haul; at
least one suffered from the dotcom slowdown. One of the Harvard
that he worked with started www.chemdex.com, selling specialty
chemicals over the Internet. "A year ago," says Zschau,
was valued at $6.4 billion. Today, it is announcing it is valued at
$20 million and will be delisted from Nasdaq. I teach the case now;
now we know a lot more about how the world really works."
"When I started," Zschau says, "all these ideas were fresh
and looked interesting, and now we look at them and say that wasn’t
very smart. Idealab, for instance, tended to start companies with
really dumb ideas and throw a lot of them at the wall, hoping that
some of the stuck."
Over the last five years, in the midst of the dotcom balloon-up, his
entrepreneurism students at Harvard and Princeton were not always
respectful of Zschau’s views, he reports. "A year ago many of
my students were convinced that products and profits represented the
old economy, and that the new economy was about spending a lot of
money and generating stickiness and eyeballs on websites," he
says. "Now the old rules are coming back into play. Frankly, it
is a lot easier to work with students now.
"People in the venture capital business and on Wall Street had
become convinced that profit and creating real value wasn’t what it
was about," says Zschau. "I always knew it." But he holds
out the hope that a "garage-based business" can succeed. After
all, Hewlett Packard began in a garage.
— Barbara Fox
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