Back on The Block

With the probably permanent set-aside of Silicon Valley banker Frank Quattrone’s conviction on obstruction of justice and witness tampering, a new era begins in Silicon Valley. One that will probably mark the full maturation of the area’s very healthy financial services business – business that doesn’t need New York.
Yes, yes, the judges have ordered a new trial. But the lawyers who prosecuted Quattrone are in private practice now. And three trials? Well, it does seem a bit much to get a man who, when it comes down to it, did nothing more than send an email. That’s particularly true now that his reasons for sending that mail can’t be implied to a jury. That’s why it’s likely that Quattrone will get a pass from the Department of Justice (NASD, the folks who regulate stock brokers are another matter and they are much less likely to be so charitable, continuing to bar Quattrone from the banking business).
UPDATE:Just goes to show what I know: The Securities and Exchange Commission has over-turned NASD’s decision to bar Quattrone. The story is here and it makes pretty much every other prediction in this column doubly-true.
But his ability to once again move and shake in Silicon Valley – look for him to join a big venture capital firm, soon – will be a continuation of the much-denounced bubble. But this isn’t the Internet v. “real” world that you hear so much about outside the valley. No, this is another important chapter in the decade-long fight between Silicon Valley’s money guys and the New York financiers. Quattrone has played a staring role in that drama. He’s sure to take center stage again.
See, Silicon Valley is not about the stock market. It’s about selling stock to the market – to reap the rewards of private investments. The valley runs one of the more remarkable private equity pools in the world. You can’t see it. Almost no one talks about. It’s taken for granted, much as the spectacular views down U.S. 280 or the foggy and damp San Francisco summers. But it’s real. Millions and billions of dollars worth of real. It sits with venture capital funds but also – almost as importantly – it sits in the hands of the many people who became very wealthy in the 1990s. (Many of those folks have, in fact, funded enterprises like this one.) They invest shrewdly and carefully in technology that many people can’t – or won’t understand. Those initial investments – pennies on the dollar – pay well for those who are careful and smart. But to get paid, they have to see the stock sold in some kind of public-market transaction. Facilitating that process was Frank Quattrone’s job; no one did it better.
The money made in the 1990s in Silicon Valley did not evaporate in the bubble. It just sat on ice for a bit. With the Google IPO it started to recirculate. This time, Silicon Valley – which has always hated the dismissive and condescending attitude that oozed from technically unsophisticated bankers from New York – is gonna get theirs. Frank Quattrone will – again – be the man to lead the charge.
Let me be very clear about this: Frank Quattrone’s talent as a banker should not be questioned. For all I have written about the man (and it’s a lot) I have never doubted his intelligence or his ability to speak for and understand his clientele of science-minded geeks. “He vibrated at the same frequency” said one his former associates. I can’t improve on that description.

When it came time to do a deal, Quattrone brought something else to the table no other banker had. He carefully manipulated and crafted the resentment that so many of the valley’s brightest people had toward the not-so-bright bankers and their young associates with whom they had to talk and do business to get the cash they needed to run their companies. He told the valley’s geeks and nerds that he was one of them. Then he made them rich – richer than they ever thought possible. It is a remarkable achievement.
But Quattrone was not much liked by his supervisors in New York. And he was working well out of the banking mainstream. He knew, of course, as all of us here in California do, that his clients – not his bosses – represented the future, but he rubbed too many people the wrong way. When Credit Suisse First Boston, Quattrone’s employer during the bubble, had a choice between defending Quattrone and his tech geeks or saving the bank’s skin by co-operating with Wall Street, Wall Street won. In one phone call.
But now Frank’s back. And he’s armed not just with a knowlege of how the valley works, but also with vindication. He went up against the East Coast and he won one for the geeks. He’s still their guy. And they want him back. Why? To make more money. Venture capitalists and entrepreneurs have always resented the 7 percent tithe that banks made them pay to cash in their stock. That was responsible for much of the thinking behind the Dutch Auction aspects of the Google IPO. These entrepreneurs and investors will pay a handsome price to have someone of Quattrone’s talents sit on their side – not the New York – side of the table. And if I were a New York banker, I’d be worried.
It couldn’t happen at a better time. For Frank or for the valley. This is going to be fun to watch. I’d stay tuned if I were you.