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The return of Frank Quattrone

by Robert Teitelman | Published April 7, 2011 at 11:57 AM

Andrew Ross Sorkin does a flyby with Frank Quattrone in The New York Times today, and the tech banker extraordinaire does everything but run and hide. He's smart. Quattrone and his firm Qatalyst are doing a lot of deals these days as consolidation heats up in techland, but to call his story one of redemption, as Sorkin does, is a little overheated. It's true: Back when Quattrone was fighting charges that he ordered documents destroyed -- the pretext, as usual, was flimsy; the real charge was that Quattrone was the investment banking poster child of the dot-com bubble and had to pay -- he had very few friends in the media, including The New York Times. The general feeling was that he was guilty of something -- insidery transactions involving initial public offerings, excessive pay, too high a profile (remember "Rocky Raccoon"), bad taste (remember "Rocky Raccoon") -- and that he would eventually pay for the manifest sins of Silicon Valley. Someone had to suffer (how often do we hear that today?), and that someone was Quattrone. Then he got off on appeal. By then we were off on other crusades and other preoccupations.

A decade or so later, it all looks a little different. The dot-com bust now seems quaint, and the issues that swirled around in those days seem trivial compared with the transgressions of Wall Street in the financial crisis. We crave IPOs; in many circles, particularly in the blogosphere, the sacrifice of sense to capital that drove the dot-com boom seems reasonable again. That was a growth bubble, not a depression bubble. Henry Blodget is a blogging magnate; analysts have pretty much submerged from sight; and the friends and family skeeziness, the spinning, the insider's advantage, seem a reasonable tradeoff to restart the American innovation machine and regain our competitiveness. After all, as Felix Salmon has argued, what matters is that investors get hot tech companies to invest in again.

Quattrone's comeback dovetails nicely with what has happened in Silicon Valley since the bust. The big companies have grown bigger -- consolidation has really accelerated -- and the balance between large and small, which Quattrone helped midwife for several decades, has shifted more decisively to gigantism. Venture capital suffered from the fallout of the bust and pumped more of its available capital into later rounds or began to hunt for opportunities overseas. With the exception of some social media standouts like Facebook, Twitter and Groupon, the sputtering of the IPO process has sent many startups into strategic mergers with larger companies.

Both Quattrone and the Valley have also grown more private. It's no coincidence that Quattrone immediately after his reversal said he was heading for private equity. If you believe in Larry Ellison's maturity thesis, and you saw the dearth of IPOs, buyouts seemed like a logical strategic step. Besides, deep in its heart, Silicon Valley has always been about the private, rather than the public, sphere. Venture capital was -- and is -- deeply private, a matter of personal networks, "friends" and relationships. And most startups are happiest in their private days, before shareholders and regulators. (This seems to be the case today, certainly with Facebook. And from a governance standpoint, both Steve Jobs' Apple and Ellison's Oracle are run like private fiefdoms - as flamboyantly as Warren Buffett's Berkshire Hathaway, but that's a different story) Quattrone's insight was to marry those private networks of information and money (much of which, in this era of inequality, is private) with the public markets, whether through IPOs or through big-time strategic M&A. He probably feared his prosecution had made it difficult to advise large public companies. But he was wrong. His friends returned, and he built a small, productive and what must be amazingly profitable advisory boutique.

All this is less redemption than adjustment -- and on the media's part, forgetfulness about what agitated everyone in the first place. That said, Quattrone deserves credit for hanging in there, and, of course, getting even richer. The picture of Silicon Valley, however, is not as clear-cut. The structure of the Valley has clearly shifted to large, mature giants -- this has nothing to do with innovation; look at Apple -- despite the attention given to social media. There is a lot of doom and gloom in recent commentaries like Tyler Cowan's "The Great Stagnation," but there are no guarantees that productive innovation is failing, that American technology has necessarily lost its way or even that VC and IPOs won't, for reasons we cannot see, restart their engines and begin to shift the balance back a bit to startups. But there's no confidence either. We may be caught in a pendulum swing that we cannot understand.

But what Quattrone's career, and the arc of the Valley's history, shows, is how delicate the balancing of all these forces and trends are: private and public, startups and large companies, innovation and (often profitable) stasis. Quattrone is a reminder of how little we really know about the machinery, psychology and dynamics of innovation, and about the tradeoffs of private versus public. - Robert Teitelman

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Tags: Andrew Ross Sorkin | Frank Quattrone | Qatalyst | Silicone Valley

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