The Twin Cities tech entrepreneur's latest venture has taken him away from Minnesota.
Steve Alexander, Star Tribune
Doug Pihl is more serial entrepreneur than a flashy multimillionaire.
Some say that's why Twin Cities angel investors -- wealthy people who collectively have contributed tens of millions of dollars to Pihl startups Lee Data, NetStar, RocketChips and MathStar -- were willing to help him.
That and his string of successes. Two of his companies have sold for $300 million each, and he's credited with creating numerous other Minnesota millionaires. Pihl, pronounced "Peel," also has been richly rewarded: earning about $11 million so far for his entrepreneurial efforts.
Instead of slickness, the serious but easygoing Pihl had "an uncanny knack for realizing what, in different areas of technology, were going to be the winning ideas," said Joe Jennings, a former Lee Data spokesman and now an Edina investor relations consultant.
Now, with mixed feelings, Pihl, 66, and his wife are leaving the Twin Cities. Pihl, the founder, chairman and CEO of MathStar, a manufacturer of high-speed logic chips, has moved the company from Minnetonka to Hillsboro, Ore.
Pihl, a lifelong Twin Cities resident who was a science whiz at Washburn High School in Minneapolis and an admittedly indifferent student at the University of Minnesota, said he's not leaving because the Twin Cities lacks investors or talented people. Instead, it's because Oregon is home to his newly recruited management team of former Intel executives, which he sees as a key asset in the highly competitive chip market.
"When I met the ex-Intel people in Portland, they had the ideal background for MathStar," Pihl said. "And there is a much larger base of semiconductor engineers in Oregon than there is here."
About a dozen of MathStar's 50 employees will remain at the company's Minnetonka offices, and Pihl and his wife have no plans to sell their Lake Minnetonka home, which he said is in the midst of a remodeling project begun more than a year ago.
The move is definitely not about being able to raise more money on the West Coast, a well-known haven for technology firms and their venture capital supporters, Pihl said. While the venture capital community in the Twin Cities is not as large as those on the East and West coasts, that is partly made up for by the large number of angel investors here, Pihl said.
The angels back Pihl because his investment instincts have been correct so much of the time, said Duane Carlson of Golden Valley, a co-founder with Pihl at Lee Data in 1979 and his partner at NetStar in 1990.
"Angel investors enter with the attitude that if one or two companies out of 10 works, the investors will have done well," Carlson said. "By that measure, Doug has had a very good string of successes."
Pihl's secret is that he's a bright technical expert who learned to be a top manager through practical experience, said Carlson, who was executive vice president and chief financial officer at Lee Data and NetStar.
At Lee Data, Pihl was the engineer who invented the company's product, a device that made it easy for corporate information technology managers to monitor networks that had a mixture of IBM and non-IBM equipment. That carried the company until the mid-1980s, when IBM began to copy its business model and personal computers undercut its prices by performing some of the same functions more cheaply. Lee Data later changed its name to Apertus Inc., then to Carleton Corp., and is now part of Oracle Corp.
Pihl took a similar technical role at his next company, NetStar. He set out to create a networking router for directing information among high-speed supercomputers, but he also realized the product would work just as well for a budding new network called the Internet. NetStar raised $15 million privately and $30.6 million in a 1995 initial public offering, then was sold to Ascend Communications (now part of Lucent Technologies) in 1996 for $300 million. While NetStar cashed in on the Internet's growth, Pihl also learned how to be a president and CEO.
Pihl also met his wife, Jo, an investment banker, while at NetStar. "Jo was involved in the public offering for NetStar," Pihl said. "And you wind up spending a lot of time with institutional bankers."The two were married in 1997.
NetStar was followed by RocketChips, a chipmaking firm started by two former Honeywell executives who turned to Pihl to help them raise money.
"It's very hard for most investors to understand high tech, so the investors turn to someone they trust who is technically competent," said Ray Johnson, a RocketChips co-founder, and now CEO of Denver-based Infinite Power Solutions, a maker of batteries for computer chips. "Doug had the technical knowledge and, having been successful with NetStar and Lee Data, he was trusted."
Investors concur. "Doug has been able to raise money because he can explain technical things to people in a manner they can understand, and because he has a good track record," said Richard C. Perkins of Perkins Capital Management in Wayzata. "He's a very sincere person, very stable and not flashy. He's not a slick salesman, that's for sure."
RocketChips was sold in 2000 for $300 million, just ahead of the bursting of the dot-com bubble, which sent technology company valuations plummeting.
"The timing was very fortuitous," Pihl said. "We would have gotten much less a few months later, and then we would have struggled tremendously along with everyone else."
Not every company was a big winner. A 2001 venture, MadMax Optics, sought to improve fiber-optic telecommunications but failed to take off after the dot-com bubble burst, he said. It merged with Connecticut-based Plain Sight Systems, which Pihl believes eventually will be a success. And, in what has turned out to be a sidelight to his computer career, Pihl is chairman of Vital Images Inc., a Minnetonka medical company that creates three-dimensional images of internal body organs.
MathStar, Pihl's current venture, has yet to prove itself. It will market a speedy thumbnail-sized computer logic chip that can be programmed for different uses, such as processing images for a broadcast video transmission or a video camera that inspects parts on an industrial assembly line. MathStar's auditors recently gave it a "going concern" warning, meaning that the firm lacks enough money to meet its financial obligations over the next 12 months. But Pihl projects having enough revenue to cover the shortfall.
"The jury is still out on MathStar, although it has huge potential," said Clint Morrison, director of equity research at Minneapolis-based Feltl and Co., a firm that has helped Pihl raise private and public money and that employs Pihl's wife.
Although chronologically Pihl has reached retirement age, he isn't interested in slowing down.
"I love working, and don't know that I would spend a lot of time doing other things," Pihl said. "A lot of our investors have become my friends and advisors, so I might put together a group that would like to invest in true start-ups."