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Accidental Entrepreneur: Cryptography Research President Paul Kocher (Part 3)

Posted on Saturday, Dec 20th 2008

SM: You developed this technology as part of your consulting company’s business model?

PK: This is some technology I came up with, and it was not something we were in position to monetize. Chini Krishnan used this technology as the start for Valicert. We started that company.

SM: So you kept your consulting practice while you did Valicert?

PK: Yes. It was the opposite style of raising money, the ‘gas pedal to the floor, go public with a crazy valuation then fall before being acquired’ model. Going back to the chronology, one of the projects I did was to assist with the design of SSL3. Taher brought me in for that entire project. Netscape had an old version of a security protocol that was getting beat up in academic papers every month. It was causing people to lose faith in the idea you could send your credit card information over the Internet safely. That was obviously a big problem for e-commerce.

The redesign of SSL was a crash project where Taher called me and said, “We have to ship a product in a month or so, and we need a new protocol for it. Can you come and do it?” It is one of the really engaging projects I have done. I enjoy challenging problems that have solutions which are widely employed.

SM: What were your terms with Netscape? Was it pure consulting, or were there royalties?

PK: It was a pure consulting project. Nobody got royalties. It is a free protocol, and it needs to be that way. If there had been a need to pay one penny for the protocol it would not have taken off. It is an ingredient that helped build the Internet. I am not someone who is motivated by money. There is a limit to how much you can eat. There are many interesting things that you can do to change the world, and while money may help in some cases, if you give me the choice between a really interesting project or a well-paying project, I will choose the interesting project.

SM: The advantage of your business model’s being free of VCs is that it allows you to make those tradeoffs.

PK: It does. It means our business is probably smaller than it would be if VCs were involved, but it is probably much more solid. The equity in my company is owned by current employees, past employees and a few advisors. I have the majority equity, which means there is nobody telling me what to do. I have to be careful with the freedom that brings. I know people who have had similar freedom and have made bad decisions. There is a real benefit to having people who are willing to tell you when you are being crazy. Having power and nobody willing to tell you when you are doing the wrong thing can destroy an organization.

When we make a decision, it is very much a consensus decision. When we hire an employee I try to get as many people as I can to interview that person, and any employee can say no.

SM: Your structure indicates that this is not a company you are going sell; rather, it is a company you are going to enjoy. Is that a safe statement?

PK: If there is somebody who wants some of the technology we have and would not ruin the culture, I would not necessarily say no.

SM: When you recruit employees, how do you sell them on your company? The venture model is very simple. You have a four-year vesting schedule, and at the end of it you have the expectation that you are going to sell the company. The person then has the stock options and is going to cash out.

PK: In terms of the economic side, we have sold off pieces of technology we have built. We sold some technology used in Blu-ray content protection to Macrovision for $60 million. As we are a privately held company without external investors, a lot of that money goes to the employees. That ended up being a really nice payoff for a lot of folks. It is not as though the company has gone public and is now off in the wind. This can happen over and over.

I am always someone who tries to not promise too much. Just about everyone’s base salary is lower than what he or she could get somewhere else. At the end of the year we do bonuses that are historically higher than what people could be making somewhere else. If we had a crappy year they would not get that bonus. Employees are compensated with the success of the company. That has worked out well. People who are interviewing get a sense of what the past has been like, and the model is one where, given that track record, people are comfortable coming in.

This segment is part 3 in the series : Accidental Entrepreneur: Cryptography Research President Paul Kocher
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