Walter Kortschak, who made his fortune from 40 years of technology bets, opens up about his investing failures and triumphs—and why it’s dangerous to get swept up in AI’s “mass hysteria.”
By Phoebe Liu Forbes Staff
Billionaire venture capitalist Walter Kortschak is confident in his formula: “Investing is about duration and persistence. I don’t know a lot of folks in our industry who have done very early stage, growth equity and private equity and done it well, for this long, consistently,” Kortschak, 65, told Forbes from Colorado. The longtime investor owns homes in Aspen and London—plus a nearly 3,000-acre plot on the island of Kauai. He purchased most of his Hawaii land, where Jurassic Park was filmed and just down the street from Mark Zuckerberg’s property, in 2003. Kortschak’s assets are now worth an estimated $1.6 billion, thanks to his tenure at growth equity firm Summit Partners and, later, personal early-stage investments that paid off big.
Born in Canada to an Austrian father and an American mother, Kortschak had an international childhood, raised largely in Geneva, where his father worked at the Swiss outpost of chemical manufacturer DuPont. Kortschak first wanted to be a software engineer, and earned two degrees in the discipline: a bachelor’s from Oregon State and a master’s from Caltech. Then, he joined a computer graphics startup in 1982 that later became MSC Software. A couple of years later, he returned to business school at UCLA, where he was one of two “Venture Fellows” in 1985. Through the fellowship, which places students in summer roles at VC firms, Kortschak interned at Crosspoint Venture Partners, an early seed-stage firm. He joined Crosspoint full-time in 1986, a difficult time to break into venture capital. He says there were “probably eight” associate positions across the entire industry that year.
Kortschak left Crosspoint and joined Summit Partners in 1989 to focus on later-stage investing: profitable, growth-stage companies mainly in the tech sector. At that time, Summit was a five-year-old, $400 million (assets under management) firm, and he was charged with opening the Boston-based outfit’s West Coast office. One of his first major investments was in security company McAfee in 1991, which went public just a year later with a 9x return for Summit.
During his two-decade tenure at Summit, Kortschak made a name for himself, landing on Forbes’ Midas List of the world’s best venture capital investors from 2005 through 2009. He was involved in many of Summit’s technology bets and buyouts, including computer optics company E-Tek Dynamics (a 40x return) and networking company Xylan (a 127x return).
He left his active role at Summit in 2010, when the firm had surpassed $5 billion in assets, and became an advisor, a position he still holds today. Armed with decades of experience and cash distributions, he decided to go solo and return to early-stage investing through his personal vehicles, Firestreak Ventures (through which he invests in early-stage AI and machine learning infrastructure and developer-facing companies) and Kortschak Investments (through which invests in growth stages companies in software, health care, fintech and clean energy).
Through them, Kortschak was an early investor in several now-public companies, including The Trade Desk, Lyft, Palantir, Robinhood and Twitter. Kortschak is also making AI bets, with stakes in OpenAI and Anthropic, among other companies.
He says his investing career has indeed come full circle—from early-stage to growth equity and now back to early-stage—although this time around, the types of companies are different.
Here is a condensed version of Kortschak’s Q&A with Forbes:
Is there a current investment idea, or investment theme, that you think is particularly appropriate today?
I believe investors, regardless of stage, need to carefully study the amount of capital that is required to bring a company to break even. We are experiencing financial market conditions that aren’t conducive to IPOs for venture scale companies and an M&A market that has been more and more selective and shrinking for some time. Investors need to be patient as their investments will stay private longer and have fewer liquidity opportunities. As a result, the onus is now on the venture investor to help their companies achieve profitability and balance that with revenue growth but do so while being capital efficient. The exit path most often talked about these days is through private equity, but those buyers tend to be conservative in how they price and tend not to overpay and are not keen on funding operating losses. The more invested capital, the more difficulty there is in creating alignment between management and investors.
Turning to sectors, obviously everyone is focused on AI. It’s a bit of a gold rush now. So many use cases of work will be automated by AI and be driven by applications built on top of either closed foundation models like OpenAI or open-source models. Short term, investment results from AI disruptors may disappoint, but longer term the impact AI will have in virtually every industry is profound. My personal advice is to be selective, invest in outlier founders and be disciplined in the number of investments you’re making and the capital you’re deploying to manage risk exposure.
What is the biggest risk investors face today, either from a broad strategy standpoint or from a current investment environment standpoint?
FOMO, or fear of missing out. Trying to win deals that everyone wants to win, essentially the hot deals, is like a heat seeking missile and tends to be more about selling a founder. But the risk is that investors tend to get desperate, especially when they’ve recently lost a competitive process. Hence, the FOMO. Investors then tend to over-index on writing a check in the sector at any cost and tend to take shortcuts on diligence.
The other strategy is so-called “truffle hunting,” which involves a more deliberate and patient approach of identifying undervalued opportunities, in sectors where other investors aren’t looking. This strategy requires considerable expertise in the sector, so talking to founders, investors, and industry experts and canvassing the landscape is critical. Both strategies work. It just takes discipline not to get swept up in the mass hysteria of a sector.
Which investment do you consider to be your greatest triumph? Please explain how you identified it and the outcome.
My greatest investment at Summit was E-tek Dynamics. E-tek was a pioneer in the optical components sector. I cold-called the founder, Theresa Pan, in 1996 and along with her husband, J.J. Pan, who had been running E-tek for more than 14 years and grew the business to over $30 million in revenues and to profitability. They were seeking to diversify their net worth and bring in a team to help take the company further. I spent a year convincing Theresa to work with Summit versus selling the business to Corning. In 1997, she and her husband agreed to sell Summit 60% of the business for $120 million. I became chairman and part of the plan was to help her transition from the company and devote more time to her then teenage daughter. We recruited a CEO, Michael Fitzpatrick, as a planned succession strategy and then built a world-class management team including a CFO, VP of Marketing and VP of Manufacturing. The new team set out to diversify the company’s product line from optical components into integrated optical subsystems, which were becoming a hot commodity for telecommunications broadband providers building out the fiber optic backbone for the exploding internet demand. The company completed an IPO in 1998, several follow-on offerings, two acquisitions and ultimately, we sold the company to JDS Uniphase for $18.4 billion (in 2000) in one of the largest technology mergers in history. Summit invested $108 million in 1997, returned $4.2 billion, generating a 40x multiple of cost and a 350% IRR.
My greatest investment as a strategic angel investor was The Trade Desk (TTD) in 2012. TTD is a buy-side programmatic advertising platform serving the demand side of the market: think advertisers and agencies. They have a self-service ad platform that utilizes AI and machine learning to optimize ad campaigns in real-time, enabling more precise targeting, more efficient spend allocation and better ROI to ad buyers. I was introduced to the company through my investor network in Southern California and was incredibly impressed with the founder, Jeff Green, and his big vision for the company. From my first meeting with him, he and I operated on the same philosophy to raise as little money as necessary to get to profitability. Jeff was a repeat founder, having sold his previous company to Microsoft and his co-founder and CTO, Dave Pickles, had invented real-time bidding for display ads;90% of the team had worked together at previous ad tech companies. Jeff took inspiration from the many parallels of a centralized equity exchange, having seen the growth in automated stock trading first launched by the NASDAQ in 1971. What was missing for ad buyers was a trading platform like what a professional equities trader uses, where data and insights gives the buyer more power and control. … I invested $367,000 in the Series A round in 2012 for 2% of the company, or an $18.75 million valuation. The company completed an IPO in 2016 and now has a market cap of almost $50 billion. My split adjusted ownership became 6.66 million shares and with the stock trading at $90/share, values that investment at close to $600 million, or 1,600x multiple of cost.
Which investment do you consider your biggest disappointment, and what did you learn from it?
Without disclosing names, one of my personal investments completed in 2015. The company raised way too much capital during the height of the funding bubble in 2018 at a very high valuation. This capital gave the company license to expand their business in multiple directions. It’s hard enough to build a start-up company by focusing on solving one problem, but virtually impossible to build three distinctly different businesses—just too many distractions and moving parts. The company ultimately refocused on one business, but it was too late. What I learned: there was the danger of over-capitalizing a young company and the combination of a capital-intensive business and relatively low gross margins is very tough to overcome. They ultimately shut down in 2023.
What have you learned from some of your mentors?
Come to a meeting with a prepared mind and be ready to defend your position. Have an opinion. Also remember that venture investing is equal parts getting in and getting out. There are few in our industry skilled in doing both. Those that are, are legends in our industry.
Book(s) that you recommend every investor read?
Bad Blood, by John Carreyrou. This is the book about Theranos, the blood-testing start-up and its founder/CEO Elizabeth Holmes, which became the biggest corporate fraud case since Enron. We all know the story from the press coverage, this book, and the movie. At its core, it’s really a tale of ambition and hubris set against bold promises of Silicon Valley. For me though, this book was a wakeup call for employees, investors, board members, and even corporate partners. Ironically, the constituency with the most to say, the employees, had the least amount of power, which kept them silenced.
The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, by Clayton Christensen. Christensen was a Harvard Business School professor, and the book talks about why certain incumbent market leaders succeed and why they become vulnerable to start-up companies as the incumbents become complacent and more risk averse. What resonates so strongly for me in this book is my own experience as an investor in Diamond Multimedia Systems. Diamond was one of the pioneering companies in graphics accelerator boards for PC gaming. It was founded in 1982 by a Korean founder, Chong-Moon Lee and became the undisputed market leader which prompted Summit to invest in Diamond in 1996. There was a start-up company called Nvidia that launched in 1993 with an ambitious young founder, Jensen Huang who saw an opportunity to disrupt this PC gaming acceleration market by empowering developers with a software development toolset to explore new applications for graphics processing. This led Nvidia to continuously innovate and discover applications in 3-D graphics, crypto and ultimately AI. While Diamond was able to complete an IPO and was a successful investment for Summit, it did not become the generational company Nvidia has become.
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