Cisco Systems, Inc. was founded by two Stanford computer scientists in 1984 and became publicly
traded in 1990. The company’s primary product is the “router,” the combination of hardware and
software that acts as a traffic cop on the complex TCP/IP1 networks that make up the Internet (as
well as corporate “Intranets”). With the rise of Internet technologies, demand for Cisco’s products
boomed and the company soon began to dominate its markets. By 1997, its first year on the Fortune
500, Cisco ranked among the top five companies in return on revenues and return on assets. (See
Exhibit 1 for Cisco’s financial performance.) Only two other companies, Intel and Microsoft, have
ever matched this feat. Perhaps even more impressive, on July 17, 1998, just 1 4 years after being
founded, Cisco’s market capitalization passed the $100 billion mark (15-times 1997 sales). Some
industry pundits predicted that Cisco would be the third dominant company—joining Microsoft and
Intel—to shape the digital revolution.
Don Valentine, partner of Sequoia Capital and vice chairman of the board of Cisco,2 was the first
to invest in Cisco; he took a chance on the young company when other venture capitalists were more
cautious. One way Valentine protected his $2.5 million initial investment was by reserving the right
to bring in professional management when he deemed it appropriate.