Season 5, Episode 5: Atari (with Nolan Bushnell)

0:00 We'll we'll talk then, you know. During the uh paid portion of this uh podcast where I advertise my game. Welcome to season five, episode five of acquired. the podcast about great technology companies and the stories behind them.

0:27 I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and early stage venture fund in Seattle. And I'm David Rosenthal, and I'm a general partner at Wave Capital, an early stage venture firm focused on marketplaces based in San Francisco. And we are your hosts. Today we are talking about the company that invented the home video game industry, Atari. And we have someone with us who's got some pretty good stories about it. The founder of Atari, the father of the video game industry. No one Bushnell. Hello, no one. Great to be here.

0:59 Good fun. Indeed. Thank you so much for joining us. As some of our listeners know, Nolan has started a swath of other businesses, uh, one of which awesomely is Chuck E Cheese, which we will uh get much, much deeper into later this episode. We dug up some photos of young Ben uh last night. Yeah, Nolan, I should let you know I'm gonna turn my computer around right now. Chuck E Cheese was like by far and away. uh my favorite place in the world growing up.

1:27 And uh here's It was designed that way, you know. Here's some pictures of my third birthday at Chuck E Cheese. Uh and there's me with my favorite toy, which is a Chucky doll. How fun. Now Nolan, this is fun timing for us and for our listeners, uh, since our last episode covered the early days of Sequoia Capital and Don Valentine's career, which you had a lot to do with. Well, Dawn was really Maybe the best board member I've ever had.

1:54 He was also the most frustrating and and infuriating. You know, he had this ability. To ask me a question. About my own company. That I didn't know.

2:05 But the minute he asked it, I knew I should have known then. And so I started to cram for board meetings saying, Okay Don't gonna catch me this time. And he always would. So I always believe that A Proper

2:20 Insightful question can be very instructive. When that was As we covered on our last episode, you know, Don in the Socratic method that was uh really the root of you know what he pioneered at Sequoia. Yeah. Well, listeners, our last limited partner episode was a deep dive into marketplaces from an academic perspective. On this show, we often talk about the levers at play in marketplace businesses, and as you would suspect, there are experts who have spent their careers studying and categorizing things like take rate, search and discovery problem, and when to subsidize. One such expert

2:52 is Ramesh Jahari, a professor at Stanford and advisor to Wave along with Uber, Airbnb, Stitch Fix, and many other great marketplace businesses. So if you want to listen and become an acquired limited partner, you can get started with a seven day free trial and listen right here in the podcast player of your choice. by clicking the link in the show notes or going to glow.fm slash acquire. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work.

3:28 Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm. For months.

3:55 They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Legora now has over a hundred thousand lawyers.

5:00 on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR. About. Eighteen months.

5:12 Mm. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reach for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell him that Ben and David sent you.

5:37 And now On to Atari. Yeah, let's do it. Nolan, you were born in Clearfield, Utah, right? Just is that just outside Salt Lake City? Uh it's about halfway between Salt Lake and Hawking. Okay, okay. We were talking a bit before the show about uh

5:52 You're you're reflecting on it. how you became an entrepreneur. It started pretty early, right, with uh with strawberries. Uh can you tell us the story about your first business venture in Clearfield? Well My mother over dinner table said we've got too many strawberries. We always had a

6:11 truck garden in the back of the house and uh and she said we've got way too many strawberries we're gonna have to give them away. So happens the next day she took me to a grocery store. And I noticed In the produce section they had strawberries in these baskets for fifty cents a basket. I thought to myself, hey.

6:29 There's a market. And I went home, I picked the strawberries, filled the bath we had a bunch of baskets sitting on the shelf in the garage. Build'em up and marketed them uh door to door. the end of the day, I mean this is an hour and a half's work. And the end of the day I had five bucks.

6:47 This is in a world in which my allowance was fifteen cents a week. Wow. And so all of a sudden I said What did your family think of this? Well, my mom was really First of all, she said. Well, you you took those that money from our neighbors. I said, No, but I provided a service. I didn't have to go all the way to the store.

7:09 Yeah. You're like the good eggs of uh I don't think good eggs is down in southern California yet, but uh it's fresh farm to table groceries delivered to your door in San Francisco. It's wonderful. We Danny loves it. We use it all the time. Now here's the question. I've often felt that that Change my brain. To say okay. D Link.

7:32 Pay for hours. Yeah. Or Did I have

7:39 A brain that was different. to begin to see that connection between Strawberries and a marketplace. Yeah, nurture nature. Nature nurture. And and I can't answer that, but uh but y but you saw this yourself. I mean your mom didn't tell you to go uh start selling strawberries. Yeah. Yeah. You must have been younger than ten at this point, right? I was eight. Wow. And then when you were about ten, you started a T V repair business. Literally, right? Yeah. And that would um

8:09 Yeah. Well, I'd always been kind of a techie kid. I was always curious about how things worked and that sort of thing. And I watched a T V repairman that came to our house. The T Vs were big and bulky and so it was all house calls.

8:26 And uh This was the nineteen sixties? No, this was nineteen fifty three. Wow. I mean real b the T Vs were like a piece of furniture. Yeah, and and basically cost a month's salary. Wow.

8:41 Yeah, so it was uh Different ball game. And um and I noticed that all the guy did was change tubes. And so the next time our TV failed, I said I'm gonna give this a go.

8:54 And of course I'm sure it went great the first time. Well, I got a shock and you know, there were various things. I learned how to discharge the CRT because that You know, it's popped up to fifteen thousand volts. You don't want to do that. Entrepreneurship comes with risk. Yeah. But you know, in those days the schematic on the back uh panel

9:14 One tube was the vertical oscillator, another one was the first IF and so all of a sudden I could tell Which was so if you had A water roll that was the vertical oscillator and if it was that you know and so Just by looking at the screen, it was almost self diagnostic. And so I fixed it.

9:32 And in doing so I'd found A wholesale supplier of tubes. These are all tubes. This is before semiconductors. I'm yeah. I'm really old. This is this is before fair tiled. Yeah. Yeah. And so I said, Hey Maybe there's a business here. And so I

9:50 Started marketing my skills. And those days A House calls. Was five bucks.

9:57 So you could spend all day selling strawberries, or you could do one house call for the same amount of I didn't believe that they're gonna let a ten year old kid get into the back of their thing for five bucks. So I s decided to to charge fifty cents for a house call. Oh you undercut the market. I undercut the market a long way. And My theory was that I would monetize a different way through marking up the tubes. Mm.

10:23 And that worked swimmingly. And then then, you know, a couple of months in I started getting a w uh a reputation. So I went up to a buck's house calling too. So it was It was a thing of market entry price, you know, you give a discount. And I had a I made a lot of money. Just repairing T V sets around the

10:45 So so this is pretty awesome. So like you're ten years old. You have your experience at the T Vs and the technology going into televisions at the time. Then your next job, I believe You get exposure to the game world. Is your next

11:00 Adventure at Lagoon Amusment Amusement Park? Actually not. My T V repair business turned into a full appliance. repair business and I became part of Barnell Furniture Company. And

11:15 Yeah, with that I would go out I'd repair washers and dryers and and that sort of thing. And Basically Barlow would be able to charge a lot more and I'd get half. Hm pretty good for a ten year old. Yeah. Well this was ten, eleven, twelve, thirteen, fourteen, fifteen, sixteen. I continued that.

11:36 Until I went to college at eighteen. And you started it Utah State, right? Correct. I Was living at the fraternity house.

11:45 And I Started. doing gigs like you know in those days There was this thing and and I always had money'cause I

11:54 I say You've been an entrepreneur. I was an entrepreneur. In those days there was what they called twenty five for twenty. And that means that A lot of the kids would get the check from their parents

12:06 At the end of the month. And they'd be out of money by fi by the fifteenth. So I'd lend them twenty bucks, but they had to give they had to give me twenty bucks. Twenty five for twenty. Yeah, what's the APR on twenty five for twenty? What when did you need to collect it by? Oh. The fifth of uh of the month.

12:27 Yeah. Yeah. Wow. That's awesome. I can see how you got into the carnival business, right? Oh, yeah. I'm a carny. So you have these Quite I mean at the time like quite lucrative, especially for a College student business is going on. I was driving a a uh MGA sports car later on I traded in for a a Mercedes one ninety SL

12:59 But then I did a really good one, and this was called the Campus Company. And the campus company was a student blotter. That had a calendar of events in the center and I'd sell advertising around the side and give it away free to the kids.

13:17 at the beginning of the quarter. Yeah. And I'd sell five thousand dollars worth of advertising and it cost me five hundred bucks to print it and give'em away. The part that I didn't know. Is that once

13:31 You did that. I do it for every quarter. Mm-hmm. Everybody would re up, so I only had to sell a couple would fall out. So it was Like nothing. So I went from Utah State to the University of Utah to BYU to Weeber State. And so all of a sudden I had

13:49 I had all the colleges in the area, yeah. All the colleges in the area. Five thousand piece. And Since I was doing the sales, when I'd go to a menswear place I'd say Yeah, you can pay me.

14:03 You know, a hundred and fifty bucks or or I I I'll take a suit. Yeah. I got a moped, I got a I got all kinds of great stuff. Amazing. That's amazing. It's like the training the paperclip for the house. Yeah. Yeah. Wow. So the reason I bring up Campus Company because that was actually the driver For me to get the job at the amusement park. Ah, okay. I was wondering why you needed the money to work and work at the amusement park. It was a thing where I was putting myself through college A relatively good lifestyle.

14:37 Let's put it this way. I am An undisciplined, disciplined person. That is. When it comes to short term, I'm somewhat undisciplined.

14:48 That is. A summer night in Utah Going out. with girls and things, you can spend a lot of money and I be excited. That

14:58 In order to Remove harm's way. I get a fun job at the amusement park. They keep you off the streets. Get me off the streets. And it was it w and that's why I say I'm disciplined in terms of long term strategy. But undisciplined when it comes to s short term.

15:18 Yeah. violated kind of one of my rules, which all of a sudden I was working for A paycheck for for uh Yeah, t trade in time for dollars. I discovered

15:30 That In the games department. They paid commission. When you did above that. And so all of a sudden I could turn this dollar twenty five cent an hour job into a two dollar and fifty cent an hour job, which was

15:45 Yeah, you're making money that's worth it. Yeah. And then because of the commission thing. Is this Skiball. Ski ball, guess your weight, knock the milk bottles down, you know? Get the b ball to stay in the basket. What'd you make the most money on? Like what were people just like they just couldn't keep themselves away from? A game called tip'em over. And it was a softball.

16:09 And it was a one throw. You always think that you can knock him over. Well You kinda can, but it's really hard. Huh. But it's it's perfect. for marketing strategy.

16:22 Mm because the way the games worked is you were supposed to give away One dollar for every three dollars that you made. So you were to run You're you're booth at a thirty three and a third percent merchandise percentage. The way the bottles worked, there were two heavies and two lights.

16:40 And the two b heavies were on the bottom and the two lights were on the top. Unless you wanted to give an animal away. Then you'd put the heavies on the top and the lights on the bottom. And then a small breeze would knock them down. So We had a dance hall in and a concert venue. Yeah. And so people who come down with dates to go see the Beach Boys or what have you. Uhhuh.

17:04 The high school kids, they'd come in clusters. And there'd be the Captain of the football team and the head cheerleader. And then there'd be You know, Nathan

17:14 S someone like us in high school. Yeah. Nathan the the the water boy. I was captain of my high school football team. That's great. I was definitely not I was at Chuck E Cheese. So anyway. What I do. For Nathan the water boy to throw. I'd set a snack and he'd win one for marrying the librarian his state.

17:43 The world view of the head of the football team. Yeah. Upside down. And so I could extract all the money he had because he wasn't going to let the Oh my goodness. Well, they had cheerleader. To go without a stuffed animal.

18:00 That's spectacular. That is diabolical. I'm envisioning uh the Pong uh marketing strategy in the future in in bars here, but W was it after that summer then that you transferred to The University of Utah?

18:15 Yeah. What happened is once I got the job. There was actually a a gap year when I went to work for Lytton Industries in aerospace and in a clean room doing Guidance systems and things like that. At Utah State. Correct.

18:32 And then When I was in the Turney house, I decided that engineering w took too much h homework. And so I

18:42 Transferred over to philosophy, then to economics and then mathematics. And It was just really about being able to screw around and not do so much homework. I kinda got into it.

18:54 I like the carney life. It it does get into your bloodstream. I bet. But When they made me manager. Of the department. Because I was good at it and

19:04 One of the guys uh the guys that was the manager at Quip and And so I was Chosen to be manager. I had a hundred and fifty kids working for me and I'm twenty years old.

19:16 And had to train them and Manage the the labor percentages and set up things and and I started changing the games. To increase the revenue. A lot of times when the park was

19:30 We were undergame. The faster you could get a cycle time, the more money you could. Yeah. And so The lagoon had the highest per caps of any amusement park in the nation.

19:44 So When I got ready to graduate from college Yeah I actually had offers from all over. I had from great American things like that where I could have stayed in the amusement park game business. Yeah. Wow. At significantly more money. than I could have gotten as an associate engineer.

20:02 Wow. But I said, Hey, I've got that legacy. Yeah. That's that's evergreen. My Engineering degree. It's not gonna be that way. I need some experience. I need to go to the U.S.

20:15 W when you get to the University of Utah, the University of Utah at this time is like an amazing place in pioneering computer science and in particular computer graphics, right? Exactly. Four four places in the world. Stanford. Stanford AI project.

20:31 Yep. M I T. Mm-hmm. Champagne Urbana and the University of Utah. Which doesn't belong. But it was really Doctor Evans, the guy who later founded the Evans in Sutherland. Yep. And for listeners too, I mean some of the other people who were there around this time

20:46 Alan Kay who was there, John Warnock, who found Adobe, uh Jim Clark, who had co found Netflix with Mark Andrewson. Netscape. Uh not Netflix, yes, Netscape. Uh and then of course Ed Capmole. I have to ask, was Ed there at the same time that you were? Wow. And I always thought that I was kind of the the the cheap and dirty guy'cause I was doing game. All these guys were doing great tech.

21:13 Oh. D did you know at that time I mean you say you were called the Utah guys. Did did you have a sense at the time that This place and this group of people are sort of a a special primordial soup of what would become the foundations of the technology industry? Or were you like ah these people seem smart, I feel smart but kinda dirty and this carny like you I no. I I had no idea that it was going to be pressing. Mm-hmm. I mean it's pretty amazing that y you have this

21:42 You know, we spent all this time on your growing up, but it's all three of these things. It's your entrepreneurial instincts. You'd learn management running the amusement park and then this incredible engineering and graphics. environment that you're in at Utah. And all of those kinda we'll talk in a sec about what comes next, but uh Life has been a series of happy mistakes.

22:05 Yeah. You know, or serendipity,'cause to add to that When I went to California and worked for Ampex. And Ampex made recording equipment for like Hollywood and the music industry and so What I learned there was really polishing my digital skills and my video skills. So we had the big computers

22:28 I learned how to program, but The computers we're working on Had a clock speed of seven hundred and fifty kilohts. Oh boy. And the the screen that were on the computers were all vector graphic.

22:42 Hm. Because raster scan Wants three point five eight megahertz. No data. And so if you're

22:48 computers going at seven hundred and fifty now they had a wide address space and sixty four bits. You know, so you could do Some serious calculations but they weren't vast at all. ball on the screen or the, you know, space invaders weren't gonna move very fast. Well

23:06 What would happen? is remember that the early video games were not von Neumann architecture. Mm. They were basically complex signal generators. And and you had uh you played Space War back at Utah, right? Correct. So Spaceboar was Yeah.

23:22 The first game ever built for a computer, right? Absolutely. I mean I I stand I stand on the the shoulders of of Steve Russell, who Who did that as the MIT Hobby Railroad Division and he did that on a P. How did it get traded around and end up at Utah and other places around the country. I mean it wasn't like You could just download it off the internet, right? It was it was digital equipment.

23:49 Basically. Thought it was a cool hack and just shipped it with every computer they sold. So every deck Uh everybody's mini computers or these PDP the one that we used was a PDP eight and a PDP ten. Okay. Uh Utah did never had a PDP one, which is what the original source code was. Wow. And so they shipped it. This was it was like the the solitaire of uh uh wow with Space War. That's incredible. And so the w was it the first time that you saw Space War that you really realized what could be possible in creating this next generation of games? I managing the games department, I had a couple of arcades. So I knew intimately

24:31 What a coin operated game cost and what it had to earn. And I said If I had this screen with a coin slot, it'd earn A lot of money. Mm-hmm. But those machines cost like a million dollars. Yeah. Three you know, twenty five cents for three minutes into a half a million dollar or a million dollar computer, the math didn't work. You're never gonna recover the cost of the machine itself.

24:53 But I went through the math and I said, Maybe some day. Yeah. And then so when you arrive at AMPEX This was shortly after like Fairchild had gotten set up and National Semiconductor, which we talked about on the squay episode, so National then pioneered outsourcing fabrication of chips to Asia and that Drop the price of chips hugely, right? Yeah, one day I can remember seeing my office at at Ampex.

25:18 And Glue chips. There was a thing called Seventy Four Hundred Series from T I In the ninety three hundred series. They were basically glue parts. Flip flops and gates or gates exclusive or

25:31 All the Boolean constructs. Yeah. And they went from two dollars a chip to fifteen cents a chip. Wow. And so It was that Precipitous I mean two orders of magnitude. And I said

25:45 Maybe no. Getting close. Yeah. Yeah. Coincidentally. That Wednesday night, in the Bay Area I became

25:54 A Go player. Oh yeah. And there was we I knew we were gonna get into Go in a minute. Well there was a uh Go being the the game Go. Yeah, the game go. And there was a

26:06 Buddhist church in San Francisco. That had a twenty four seven. Go parlor. Oh wow. Wow. And so I could just go up there and and and I would

26:16 Generally. This was nineteen sixty eight. Yeah. And so I would go up Probably eight o'clock on a Sunday morning I'd play until three or four. And

26:28 Uh every weekend. That was kind of my But I was living in Santa Clara. California at the time. And uh

26:38 Additionally, Stanford had a go club. That met every Wednesday. Evening. And so I'd attend that and I got playing with A couple of the go players there.

26:49 And one of the guys was named Jim Stein. Who? was a Graduate student working at the Stanford AI lab. Hm.

26:59 And after we played Go one time, he says, Hey, do you want to play Spacewar? I said. Holy shit, I haven't played it since I was in college. Yeah let's do that. And so we left the Stanford Go Club, probably. Ten o'clock.

27:14 Yeah. And we played We went up to the AR lab. And played space war probably until three or four. This is I mean uh uh, but like when I was in college, but I'm sure when you were in college, like

27:30 This is what you do, you know, like at midnight, like get back from dinner at the dining hall and be like, Well, all right, we're gonna play Mario Kart till four in the morning. Like, or we're gonna play Halo. You were the first generation that was doing this. Yeah. And so that was I said You know, those two situations, the drop in the chip price and My reacquaintance with Space War.

27:55 We're concomitantly the driver that said let's do this now. For folks that know of Atari, they're probably imagining w the the the twenty six hundred, um, or they're imagining at the very least something they're playing at Yeah. That's not how it started. No, it started as a coin operated game business.

28:14 What started is Scissor G, right? Correct. And You can't correct Nolan, David. Well but I've just I'm just putting it wasn't Atari yet.

28:27 And so The original plan. was that we were going to be a studio and we would design games for manufacturers and get a royalty. That was that was the Original. Plan.

28:40 We got some things moving around on the screen. I went to the dentist. and told him about my project. And he says, Oh, you should call this guy. Which was the Head of marketing for nutting associates.

28:53 I didn't even know they were in town. They were uh coin operator game manufacturer. In in Mountain View. And I went up and uh And show them the game and they said, Yeah, we we I think we'd be willing to license this. He they said, But you know, we don't have a chief engineer now, uh Uh and I don't think they You know, the one we had would understand.

29:17 This technology are you available? I said, I don't know, I'm pretty expensive. So I I sound like such a carny, don't I? This is great. Yeah. Well also, I mean, this is like um you you were I I had in my notes we didn't cover. I mean The people that were starting companies that we talked about on part one of the Sequoia episode of this time, like the traitor as aid and the like, these are

29:45 Hardcore scientist engineering types. You know, usually in their forties. Usually in their twenties. I think so. Yeah, I I've I've often said that I blaze the trail for both gates and jobs. You know, just proving that it could be done. Yeah, I mean, because they didn't look like you know, Gordon Moore and Bob Noise. It's kinda like the the five minute mile problem where people say, Well, it can't be done, and then someone does it, and then suddenly there's this massive wave after them of people that are awoken to the the world is accepting of young, brilliant twenty something CEOs, and boom, we have this wave of them. No question about it. Yeah.

30:27 Oh, but I gotta I gotta finish my please. So you had set up Sissor G Engineering, right? Yeah. And then I went to the Not in.

30:36 I said, I'm pretty expensive. And they said, Well how much? I was making Eight hundred and fifty dollars. A month. Damn picks.

30:44 Mm-hmm. I said. Sixteen hundred dollars. Yeah. They said yes too quickly. Car.

30:57 Um So how did That turned into Well we'll become Atari then. Silicon Valley

31:06 has a couple of things going for it. That are I think underappreciated. One is that Almost everybody.

31:16 Knows intimately. Somebody that went off, started something and made a a gobsmack full of money. And they say. I know that guy or that girl. And

31:27 I'm smarter than they are. And I'm sitting here doing nine to five and they're out making a lot of money, yeah, I can do it. You know, it's funny. I I uh I think I might have referred to this on the show before, but I went to business school at Stanford many years after you were there. But I think that was one of the most powerful things is like all these entrepreneurs would come talk to us, guest teach classes, be there for cases, do lunchtime events for us. And we just you just realized like they they're just people too. There's nothing special about them. But then

31:56 I had a real advantage. With nutting. Because nutting Put the first computer space in. And

32:05 All of a sudden you start noticing and Saying These guys are bozos. They're paying me sixteen hundred dollars a month. I have a company car. What are they doing? Well they they they fired the head of sales because he was making too much money on commission. That's a really bozo movie.

32:29 When it came time for the next game, I said, I really don't want to hang my star with these guys. You know, because they will underproduce the the nickel and dime things. And my theory in life has always been go big or go home. Yeah. Clearly. And so When it came time for that, I said

32:48 You know, I'm gonna have to leave. And I will design your next game, but we'll do it under a contract. Little be known to them, I'd already gotten a contract from Med Midway and Valley. So I had two contracts to based on. That's great. And so you were game designer. Were you also the sort of lead engineer on that first game uh with them? Okay. Yeah, I was a leading engineer. I basically did all the And that was digital stuff. Computer space, which was a commercialized space for it, basically.

33:21 We come to the next chapter. Of total serendipity. My first engineer and Al Alicorn. was actually my tech. And he was in a work study program at Berkeley.

33:33 And he'd do six months on And then six months at Berkeley and then six months as my tech. was his Alternate.

33:44 Yeah. And both of those guys, like when Atari came along. Bristow became head of engineering and Alcorn became the head of research. They were brilliant engineers. They were really good. But very different. Al was much more rigorous.

34:00 That was his brilliance and his downfall. He would interview thirty people and not find one that was acceptable. Although it's not a little bit more than Is he the one who brought Steve Jobs to you? Yeah.

34:13 So he he found one who was pretty good. Yeah. Although not an engineer. But but then we'll get there. But Bristol If you said okay We need another twenty projects and we need it in the next fifteen minutes. He'd go out, he'd hire a bunch of people, he'd fire some and what have you. I mean he was he would he was a scrambler. It'd be messy but it'd get done. It'd be messy but it'd get done. Exactly. But

34:37 The first day that Al came to work for us. And us being now this new company that is working on contract. Yeah. Yeah. Was the same day that I'd heard About Magnum showing a video game. At a trade show up in in Burlingame. Yeah. And so I went up

34:53 Yeah, I saw this thing and it was an analog piece of crap and uh And I said, Gee, you know, there's no competition here. But I looked around and they were playing this ping pong game and it looked and they were having fun with it. And and and there was so many things wrong with it. There was no score.

35:10 There's no sound. There's no score. Who's gonna play that? Yeah. After you hit the ball, you could change the d the dynamics of it with by twisting a knob. You don't get to change the name. That's just wrong on so many levels. So So it was analog though. Like it was running on like vacuum tubes?

35:33 No, there's R C time constituents. So basically if you have a capacitor and a resist, it'll change the voltage based on how vast it is, and that gives you a delta V. It's kind of incredible that the early video games were actually analog. Yeah. Oh yeah. I mean Ralph Bear. Mm.

35:53 with these designs really important. In fact the very first Game. The pre dated. Steve Russell's at MIT was an analog game played on a osciloscope.

36:04 At the Brookh Brookhaven National Labs with a guy named Willie Higginbotham. In terms of Full history. Explosion here. Always building on the shoulders of giants. Yeah. Okay, so you saw the magnifox, you thought things a piece of crap. Yeah, but I said, you know, using our technology maybe this would be a fun game. But

36:22 More than that. I needed a test project for Al'cause Computer space was really complex. And I thought, you know, as a as a learning project What you wanna do is bite size things down to get people to understand the tech.

36:37 And so I Described the game and said, That's your first project. And no like design doc or spec. It was like here's kinda how it's gonna go. Yeah, this is a blackboard. Yeah. Before whiteboards had been And I said,

36:52 You gotta get it done in a few weeks,'cause I think I can sell it to General Electric. I might have told him I've got to deal with General Electric. And and I'll be damned if in two weeks he didn't have a working Pong machine. Hm.

37:07 Wow. But it had Some problems. For example, it had On the paddles, angle incidence, angle reflection, you know?

37:16 Yeah. I I I read something that this was sort of Al's idea after what you sort of drew and described that that he thought Well, it it would be way more fun if we cut the paddle up into eight segments and then each segment, depending on how far away from the middle it was, actually affected the sort of angle that it that it bounced off of the paddle. Yeah, that's very interesting because The way I remember it, I came up with that idea. I'm willing to give it to Al, I don't care. Well who uh who came up with speeding the ball up as the as play went on?

37:51 Again, I think I did, but I'm not going to opine to it. Which is another great mechanic because it means number one, you don't really get bored of it because you can't just keep it going forever. And two, if you're collecting coin drop, then that's gonna speed up those games and you're gonna get mo more people flowing through. Precisely. So okay, so before we get into w what happened with This prototype. The name of the company.

38:16 Can you tell us how it became Atari? Which of course is a term from Yeah. In those days. Everything was snail mail.

38:24 And so If you wanted to incorporate The standard Five.

38:32 Company names. In case the first one wasn't a wasn't available. Atari was actually number three. Oh wow. So was one Sissergy? One was Sissy, which was

38:44 Owned by a candle company in Mendocino. Ha ha ha. And so this is with like the state of California. Yeah. And

38:52 I to this day I don't remember what number two was. Ha ha. Well, but then number three came back Atari. What an amazing name, by the way. I mean it starts with A. Well which is great. You know the funny when we When we first got it back.

39:08 We weren't sure we liked it. And Atari is like the equivalent of Check in or Checkmade in Go. Correct. Yeah, check is probably a good Hm. Close enough. So you didn't like it at first, or you weren't sure. We weren't sure. Yeah. Which is really funny'cause you know

39:23 I really believe. Yeah. That Like Shakespeare says. You know, a rose by in it is an other name. Yeah. Over and over again I've named a company

39:33 That has Not sounded right. Two weeks in it's the best name in the world. Yep. uh how Phil Knight hated both

39:44 calling the Nike swoosh the swoosh and the swoosh itself, and now it's the you know one of the top five most valuable brands in the world. Yeah, exactly. Well and this comes together with Pong, right? Because the amazing Atari logo, which we'll link to in the show notes if you don't, you know, have it etched into your memory as a as a child. Uh Is is Wonderful. And you know, the A and the and the pong paddles and the Yeah, how did how did you come up with the logo? How'd that come to be? That was done by George Opperman, who was a brilliant

40:14 Brilliant. Graphic Designer. And I said We need a good bug for for the company.

40:21 He came up with Ten and I said that one. Wow. And I mean truly today one of the most iconic brands ever created. T shirts everywhere and hats. I mean you you can't go a week without seeing the Atari S somewhere in your life. Upward. Upward driving this. And it and it was the the paddles from Pong that inspired.

40:44 It right? No. Oh no. That's religionist history. Okay. There we have it. From the man himself. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done.

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42:36 And just tell'em. That Ben and David sent you. So okay, so you had this prototype of Oh Alcorns. demo, you know, prove himself project.

42:47 And it turns out it's pretty fun, right? Yeah. I thought to myself, You know the my cariness. Your carney instincts kicked it. We can keep saying carny on the show, but like we shouldn't deprecate this. This is like a core.

43:06 Yeah, the you know, personality trait of wildly driven scrappy entrepreneurs. Yeah. Well I thought to myself, so Maybe I can get Ballet to take this game.

43:19 And Complete our contract six months in advance. 'Cause you weren't planning on this being the next game. This was just a test for throw away. Yeah. But if they're impressed and say, Well, here's the game Maybe let's see what they think. So

43:32 We build up to and these were in wire wraps. They were gonna put one on location and I got on the airplane with the other one under my arm with a modulator so I could hook it up to a local T V. And I went to Bally and Midway and They were not impressed.

43:49 Hm. And because in the coin up business. There had not been a single successful Two player only game. Yeah. There was no AI driving the other paddle at this point. So if there was just one person who wanted to play the game at the bar, like it was gonna be a non starter. Which

44:04 In twenty twenty hindsight turned out to be brilliant. Because It gave us a A woman an ability to Choyed with.

44:15 Uh the equivalent of I assume at that time women weren't like buying drinks for men. But a woman could be buy a game of pong. Yeah, I'm uh you know, I want to play pong, but I need a partner. So she pulls somebody off a barstool. Wow. So it I mean it introduced a completely new environment variable into the bar. And and it was also Combinant with Mm. Hippie.

44:40 Female empowerment. Mm-hmm. You know, women are as good as men, da. This is nineteen seventy two, right? This was nineteen seventy two. Yeah. Wow. Bally and Midway reject this. Correct. Uh but you see the potential.

44:54 What you call a wire rig? And and so I'd imagine that's no cabinet. It's just the electronics, the you know, however many boards are in there, wires, and then you hook it up to whatever TV you can. Correct. Well, in the early days when you were prototyping, there was a technology called wire wrap, which it had these Pins sticking up. And you had this machine that would really Rap a wire uh

45:18 copper wire around it very tightly. So it was a very good prototyping system. I don't think they use it anymore, I'm not sure. So basically you wouldn't have to solder, but you could ensure that the wires were gonna be where you thought they were gonna be on the chips. Precisely. Got it. But but when you looked at it, it looked like a rasp. And What happened? Is that

45:41 When I presented to Bally, they were tepid. Mm-hmm. Now he said, Let me think about it. And When I called back

45:50 They Told me about it. The earnings that it was making at the local bar. You would put a prototype in the

45:58 When I heard how much it was, I called up Ball and I said, Midway doesn't want it and uh And and you mean how much money it was making at that bar. At eighty caps. Put it in context. The game was making over three hundred dollars. A week. And that's like three X what a normal game would make, right? Oh yeah.

46:18 And The bill of materials on the machine. Was three hundred twenty five bucks. Wow Wow. So I said to myself, there's a business here. There's a six day payback on this. Assuming you get to keep up is it fifty fifty with the bar? How does the revenue split? Okay. In two weeks you're making your money back. You're making your money back. So but did you charge the bars up front? Did they have to pay for part of the machine up front or is it just a revenue split. You gotta put it there and then I said to myself, Hey, if I can't sell these things I can operate'em and be okay. Yeah. So I took all the money that we had in the bank.

46:53 And it was enough to build like A dozen of'em. And then from there we got The money. And and we sold some.

47:02 'Cause people started hearing that this game was doing well and so we Went up to the San Francisco distributor and he ordered ten and the guy from Los Angeles ordered ten. the Ballet and Midway deals have given you. I mean obviously they take care of manufacturing because they would make the actual cabinets and hook it all up. Do they also take care of distribution? Absolutely. So you're then saying, you know what, we're so confident in this thing, we're gonna tell these guys that in a nice way and in a clever way that we're gonna do this ourselves and that we don't you know. No, I didn't say that we're gonna do it ourselves. I said we'll go ahead and finish the project, the driving game that you want it.

47:42 Oh I see. Which There's another chapter to this. Four months in. Bally came back to us and said, We'd like to do Pong. Hm.

47:54 But you already knew what a golden goose you had at that point. I said oh Of course. At this time. There were

48:00 twenty companies that were copying us,'cause you know We had a garage shop. Anybody that had a garage shop could knock these puppies out. We hadn't you know, in those days it took s four years to get a patent. We'd applied for it, but we didn't have it and so, you know, it was it was the wild west. And so Bally.

48:21 was really no noble by saying, Hey, and instead of just knocking us off They took a license and paid us five percent royalty. Wow. And completed our Wow. Was it around This time that you

48:42 Started your experimental distribution channel of your own of Pizza Time Theater. Within the company? No, that you're talking about key games, not Chuck E Cheese. Well either. There was kind of the ball and paddle phase. Then we go went into what I call the game innovation phase of the company.

49:04 I realize it that in those days the Coin Ops distribution network There tended to be two, sometimes three in every major city. And it was normal. To have an exclusive relationship. So

49:19 I could pick all the best distributors. The ones didn't have An Atari. deal. They were looking for anybody that they could put into business to compete with us. And I thought That's perilous.

49:32 So I decided to create my own competition. So I took the number two guy marketing guy and the number two engineering guy and the number two manufacturing guys and I had them leave in mass. Set up a company across the street or down the It was actually another place. And it was just before a trade show. And they had a game.

49:53 Which was The next in the line that we were gonna produce. We let them put their name on it. We went to the trade show and they assigned their distribution. contract with all the guys that we didn't have.

50:05 So we'd great we had the world. Nailed. Wow. And that was key games. That was key games. And In those days, you know, there wasn't the internet and all that, but we knew that you couldn't keep it secret forever. So we floated the rumor.

50:22 that these guys had stolen secrets and that we were suing them. Okay. And then A couple of months later we voted the idea that We've settled.

50:33 And that now we owned. A piece of key games. And did you own the entire thing from the get go? The entire thing. Yeah. Oh, that's great.

50:43 And then we decided that we were going to merge the companies together. Take a nice photo, shake hands. Welcome to Yeah. Yeah. And then there was a question. Distributors. What do you want? Should we take the thing away or should we give you both lines?

50:58 And at that time. So you change the business practices of the industry'cause yeah, they didn't want to give this up, right? Yeah. So now We gave both lines to both distributors. Wow. So you didn't have to have exclusivity with a distributor anymore. Bingo. Amazing. Oh, that's so great. You know, it's one of those things that in the coin up business

51:17 Yeah, nineteen Seventy five. We had an eighty percent market share. Oh. Amazing.

51:25 Wow. And so it and then it's going from nowhere. You know. We were undercapitalized and and all that. One to seventy five. Probably

51:43 Three hundred though? Wow. And each of those earning Roughly A couple of hundred bucks a week. Correct. H how'd you capitalize that or did you manage to get pre orders and have sort of a a nice working capital cycle?

51:56 Actually. The business model. I'm more proud of than the technology. Because I built this company on

52:05 Each my partner and I put in two hundred and fifty dollars each. That's the only capital that went into the company until Don Valentine and Nineteen seventy. Seventy five, yeah. And so Well we did.

52:18 I figured out just in time. Inventory. So All the cost was in the cabinet. The T V set.

52:26 The coin neck. And and the power transformer. the glue parts for the computer and all that It was a lot of numbers. But not value.

52:36 Yeah. So we could actually From the time. A cabinet came on the floor. We'd have the T V set and all the other pieces come in all at the same time. Mm-hmm.

52:49 And so we were turning inventory Twenty eight times a year. Oh. That's like Amazon levels. Exactly. So we were able to uh Essentially.

53:01 Sell a product. And have Sixty days to pay for the The the time so the company operated in positive cash flow. Wow.

53:12 And what were the payment terms when you would deliver one of the units to uh thirty days. Okay. But we'd give a ten percent discount. For five days. Yeah.

53:24 But then we found this factoring company that would buy our receivables. So I get immediate cash. Wow. So what so you you grew

53:35 To millions of dollars a year. Oh no capital. No capital. Wow. Had you spoken with with Don Valentine or any other investors and and um Fort Capital hadn't really been invented yet. Yeah. Well done. Yeah.

53:52 And I from what I read, the sentiment around the time uh sort of associated Coin drop with mafia activity and and gambling. People didn't want to be involved in investing in this sort of mob controlled or or mob perception in industry. Yeah. Well it was true. During the um prohibition. The mob provided

54:14 Illegal booze. Illegal gambling. Own sharking and prostitution. Mm-hmm. When prohibit was repealed they still had their three

54:23 Trochia. And then the games modified. You know, in the speakeasies they had roulette and slot machines and the whole nine yards. But when All of a sudden. The

54:36 speakeys emerged from underground. They Could easily identify The slot machines. And so they started disguising them as pinball machines, but they were payout machines. They were gray area. So that's why pinball had such a negative stigma.

54:52 Not because of pinball, but because it well a lot of them were actually slot machines. They were disguised slot machines. Uhhuh. Mm. Wow. The proto venture capital industry that we talked to, you know, the Arthur Rox and the you know the folks that were uh the Tommy Davises and like th they they weren't gonna I I'm sure you did you even talk to them? I didn't know.

55:12 I I hadn't heard of venture capital. Yeah, it was just Wow. So how did how did you and Don intersect then? He came to visit me. He found me. I didn't find him.

55:26 Hm. And At that point in time we were in six buildings and we were up about thirty million in sales and this is like seventy four, early seventy five, somewhere in there. And so we were Kinda getting to be big shits in in the in the valley. Wow.

55:41 And he had just set up Sequoia Capital. Yeah. Taken it independent from Capital Group. He says, Can I see your business plan? Oh listeners, I wish you could see the face Nolan just made. We had no business plan. I've been running this thing by the seat of my pants.

56:02 He says, Well I'll I'll set you up to with a guy that can write your business plan for you'cause I need it. For an investment,'cause I I like your business. So I spent A few hours a day for several days with this guy named Don Yost. Who wrote the business plan for Atari the very first one we ever had. Wow. And uh when you're already doing thirty million in sales. Yeah, I know.

56:25 Wild. Different world. And when Don first approached you. Was it called Sequoia Capital at that point yet? Yes. Okay. So he had he had fulspun out from Capital Group. Correct. And how did a deal get?

56:36 Done. What did what did did he offer or did you how did how did you Broach the conversation between the two of you of accepting capital to a business that Had never had capital before. Well

56:47 To g get the right patina on this. We had the summer. Of discontent. I told you how we operated in positive cash flow. Mm-hmm. That's all fine and good. Until you fill up.

57:00 Your Production line. With products that you can't sell because there's a part that's missing. Uh What happened there?

57:09 We almost went out of business. Hm. Because There was a chip. that we needed to get and it was on backlog for three months.

57:23 And so One month in we were way behind on our Payments. We got sued. And

57:30 Three months in all of a sudden we we didn't defend ourselves because we owed the money and so we had these judgments against us. And so there were sheriffs on the front door. Yeah, coming to Collect, yeah. Collect assets. What they really want to do is collect your from your bank account. Right. They didn't want your chairs and tables and stuff. And so what we did is we opened up bank accounts all over the nation.

57:54 And so we would just go every week we'd use a different checking account to pay our people. Wow. Wow Oh my goodness. Wow. Cause you're trying to keep the doors open, you're trying to stay in business, you think this will get resolved and you wanna keep your great people, too. Yeah, right. So was it in this really tumultuous time when you did the deal with Don then? Really close. Yeah. We were damaged.

58:19 And I Did a a reorganization with all my creditors. And basically I gave them I said if you want

58:27 Hundred cents on the dollar, you gotta give me six months. Mm. If you want fifty cents on the dollar. I'll pay you. In two months.

58:36 If you want. Cash right now, I'll give you Ten cents on the dollar. Mm-hmm. And then I said.

58:43 And if you sue me You'll never get a an order from me again in our life. And Then To get the line going again.

58:54 I went to Jerry Sanders from AMD. And I said. We've just been cut off because of credit hold. I said but

59:03 I laid out what what the option to was and I said, I need a fifty thousand dollar credit line for your parts. And if you give that to me. You'll be my preferred vendor from now on. Wow. Who were using Fair Tips before? Fairchild. Fairchild, okay. And T I.

59:20 And they We're just jerks. And um and Cherry said. Okay. Wow.

59:28 It probably Was worth Fifty million dollars to AMD. To be the prime supplier for Atari. Yeah. Pretty good okay.

59:36 Very good, okay. And we've been good friends since we've got to be able to do it. We've done. Oh, that's great. So my understanding from doing a little bit of research before was that you effectively came to terms on what the investment would be from Sequoia and

59:50 during the time of of tumult and before the AMD agreement. But of course you hadn't closed yet. And close. you know, your your your maybe a month or a few more months goes by, um and you're getting ready to close the deal. And we'd gotten much healthier. We you know, all the things that we'd done, we'd fixed up things, the we were shipping. And all of a sudden we weren't under stress again. And so it became time to close.

1:00:17 And that night I said. To Joe, my the president. I said I can't do this. This is not the right deal. Don had champagne.

1:00:28 I stopped in his trunk and he came out and I said Sorry, uh The price isn't right. And I said This is

1:00:36 The condition when I agreed to this. This is the condition now. The price is double. Double.

1:00:43 Double. Wow. How did he react? Oh, he was pissed. But I was willing to walk away. Right, because you didn't need the capital. Anymore. Two days later he came back and he said, Okay. Wow.

1:00:58 What a story for the first investment. My relationship with Don was always a little bit love hate. Yeah. I could see that. No, and'cause you you don't You don't dick with Don Valentine that way.

1:01:13 Oh man. Mm-hmm. Well, I I've heard then that uh board meetings could take place in hot tubs. You know, the the can you describe the Atari culture at this point? We talked about you as a the first hacker archetype as a CEO, um, or I don't know if you called yourself a CEO, president, founder, okay. What was the company like and how is it different than other companies? I think to understand that.

1:01:40 Clearly. You need to understand what was going on at the time. And we all had our hippie costumes. That we dress up in our bell bottoms and our tie dye shirts and go up to San Francisco and and Be posers. Because you guys were engineers. And we were engineers, but you know, sometimes it was kind of fun to

1:02:01 And to go up there. And so there was this Epic. The the summer of love and all that. that and you know don't trust anyone over thirty and you know smash the state and and all that. But what really was it was a An idea that should treat everyone

1:02:21 Barely. Not based on history, not based on legacy, not based on You know, who you were and and what What you can't do. But what

1:02:31 your soul was, what your capabilities were. And so we actually created this Company manifesto or constitution. And so we Encapsulated.

1:02:43 Equal pay for equal work. Very first one in Silicon Valley. So We we felt and we had Some amazing women. that work for us that were Just love the whole idea that we had this manifesto.

1:02:58 Speaking of the culture and the time, I mean this must have been right around the time when This guy. Shows up at your office, right? Yeah. Uncamped.

1:03:10 Dirty. And said he's not gonna leave until he ha got a job. And what w was it this like I mean y you guys have become pretty big in the valley, you were well known at this point. Was it like This is Steve Jobs, of course. Did he want to work at Atari because he'd heard about Atari and heard about the culture and absolutely and and you know he

1:03:29 He liked the idea that we were doing something that wasn't bombs, wasn't uh you know, uh military and uh By being in the game business. We actually had a real advantage because a lot of the businesses had Some military

1:03:47 Outlook. And so If you were a foreign national, a lot of times you couldn't work for those companies. Oh. So we had our pick of the crop in terms of You know, th the the Brits at the time had just wonderful engineers and Germans and

1:04:04 And what have you from all over the world. Well. Yeah, and you had that y uh unique recruiting advantage that commented. You're in the Bay Area. Vietnam had probably just ended at this point.

1:04:15 Oh Yeah, pretty much. I I'm sure there are a lot of people in the Bay Area at this moment in history who are none too keen to be working for companies that were selling to militaries. Yeah. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part.

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1:06:21 one of the very few people in the world that were ever either of their boss. Right. How did that go? Who how how were they as sort of young budding talent and w what are some of the things that they did together at Atari? So I wanna clear up this. Yeah. Wozniak never worked for me. He was always working at HP. Uh huh.

1:06:41 And I put Steve Jobs on the night ship. 'Cause I knew Waz would hang out with him. Everything entrepreneurial it's Getting two Steves for the price of one. And you got an advisor. And Waz. is and was a true savant.

1:07:03 I think actually. Was doesn't get enough credit for the success of it of of Apple. Hm. Because

1:07:10 He could. Design. Discrete logic chips. I mean he did the Apple two. As a design construct.

1:07:20 Was brilliant. It was the most efficient. Articulation that you could probably Waz did it. All night or two nights in a row.

1:07:29 Develop the drivers. And the hardware to interface the swappy disk drive to the Apple two. Took Atari. Seven months.

1:07:39 Wow. And we had some smart people. Wow. Wow. So Those sorts of things. For me, just gives me tremendous respect for for the man's capability.

1:07:52 We had a deal where the engineers at Atari could bid on the projects. We Give him a game list and since we'd give a little bit of royalty to the engineers. They only wanted to work on ones that they liked. And I came up with a scheme called Breakout. And nobody wanted to quiet success out in the world breakout.

1:08:12 The perception was that ball and paddle games were over. Uh And this was a ball and paddle game, but with a twist. What year was that? Seventy four. Okay. So we're we're t two, three years after the amazing success of Pong. Right. Got it.

1:08:28 Might have been seventy five. Not sure. But there'd never been a single player pong. No. And it turns out that um Breakout was actually the game that that launched the Japanese market.

1:08:41 For video games at all. Yeah. And so at this point In seventy four, seventy five, Atari had just started shipping home consoles. You had uh Seventy five. Seventy five seven got it. The V the V C S that became the twenty six hundred, right? So many of us had.

1:08:58 Yeah. My understanding was you were the the sort of game designer and and uh kind of visionary behind breakout. This was a a game that you'd sort of really come up with a concept for and so you put it on this list for for different people to bid on. How how does it go from there? They didn't want to do it. And so I put Steve on the night shift and signed it to him. This is jobs, because he's the only one that works for it.

1:09:25 Oh amazing. Not an employee. I'm sorry. He's just hanging out with jobs at night. How's the IP work on that?

1:09:35 It was employees. Who knew? Yeah. Crazy. Wow. And so does all the technical design of Breakout. Yeah. No.

1:09:46 I did a Deal where They got a bonus based on How fewer chips they could use. Yeah, so I read something about this that the cabinets typically had seventy five plus boards in'em, um but it would save Atari like a a hundred thousand dollars if you could remove each chip.

1:10:05 Yeah. And that's absolutely true. And so The Wa Waz's design was like forty chips. I mean, it was unheard of. Well, but it had sort of feedback systems that made it really hard to

1:10:20 Test. And so Once the game What Done.

1:10:26 And everybody could see that it was fun. They did a recent. The the bonus based on the number of chips that came back. Which was five thousand dollars. And

1:10:39 That was a lot of money in those days. Yeah. Subsequently. Waz was over to the house and we were talking about breakout and what have you, and I said, What did you do with your half of the money? He says, Oh, I went out to dinner. And and I said.

1:10:53 That's some dinner. That's some dinner. And he said, What do you mean? And I said, Well, you know I figured you probably ended up with Two thousand five hundred bucks. He shook his head, Jobs did it to me again.

1:11:07 Uh Jobs told him it was five hundred dollars and he got two fifty. Wow. And this is before they started Apple together. Oh no, this is after. This is a long time after. And you know,

1:11:20 Was I said, You know. I really don't care. He said. Because of jobs.

1:11:26 I've made a lot of money, much more than I ever thought I would. At that and I said He must have had a better need for it than I did. Wow.

1:11:39 Well. What a feeling guy. Yeah. Did Jobs come and tell you that he was Gonna leave Atari and go start Apple.

1:11:51 His first investor fifty thousand dollars for a third of Apple and I just said no. Which I've kind of regretted. And uh But That's okay. Don made a mistake with Apple too.

1:12:05 I actually think if I said yes. the world maybe have been a slightly different place. Because Mike Markle, who did The first investment.

1:12:14 was also a very hands on mentor. Mm-hmm. And he basically turned jobs into an actually acceptable CEO. That I probably wouldn't have done. Yeah, I think I've heard you refer to him as a Ho Chi Minh looking guy. Yeah. Yeah.

1:12:30 And remember Markle was the first president uh of Apple. Yeah. Uh Markle had worked for Don Valentine, right? Correct. Yep. And uh And the story is that Don sent Marcella over to talk to Steve. I sent Steve to John.

1:12:48 Mm. Wow. David, can you just catch us up on the timeline moving through the mid-70s, sort of what happens in seventy five, seventy-six, and let's get to what the next financing would look like for uh yeah for Atari as a company. So Sequo and Don invested in seventy five. Right. Then in seventy six you end up selling the company.

1:13:07 How how did that happen? We were far down. the design path of the twenty six hundred. We knew that we had to one build a new factory. Two

1:13:20 that it was going to be a highly driven by fourth quarter sales. And we just knew that we didn't have enough capital. And so We started down the path of taking

1:13:31 The Tariq Public. Hm. And we had an S one draft up and everything that And then the market kind of did a hiccup. I said maybe not.

1:13:42 So we went down so we said, Okay, we'll see if we can get a corporate partner. When we uh started down that path. Don says, Hey, why don't you go talk to Warner people and the the Warner people came out and said that's kind of interesting and And maybe

1:13:58 Maybe what we can do is we can do a structure where we buy it. And uh you guys make all the money and do all the stuff, you know, and you know, it was Yeah, we were young and dumb. I had a lot of hate coming out of my shirt and what have you. And so They send the

1:14:16 Warner Corporate Jet to pick us up at the San Jose. Airport and we climb on board and really do Starstruck. They stopped and

1:14:27 And Uh Sun Valley and picked up Clinda Eastwood and Sandra Locke. What? On the jet? On the jet. Wow. And so we're We're flying to New York on the Warner jet with

1:14:39 Clinton and his girlfriend. Wow. That didn't come up in any of the research. Oh really? No. No, yeah. Well And then uh We

1:14:51 Get picked up at the airport in a limo. Drops us off at the walls or if a story is side entrance. That's where the the VIPs go. The VIPs go. We go up And we're in a A suite of rooms.

1:15:06 that has a library and a pool room and a kitchen and it's basically a five thousand square foot apartment that we're in, you know, and Yeah, and it's the warning corporate apartment. Yeah, and three of us, Joe, Jean Lipkin and myself, and we're there and You realize you're being played a little bit. But you don't mind it because it's kind of cool. It's there is something very nice about getting sold to by someone who is an excellent salesperson. Exactly.

1:15:37 So The next morning we meet for breakfast and Go into Warner's conference room and we start talking about deals and deal structures and what have you.

1:15:47 And can you give us a sense for the size of Atari's business at this point? Revenue or profit or any anything you can recall? So forty million, forty five. Mm-hmm. In revenue. Revenue. But this is all in the In the arcade business, right? And you're about to enter No, we we were doing home pong.

1:16:06 Oh, okay. You're doing Hom Pong, but not the twenty six hundred yet. Got it. I didn't realize actually that you had marketed home single game console. There were two big dials, right? That you could sort of grab and and each each player would twist them to move the dial. Yeah.

1:16:21 So anyway. We gotten We were invited over to Steve Ross's for dinner.

1:16:33 He has a fifth avenue apartment on the top floor. Top three floors. And of course They're was a screening of outlaw Josie Wales.

1:16:44 Yeah. Amazing. Wow. Talk about being sold to. Yeah, exactly. Kinda like this slide. So uh

1:16:55 At the end. Of of the day we kind of shook hands on a On a proposed deal. Wow. And so that, if I read correctly, was a twenty eight million dollar all cash offer to the shareholders of Atari. And uh cash. There were some dementia involved. And that was done as much

1:17:15 for tax reasons as anything'cause you know, you you wouldn't have to pay tax on all at once. So it's cheaper. But in addition to that, there was a huge Payout. Like there was ten percent bonus pool. So we Personally we get

1:17:32 Big Taste of the success of Tori. Oh like a Like an earnout. Correct. Oh wow. Yeah. Which was before startups learned that uh

1:17:44 Big companies always structure the earn outs uh in their favor. Oh yeah. Do they ever. You wrote the playbook in so many ways. Which of those ended up being more meaningful for you, the bonus pools or the actual one time transaction? That's actually hard to say because what I ended up doing is I hypotheated the bonus pool. to get additional capital for Chuck E Cheese.

1:18:10 Mm. So this is a excellent lead in to Okay. a few of us who had like looked into this before knew that you are also the founder of Chuck E Cheese, which when you the first time you learned that

1:18:23 i you know, your your mind's blown and you got Tweety Birds spinning around your head. The thing that I didn't know until really diving in is you started Chuck E Cheese as a part of Atari and then bought it from Warner's to spin it back out. Correct. Take us through that. Okay. The idea before Warner was there.

1:18:45 as I felt We were selling these coin operated games for two thousand bucks and in their life they'd h do thirty to fifty thousand in coin drop. It didn't take rocket science to say I'm on the wrong side of this transaction. But I didn't want to compete with the operators that were putting them in bars and restaurants and I didn't want to compete for locations Broke.

1:19:06 So I said I'm gonna have to create my own Location. And so I said, Okay, if I'm going to be building a big arcade

1:19:20 What's my best draw? And I said, Well, we've got to have food. And what the food needs to be is pizza'cause there's a wait time, ideal time for the Then The most ideal time to go play the games while you're waiting for the pizza. Yeah. The most successful pizza parlor.

1:19:37 In the Bay Area was a thing called Peace and Pipes where they had a deconstructed Worlitzer Theater organ. All over the place. And so

1:19:47 There'd be an organist and you'd see the drums going and they put lights on the various things, so that it was kind of a show. Yeah. And I thought to myself, okay, I've seen this before. I I I can I can do something like this. It turns out that I'm I was Going to take my daughters. to Disneyland. I was trying to get some ideas about

1:20:09 What I could do. That wasn't a Bortlesser Theater organ. But had s the same marketing. And we went to the tiki room. And I said, Oh, my engineers can do this and we can replicate it till the cows come home. Yeah. And so

1:20:24 that became the working prototype for Chuck E Cheese and uh you know, in terms of concept and And we Literally. Opened the first one. Three weeks after we closed the Warner deal.

1:20:38 Wow. Was it in San Jose? It was in San Jose. It was in an old Brokerage House. It was five thousand square feet and the day we opened we knew it was too small. Yeah, the the typical piece of parlor was a

1:20:52 five hundred square feet, maybe a thousand you know. And this was five thousand and yet it was way too small. Wow. And did did the first one have I mean My

1:21:03 Memories of checky tees are the whole elaborate system with the tickets and the prizes and all the animatronics, the show every half hour. Most of it. Most of it. I always felt that the right way

1:21:18 to market it was We would survey The cost of a large pizza. We then Up that.

1:21:26 By fifteen percent. And then Give tokens that if valued At twenty five cents would look like we were Fifteen to twenty percent cheaper.

1:21:37 Uh so you would just bundle in effectively some some starter gameplay with the pizza. Exactly. Oh man. Was Atari Creating the games that were in Chuck E. Cheese then? Partially we would We would buy from anybody. Yeah. Like we One.

1:21:54 Ski balls and things like that from others. Hm. But uh it was off to the races. You want me to tell you the deal I got from Warner? Desperately, yeah.

1:22:06 They said. You know, I we're I was talking about expanding it at a budget meeting. Next I don't think we want that. And I said, Really? It's really Good business. I said, I'll buy it.

1:22:18 They said how much How much do you want to pay? I said, Oh. I don't know. I said I'm you don't really have to Work at this and the carney wheels are turning. So

1:22:30 I got it for half a million bucks. A year for five years. Oh, they let you pay it over five years. No interest. No interest. Wow. And how many locations did you have at that point? Just the one. Oh just the one. Okay.

1:22:46 But That one. threw off seven hundred thousand dollars of cash flow annually. I mean they clearly just didn't didn't believe in it.

1:23:01 Yeah, they didn't believe in it. Also, you were just the king of payback periods and cash flows. Exactly. Well That's when you don't have cash, you gotta think that way. Yeah. Yeah. What year is this that you you you buy it for five hundred K?

1:23:15 Uh seventy seven. Seventy seven. Or at least f it's the the year that you start five payments of of one hundred K. So that's in seventy seven. Over the next, I don't know, decade, decade and a half, Chuck E Cheese has close to three hundred locations. franchises and sold it to Brock Hotel.

1:23:40 To to who? Brock Hotel. Brock Hotel. What did that transaction look like? It was a Bad deal for me. I'd taken the company public.

1:23:49 I made more money on Chuck E Cheese than I did on on Atari. But I did it. Through selling of stock. going on. The nineteen eighty three was when the

1:24:02 Video game kind of thing. And uh Chuck E Cheese. Was hit by that a little bit. And so I had hired

1:24:14 A New president of Chuck E Cheese. And started. Really seriously campaigning a sailboat.

1:24:22 I e screen off. And and y I might add, in nineteen seventy seven I got married again. And You know, once I had sold the company to Atari

1:24:37 took a little bit of the fire out of my belly. So sold itari to Warner. Yeah. Yeah. And so I got married, I was spending a lot of time wooing and wedding my my bride and then We'd hang out and You know, was you know, got the big house and did a remodel and you know all all the stuff you do when you have a lot of cash. When I was campaigning the sailboat, I won the Trans pack.

1:25:00 Newport to Hawaii. Um in nineteen eighty three. That's a b it's a big sailboat race. You're talk you're talking to someone who doesn't I I'm not a big uh Yeah, it this is like a very well known sailboat race. It's it's basically longer running the America's Cup. Huh. But it's considered to be

1:25:18 Not quite America's Cup because it's mostly downhill. Is it what is it? The wind is always at your back or something? Exactly. Yeah. So so you want a Boat that is Very flat bottomed.

1:25:33 They can get up and surf. Yes you you fly spinnaker's all All day long. But it doesn't point up wind at all. Hm you know. And the America's Cup you have to be an all around boat. I see.

1:25:48 Transpect. Competitors are called sleds. But anyway, I won it in nineteen eighty three. Congratulations. And the minute I hit land I get this call. We're gonna miss our projections and lose money in

1:26:04 Enough. Third quarter. And you're a public company at this point. We're a public company. You know, what happens is is you know, when you lose money I had uh

1:26:15 A couple of you know lines of credit out there and that violates covenants and It just starts to create a shitstorm. And so to get out of that I ended up sewing. Hm. Wow. Not for a lot of money, but

1:26:29 It's okay. There was another company. You've started so many companies. in the years since and continue to But there was one more company we wanna talk about before we move on to uh acquisition category here.

1:26:43 that came out of Chuck E Tees. that you ended up selling to George Lucas. Can you tell us a little bit about that? Yeah, I had a project called Cadabroscope. And what I wanted to do is create computer aid animation. And I felt that doing tweens and things like that that the

1:27:02 Technology was good enough. And um We created some pretty good software, but the The computers were so crappy in those days. I mean it was taking forty eight hours to render A complete frame. I mean, you know

1:27:17 And half the time the computer had bombed but tw before it finished. So You know, if you got one frame a week, you were really rocking. And this was w with a Max seven eighty, which was the go fast scientific computer at the time. And these frames are six forty by four eighty or less than a No they were they were uh No, they were. They were 640 by 480. Yeah. One a week.

1:27:40 One a week. Wow. And there's not a business. Well I'll imagine it in like twenty sixty five. Yeah. So I ended up selling my software to George Lucas when when Chucky got into trouble. How Scrambling for cash.

1:27:55 And So In some ways I like to joke and say I I founded Pixar. Technically. But

1:28:03 George Lucas. Took it and did it. Well I Well it could have a scope. Which is the name of the technology that you're

1:28:12 I showed Steve Jobs, he came over and he was very fascinated. Wow. And I told him about some of the problems we were having, da. And so he came to me.

1:28:23 When he was offered. Pixar. And I said. From George Lucas. Yeah.

1:28:30 And I said the big key Is render time. If you can solve the render time problem, it's a good deal. And what I hadn't realized is he'd figure it out. How to do a render farm. So where you where you basically atomize the problem and and get a whole bunch of different computers to work on it.

1:28:49 That was the first Grender Farm. That ever existed. Wow. Wow. Anyway. That's so cool. There's fun acquired history too,'cause Pixar was our first

1:28:59 our first episode. I think we dove into the research and, you know, we were excited to find out that Steve Jobs Pixar came from George Lucas at at Lucasfilm and what a cool story that was and here we are a hundred episodes later deeper getting the, you know, even deeper origin story. It's just really cool. Yeah. Well. Super cool. All right.

1:29:20 Let's go into uh our section after history and facts, and this is an illustrious, amazing history and facts. What we tend to talk about now is it what would have happened otherwise. And and and the way that I want to frame this um this episode is what if Atari was never started How do you think

1:29:39 this crazy enormous video game industry that we have today. I'm sure you've thought about this before. Like there's one view of it that's it wouldn't exist at all. And that, you know, probably probably not true. There's another view that is uh it would be no different than it is today, which is also probably not true. So w what do you think is the the middle there? I think that's a good thing. There's a ninety percent probability.

1:30:03 That there would been a video game. Post the sixty five oh two microprocessor. I think that the technology had progressed point where it was pretty simple. The secret sauce that I provided is to figure out how to do it.

1:30:20 With with state machine technology, which isn't an obvious thing. to most engineers. You know, and I think that was That was my unique

1:30:30 contribution. Yeah. is far enough out of the mainstream that it may never have happened. Or it may have. You just never know. There's there's a lot of I always say that we're running down the hallway of a

1:30:44 Of a uh Of the hotel and you're checking all the doors. And sometimes You know, there's a broom closet and some most of the time it's a regular room, but every once in a while there's a there's a Ballroom.

1:30:58 You're not there alone. There are many people running down those same streets. Yeah. I think it's Extremely arrogant to think that uh You're

1:31:09 Definitive in something. I read somewhere, I don't know if it's true. I th I think this was after you left Atari after the acquisition that There was potentially a deal on the table for Atari to be the US manufacturer and distributor for the Nintendo Entertainment System for the Famicom. I just know that that was an opportunity.

1:31:33 And uh it was turned down. Wow. That would have been a very different uh history. So I wanna add one thing that About the trans pack.

1:31:45 Because another important thing happened over the chart table. Four in the morning. We did the Rough four E Tech, which was the foundation for navigation systems, you know. Yeah if you have a mapping system in your car on your iPhone. It's all based on the technology we created.

1:32:03 Wow. I think I remember reading in the research That at ETEC, which is one of the companies you created that did navigation technologies. Uh you had a An arrow.

1:32:14 based on the space invaders for the car. And still to this day, any navigation, you know, Google Maps, whatever, like You're an arrow if you're the car and that's'cause of that, right? Yeah. It's kinda fun stuff. That's awesome. Pretty cool. What happened to ETEC?

1:32:30 Sold it to Newscorp. Who sold it to Sony, who sold it to Um Tell Alice or N have. Tell Alice. Yeah.

1:32:40 Well Oh how these things uh Find their way to the uh earlier earlier this season. Uh So it it all comes back around. W one other question before moving on. Um Is

1:32:52 Atari Pioneered. in in in so many senses. But is not relevant today.

1:33:01 H how could Atari have traversed the waves that came over the next few decades and been what Nintendo became in especially in the United States. It all comes down to management. The company never had a c a a strong sense of self. In fact I think

1:33:20 Atari is maybe the only company in the world in which The market leader. Abandon. It's market.

1:33:30 Can you imagine that? But it did. And and the sale to Jack Tremell, you know, it was just a Total cluster. This is Warner sold it off. Yeah. Hm. They just didn't have a feeling for it. I mean

1:33:45 The executives they put into Atari were all record guys. They didn't realize they were record player guys as well. And so they were an East Coast company. I mean, like we covered in our last episode. Uh it was just like Fairchild like an East Coast.

1:34:01 corporation running a West Coast technology firm in that day and age. It just didn't work. It just didn't work. And they and in Reykusar. Totally screwed up the corporate culture. Hm. Like we went from Not allowing executives to have reserved parking spots. Mm-hmm.

1:34:19 Hey. Having the workers pass An empty swat with You know, vice president.

1:34:27 Was just And us versus them. Probe. Totally. And and I said, I want this

1:34:34 I want us to be as egalitarian as possible and yeah, I'm gonna make a little bit more money, but you know, I've got more responsibility and And you know, day. We all are in the same cafeteria. We're all hanging out together, you know When we have a beer bust on the back dock, we're all there, you know And we went from that to a private dining executive dining room by a four star chef

1:34:59 Two You know, limos and reserve parking spots and all kinds of us versus them tropes that Was just Not a Tari. Hm.

1:35:10 The irony is now in Silicon Valley There's a private dining room with four star Michelin chefs. For everybody. And everybody takes Uber Blacks to work and like and the company pays for all of it. That's as it should be. Yeah. Talk. our next segment that we d we typically do is acquisition category. So we we decide, you know, and there's there's very clear cut and easy uh episodes where, you know, the company bought it either it was a people acquisition, technology, product, business line, it was for an asset.

1:35:39 In this case I think what's coming out is Warner didn't really know why they bought it, and then that led to some of the kind of falling apart later. H how would you characterize why they bought the company and what it was for. I've often thought

1:35:55 That Steve Ross, who was suffering from prostate cancer. Brilliant one. had a very clear idea of what Atari was. When he got sick, I think the Record guys didn't.

1:36:10 You know, in a very significant way. And that's where it kinda came off the rails. Mm-hmm. Hm. All right, well normally here after category we would go into grading. Nolan, we will take your color on everything so far, both on Warner buying Atari and uh uh you buying Chuck E Cheese back from Atari and growing that into what it was. We will take your color there as as our grades and finish up here. Nolan, thank you so much.

1:36:36 You know, before we close up, I gotta tell you what I'm doing now. Please. Please. AI driven board games. I did a deep dive on The Amazon Echo and the Google Home system. Mm-hmm.

1:36:50 And the AI under it and the speech recognition and everything. And became mesmerized. Hm and I thought to myself, this is a game platform that nobody knows about. And so Let me do some board games that you can talk to.

1:37:07 Hm. And that will answer. And so now we have Saint Noir. Which you can go into at Amazon right now, buy the board game.

1:37:17 Then download The Saint Noir app from your uh Amazon Echo. We're not on Google Home, we will be after the first of the year. Yeah. And you can play a murder mystery. in which you're in the creepy town of Saint Noir. And there are twelve creepy people.

1:37:35 One of which is a murderer. Oh that's fun. And the Townspeople have to tell the truth. Oh mafia or werewolf, but kinda. Yeah. But but the uh

1:37:47 Perpetrator lies. Oh, and so the game is interviewing Everybody and finding out where they were on the night of the murder and who they saw and what they did and various things and find out who's it uh is it multiplayer or single player or both I always play with three or four people and we we decide and talk about things, but there's the board game and it's gorgeous. And I

1:38:11 suggest that everybody that's listening to this should buy six or seven. Particularly for Christmas. Absolutely. Well if only you could figure out how to put a quarter slot on the Echo, then that would be perfect. Well, you know When you sell it A bunch of paper.

1:38:29 For forty bucks. That's almost as good. Maybe even better. Well, there's one other trend here that you're on that I think is brilliant. I mean the of course AI driven is interesting, um, next generation gaming is is interesting, but popular emerging podcast category is true crime. And this notion that sort of like you could have interactive gamified true crime is really cool. Actually working on one of those. Oh awesome. Not to mention board games. Yeah. Oh boy. Oh except when when you say true crime, I'm not sure that it's gonna be true. Yeah. Nolan, thank you so much. My pleasure. It was fun. This has been a true honor.

1:39:13 Uh, we're so glad you joined us. And uh what a great moment in Acquired's history too, to bring it full circle with Pixar, our very first episode to be talking about the origins of Silicon Valley and um You know, you guys played such an incredible Pardon that. So thank you so much for sharing the stories with us. Well, I appreciate it. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig.

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1:40:37 We will see you next time. We'll see you next time.

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