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We'll talk during the paid portion of this 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. 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 and 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, Nolan Bushnell. Hello, Nolan. Great to be here. Good fun. Thank you so much for joining us. As some of our listeners know, Nolan has started a swath of other businesses, one of which, awesomely, is Chuck E. Cheese, which we will get much, much deeper into later this episode. We dug up some photos of young Ben last night. Yeah, Nolan, I should let you know, I'm going to turn my computer around right now. Chuck E. Cheese was like by far and away, my favorite place in the world. And here's designed that way, you know, here's some pictures of my third birthday at Chuck E. Cheese. And there's me with my favorite toy, which is a Chuck E. Doll. How fun. Now, Nolan, this is fun timing for us and for our listeners. 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, Don was really maybe the best board member I've ever had. He was also the most frustrating and infuriating. You know, he had this ability to ask me a question about my own company that I didn't know, but the minute he asked it, I knew I should have known it. And so I started to cram for board meeting saying, okay, Don's not going to catch me this time. And he always would. So I always believe that a proper insightful question can be very instructive. Well, that was as we covered on our last episode, you know, down in theocratic method that was 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 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 acquired. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how the group is together and then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akiyama Rita before we did our Sony episodes. This incredible primer. You know, he's actually a good example of why people listen to founders and to acquired because all of history's greatest entrepreneurs and investors. They had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what acquired is doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well, listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. And now on to Atari. Yeah, let's do it. Nolan, you were born in Clearfield, Utah, right? Just that just outside Salt Lake City. It's about halfway between Salt Lake and Harkin. Okay, okay. We were talking a bit before the show about you're reflecting on how you became an entrepreneur. It started pretty early, right? With strawberries. Yeah. 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 truck garden in the back of the house. And she said, we've got way too many strawberries. We're going to 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 50 cents a basket. I thought to myself, sell, hey, there's a market. And I went home. I picked strawberries, filled the basket. We had a bunch of baskets sitting on the shelf in the garage, filled them up and marketed them door to door. The end of the day, I mean, this is an hour and a half's work. In the end of the day, I had five bucks. This is in a world in which my allowance was 15 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 took that money from our neighbors. I said, no, but I provided service. They didn't have to go all the way to the store. Yeah. You're like the good eggs of, I don't think good eggs is down in Southern California yet, but it's fresh, farm to table groceries delivered to your door in San Francisco. It's wonderful. Wait, Jenny loves it. We use it all the time. Now, here's the question. I've often felt that that changed my brain to say, okay, D-link pay for hours into get a good project. Yeah. Or did I have a brain that was different to begin to see that connection between strawberries and a marketplace? Yeah, nurture nature nature and nurture and I can't answer that. But but you saw this yourself. I mean, your mom didn't tell you to go, yeah, start selling strawberries. Yeah. Yeah. You must have been younger than 10 at this point, right? I was eight. Wow. And then when you were about 10, you started a TV repair business. That's really right. Yeah. And that would come in quite useful later, I would imagine. Well, I'd always been kind of a checky kid. I was always curious about how things worked and that sort of thing. And I watched a TV repairman that came to our house. The TVs were big and bulky and so it was all house calls. And this was the 1960s? Oh no, this was 1953. Wow. I mean, the TVs were like a piece of furniture. Yeah. And basically cost a month's salary. Wow. Yeah. So it was a different ball game. And and I noticed that all the guy did was change tubes. So the next time our TV failed, I said, I'm going to give this a go. 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 15,000 volts. So you don't want to do that. Entrepreneurship comes with risk. Yeah. But you know, in those days, the schematic on the back panel, one tube was a vertical oscillator. Another one was the first IF. And so all of a sudden, I could tell which was. So if you had a lot of 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. And in doing so, I'd found a wholesale supplier of tubes. These were all tubes. This was for semiconductors. I'm yeah. I'm really old. This is this is before Fairtowell. Yeah. Yeah. And so I said, Hey, maybe there's a business here. And so I started marketing my skills. And at those days, a house cost was five bucks. Wow. And so it's been all day selling strawberries or you could do one house call. Fair to say. No, but I didn't believe that they're going to let a 10-year-old kid get into the back of their thing for five bucks. So I decided to charge 50 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. And that works swimmingly. I guess like a car trip to the console business. And then, you know, a couple months in, I started getting a reputation. So I went up to a bucket house call and two. 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 TV sets around the so this is pretty awesome. So like your 10 years old, you have your experience at TVs and the technology going into televisions at the time. Then your next job, I believe, you get exposure to the game world. Was your next adventure at Laguna Music, at amusement park? Actually not. My TV repair business turned into a full appliance repair business. And I became part of Barnell furniture company. And you know, 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. Hmm. Pretty good for a 10 year old. Yeah. Well, this was 10, 11, 12, 13, 14, 15, 16. I continued that until I went to college at 18. And you started a Utah state, right? Correct. Got it. I was living at the fraternity house. And I started doing gigs like, you know, in those days, there was this thing. And I always had money because I saved. You been an entrepreneur. And I was an entrepreneur. In those days, there was what they called 25 for 20. And that means that a lot of the kids would get the check from their parents at the end of the month. And they'd be out of money by the 15th. And so I'd lend them 20 bucks. They had to give me 25. It's a really long 25 for 20. Yeah. What's the APR on 25 for 20? What did you need to collect it by? Oh, the fifth of the month. Five days then. Yeah. Wow. That's awesome. I can see how you got into the carnival business. I'm a car. So you have these quite, I mean, at the time, they're like quite lucrative, especially for a college student business is going on. I was driving a MGA sports car and later on, I created it in for a Mercedes 190. So when you get any funny looks from people that are like, how are you getting all that money to buy cars like that? You know, nobody really thought about it that much. I said, 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 at the beginning of the quarter. Yeah. And I sell $5,000 worth of advertising and it cost me 500 bucks to print it and give them away. The part that I didn't know is that once you did that, I'd do it for every quarter. Everybody would re-up. So I only had to sell a couple who would fall out. So it was like nothing. So I went from Utah State to the University of Utah to BYU to Weber State. And so all of a sudden, I had, I had, you had all the colleges in the area, all the colleges in the area, 5,000 piece. And since I was doing the sales, when I'd go to a menswear place, I'd say, you know, you can pay me, you know, 150 bucks or I'll take a suit. And I got a moped. I got all kinds of great stuff. Amazing. That's amazing. It's like the trade in the paperclip for the house. 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. I was wondering why you needed the money to wear it at the amusement park. Well, it was a thing where I was putting myself through college at a relatively good lifestyle. Let's put it this way. I am an undisciplined disciplined person. That is, when it comes to short term, I'm somewhat undisciplined. That is, a summer night in Utah, going out with girls and things, you can spend a lot of money. And I decided that in order to remove harm's way, I get a fun job at the amusement park. I keep you off the streets. Get me off the streets. And that's why I say, I'm disciplined in terms of long-term strategy. But undisciplined when it comes to short term. You get there a move temptation. Exactly. It violated kind of one of my rules, which all of a sudden I was working for a paycheck for Yeah, trading time for dollars. Trading time for dollars. But then I discovered that in the games department, they paid commission when you did above that. And so all of a sudden, I could turn this dollar 25 cent an hour job into a two dollar and 50 cent hour job, which was triple full day. Yeah, you're making sure that's worth it. Yeah. And then because of the commission thing, is this ski ball, ski ball, guess your weight, knock the milk bottles down, you know, get the ball to stay in the basket. Would you make the most money on? Like what were people just like they just couldn't keep themselves away from it? A game called Tip em over. And it was a soft ball. And it was a one throw. You always think that you can knock them over. Well, you kind of can, but it's really hard. But it's it's perfect for marketing strategy. Because the way the games work is you were supposed to give away one dollar for every three dollars that you made. So you were to run your your booth at a 33 and a 30 percent merchandise percentage. The way the bottles worked, there were two heavies and two lights. And the two 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 of knocking down. So we had a dance hall and concert venue. Yeah. And so people who come down with dates to go see the beach boys or what have you. 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. So someone like us in high school. Yeah. Nathan, the water boy. I was captain of my high school football team. That's great. I was definitely now. I was at Chuck E. Cheese. So anyway, what I do was when it came time for Nathan, the water boy to throw. I'd set a stack and he'd win one for marrying the librarian his style. We are so grateful for you. Yeah. And it would it would turn the worldview 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 me. Oh my goodness. The, well, they had cheerleader to go without a stop to animal. That's spectacular. That is amazing. Diabolical. I'm envisioning the pond marketing strategy in the future and in bars here. But was it after that summer then that you transferred to the University of Utah? Yeah. What happened is once I got to John, there was actually a gap year when I went to work for Litton industries in aerospace and in a clean room doing guidance systems and things like that. Because you were studying engineering at Utah State. Correct. And then when I was in the fraternity house, I decided that engineering took too much homework. And so I transferred over to philosophy, then economics, and then mathematics. And it was just really about being able to screw around and not do so much homework. I kind of got into it. I liked the carny life that it does get into your. Yeah. I bet. But when they made me manager of the department because I was good at it and one of the guys, what's the manager quit? And so I was chosen to be manager. I had 150 kids working for me and I'm 20 years old and had to train them and manage the labor percentages and set up things. And I started changing the games to increase the revenue. A lot of times when the park was packed, we were undergamed. The faster you could get a cycle time. The more money you get. Yeah. And so the lagoon had the highest per caps of any amusement park in the nation. So when I got ready to graduate from college, 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. Wow. But I said, hey, I've got that legacy. Yeah. That's that's evergreen. My engineering degree is not going to be that way. I need some experience. I need to go. So let's talk about that. 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 places in the world. Stanford, Stanford AI project. Yep. MIT. Champaign or Banna. And the University of Utah, which doesn't belong. But it was really Dr. Evans, the guy who later founded the Evans and Sutherland. Yep. And for listeners, do I mean some of the other people who were there around this time, Alan Kay, who's there, John Warnau, who founded Adobe, Jim Clark, who would go found Netflix with Mark Andreessen. Netflix. Yes, Netscape. And then of course, Ed Kappmull. I have to ask, was Ed there at the same time he was? Wow. And I always thought that I was kind of the the the cheap and dirty guy because I was doing all the air. All these guys were doing great check. Wow. Did you know at that time, I mean, you say you were called the Utah guys. Did you have a sense at the time that this place in this group of people are sort of 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 kind of dirty in this car knee like, yeah, I know I had no idea that it was going to be pressing him. I mean, it's pretty amazing that you have this, you know, we spend 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 the amusement park and then this incredible engineering and graphics environment that you're in at Utah and all of those kind of we'll talk in a second about what comes next, but I've often said that my life has been a series of happy mistakes. You know, or center and deputy because to add to that, when I went to California and worked for Ampex and Ampex made it recording equipment for like Hollywood and the industry. And so what I learned there was really polishing my digital skills and my video skills. Hmm. So we had the big computers. I learned how to program, but the computers we were working on had a clock speed of 750 kilohertz. Oh, boy. And the screens that were on the computers were all vector graphic. Because raster scan wants 3.58 megahertz of data. And so if your computer's going 750 now, they had a wide address space and 64 bits, you know, so you could do some serious calculations, but they weren't fast. Yeah. Ball on the screen or the, you know, space invaders weren't going to move very fast. Well, what would happen is remember that the early video games were not Von Neumann architecture. They were basically complex signal generators. And you would you played space war back at Utah, right? Correct. So space war was the first game ever built for a computer. Absolutely. I mean, I stand on the shoulders of Steve Russell who did that as the MIT hobby railroad division. And he did that on. 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. Basically thought it was a cool hack and just shipped it with every computer they sold. Oh, cool. So every deck with every, these mini computers, every these PDP, the one that we'd used was a PDP 8 and a PDP 10. Okay. Utah didn't ever have a PDP one, which is what the original source code was. Wow. And so they shipped it. This was it was like the solitaire of yeah. Wow. With space war. That's incredible. And so the 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, in a mentally 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 would earn a lot of money. But there's machines cost like $3. $3.25 for three minutes into a half a million dollar or a million dollar computer. Right. And we're never going to recover the cost of the machine itself. But I went through the math and I said, maybe someday. Yeah. And then so when you arrive at AmpEx, this was shortly after like Fairchild had gotten set up and National Semite Conductive, which we talked about on this way. It says National Dampineered outsourcing fabrication of chips to Asia. And that dropped the price of chips hugely, right? Yeah. One day, I would remember seeing my office at AmpEx and glue chips. There was a thing called the 7400 series from TI in the 9300 series. They were basically glue parts, flip flops and gates, or gates, exclusive or all the Boolean constructs. Yeah. And they went from $2 a chip to $0.15 a chip. Wow. And so it was that precipitous, I mean, two orders of magnitude. And I said, maybe now it's not how I work. Getting close. Yeah. Yeah. Coincidentally, that Wednesday night in the Bay Area, I became a go player. Oh. Yeah. And there was a we were going to get into go. Well, there was a go being the game go. Yeah, the game go. And there was a Buddhist church in San Francisco that had a 24 or 7 go parlor. Oh, wow. Wow. And so I could just go up there. And I would generally show up in 1970. This was 1968. Yeah. And so I would go up probably eight o'clock on a Sunday morning. I'd play until three or four. And every weekend, that was kind of my go to. But I was living in Santa Clara, California at the time. And 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. And one of the guys was named Jim Stein, who was a graduate student working at the Stanford AI lab. And after we played go one time, he says, hey, do you want to play space war? I said, holy shit, I haven't played it since I was in college. Let's do that. And so we left the Stanford go club probably 10 o'clock. Yeah. And we played, we went up to the AI lab and played space war probably until three or four. My wife was not amused. I've seen you here this many times. But like when I was in college, I'm sure when you were in college, like, this is what you did. You know, like midnight, like, you can be like, get back from dinner at the dining column and be like, oh, all right, we're going to play Mario Kart till four in the morning. Yeah, exactly. We're going to play Halo. I was super smart. You were the first generation that was doing this. Yeah. And so that was, I said, you know, those two situations that drop in the chip price and my reacquaint with space war were, concomitantly, the driver that said, let's do this now. For folks that know of Atari, they're probably imagining the the the 2600 or they're imagining at the very least something they're playing at their homes. That's not how it started. No, it started as a coin operated game business. Well, it started as Cisagy, right? Correct. And you can't correct Nolan, David. Correct. He knows how it started. Well, I just I just playing it wasn't Atari yet. 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. We got some things moving around on the screen. I went to the dentist and told him about my project and he says, how you should call this guy, which was the head of marketing for nutting associates. I didn't even know they were in town. They were a game in operating game manufacturer in in Mountain View. And I went up and and show them the game and they said, yeah, we I think we'd be willing to license this. They said, but you know, we don't have a chief engineer now. And I don't think they, you know, the one we had would understand this technology. Are you available? I said, I don't know, I'm pretty expensive. Of course you did. So I sound like such a carny, don't I? This is great. Yeah. Well, also, I mean, this is like you were I had a my notes we didn't cover. I mean, the people that were starting companies that we talked about on the part one of the Sequoia episode at this time, like the trader, I say, didn't like these are hardcore scientist engineering types, you know, usually in their forties, usually in their end of the 20s. You were the first, I think, real like hacker type entrepreneur. I think so. Yeah, I often said that I blazed the trail for both gates and jobs. You know, you know, just proving that it could be done. Yeah, I mean, because they didn't look like, you know, Gordon Martin about nice. It's kind of like 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 that. The world is accepting of young brilliant 20 something CEOs and boom, we have this wave of them. No question about it. Yeah. Oh, but I got I got to finish my. Yeah, yeah, please. So you had set up Syzirgy engineering, right? Yeah. And then I went to nutting. I said, I'm pretty expensive. And they said, well, how much? I was making $850 a month at Ampix. I said $1600. Yeah. They said yes too quickly. Whoa. Oh, see, you left them on the table. Yeah. The company car. So how did that turn into what would become a tarry then? Silicon Valley has a couple of things going for it that are, I think, underappreciated. One is that almost everybody knows, in a minute, somebody that went off started something and made a gobsmack full of money. And they say, I know that guy or that girl. And 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. Yeah. It's funny. 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 there's just people do. Yeah. There's nothing special about them. But then I had a real advantage with nutting because nutting put the first computer space in. And all of a sudden you start noticing and saying, these guys are bozos. They're paying me $1,600 a month. I have a company car. What do they do? Well, they fired the head of sales because he was making too much money on commission. No, that is a real bozo. That's a really bozo. And so 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 under produce the nickel and dime things. And my theory in life has always been go bigger, go home. Yeah. And so when it came time for that, I said, you know, I'm going to have to leave. And I will design your next game, but we'll do it under contract. Little be knows them. I'd already gotten a contract from Midway and Valley. So I had two contracts based on that's great. And so you were a game designer where you also the sort of lead engineer on that first game with them. Okay. Yeah. I was a lead engineer. I basically did all the and that was a computer space, which was a commercialized space war. Basically, yeah. We come to the next chapter of total serendipity. My first engineer, an Al Alicorn, was actually my tech. And he was in a work study program at Berkeley. And he'd do six months on and then six months at Berkeley. And then six months as my tech turns out that Steve Bristow was his alternate. And both those guys, like when Atari came along, Bristow became head of engineering and Alcorn became head of research. They were brilliant engineers. They were really good. But very different. Al was much more rigorous. That was his brilliance and his downfall. He would interview 30 people and not find one that was acceptable. Although is he the one who brought Steve Jobs to you? Yeah. So he found one who is pretty good. Although not an engineer. But then we'll get there. But Bristow, if you said, okay, we need another 20 projects. And we need in the next 15 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 was a scramble. It'd be messy, but it'd get done. It'd be messy, but it'd get done. Exactly. But the first day that Al came to work for us and us being now this new company that was working on a contract. Yeah. Yeah. Was the same day that I'd heard about Magnavox showing a video game at a trade show up in in Burling Game. And so I went up and I saw this thing and it was an analog piece of crap. And I said, 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 there was so many things wrong with it. There was no score. There was no sound. There's no score. Who's going to play that? Yeah. Not just that. After you hit the ball, you could change the dynamics of it with bike twisty and knob. You don't get to change the name. That's just wrong on so many levels. Yeah. So it was analog. Like it was running on like vacuum tubes? No. There's RC time constants. So basically if you have a capacitor and a resistor, it'll change the voltage based on how vast it is and that gives you a delta V. It's kind of incredible that early video games were actually analog. Yeah. Oh yeah. I mean, route bear with these designs really important. The very, in fact, the very first game, the predated Steve Russell's at MIT was an analog game played on his telescope at the Brookhaven National Labs with a guy named Willie Higgandbotham in terms of full history. It's closed out here. Always building on the soldiers of giants. Yeah. Okay. So you saw the magnivox. You thought things were piece of crap. Yeah. But I said, you know, using our technology, maybe this would be a fun game. But more than that, I needed a test project for Al because computer space was really complex. And I thought, you know, as a learning project, what you want to do is bite size things down to get people to understand the tech. And so I described the game and said, that's your first project. And no like design docker spec. It was like, here's kind of how it's going to go. Yeah. This is a blackboard. Yeah. Before white boards had been. And I said, you got to get it done in a few weeks because I think I can sell it to general electric. I might have told him, I've got to deal with general electric. And I'll be damned if in two weeks he didn't have a working pong machine. Wow. But it had some problems. For example, it had on the paddles, angle, incident, single reflection, you know. Yeah. I read something that this was sort of Al's idea after what you sort of drew and described that he thought, well, 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 bounced off of the pedal. Now that's very interesting because the way I remember it, I came up with that idea. But I'm willing to give it to Al. I'm scared. Well, who came up with speeding the ball up as the as play went on? Again, I think I did. But I'm not going to a pine 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. Absolutely ramping up the difficulty. And two, if you're collecting coin drop, then that's going to speed up those games and you're going to more people flowing through. So before we get into what happened with this prototype, the name of the company, can you tell us how it became Atari? Which of course is a term from. In those days, everything was snail mail. And so if you wanted to incorporate the standard way to do it was to put five company names in case the first one wasn't available. So Atari was actually number three. Oh wow. So it was one Cisagy? One was Cisagy, which was owned by a candle company in Mendocino. And so this is with like the state of California? Yeah. And to this day, I don't remember what number two was. But then number three came back Atari. And what an amazing name. I mean, it starts with A. Well, which is great. You know, that's funny. When we when we first got it back, we weren't sure we liked it. And Atari is like the equivalent of check in or check made and go. Correct. Yeah, check is probably a good thing. Close enough. So you didn't like it at first or you weren't sure? We're not sure. Yeah. Which is really funny because, you know, I really believe that like Shakespeare says, you know, a rose by in it or the other name. Yeah. Over and over again, I've named a company that has not sounded right two weeks in it's the best name in the world. Yeah. Yeah. It's like a how Phil Knight hated both 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 is wonderful. And you know, it's a foreign day and the and the Pong paddles and the how did you come up with the logo? Had that come to be that was done by George Opperman who was a brilliant brilliant graphic designer. And I said, we need a good bug for the company. He came up with 10 and I said that one. Wow. And I mean, truly today, one of the most iconic brands ever created. Really? T-shirts everywhere in hats. I mean, you can't go weak without seeing the Atari Sauron somewhere in your life. It's pretty and it's it's optimistic. It's kind of, you know, upward, upward driving this. And it was the paddles from Pong that inspired it, right? No. Oh, no. That's revisionist history. Yeah. Okay. Then we have it from the man himself. So, okay, so you had this prototype of Al Alcorn's demo, you know, prove himself project. And it turns out it's pretty fun, right? So I thought to myself, you know, my cariness, you're carny instincts kicked it. Maybe like let's let's re brand carny is incredibly entrepreneurial. Like we can keep saying carny on the show, but like we shouldn't deprecate this. This is like a core, you know, personality trait of wildly driven scrappy entrepreneurs. Yeah. Well, I thought to myself, so maybe I can get Valley to take this game and complete our contract six months in advance. Because you weren't planning on this being the next game. This was just a test for throw. Yeah. But if they're impressed and say, look, here's the game. Maybe let's see what they think. So we built up two and these were in wire wraps. They were going to put one on location. And I got on the airplane with the other one under my arm with a modulator so I could hook up to a local TV. And I went to Valley in midway and they were not impressed. 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 going to be an on starter, which in 2020 hindsight turned out to be brilliant because it gave a woman an ability to choose who she played with. The equivalent of I assume at that time, women weren't like buying drinks for men, but no, but a woman could be buy a game of pung. Yeah. I want to play pung, but I need a partner. So she pulled somebody off a bar stool. Wow. So I mean, it introduced a completely new environment variable into the bar. And it was also could combine with the hippie female empowerment, you know, women are as good as men that had a this is 1972, right? This was 1972. Yeah. Wow. So when Ballium I've rejected this. Correct. But you see the potential. What do you call it? a wire rig? Wire wrap. Wire wrap. And inside of 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 you'd had these pins sticking up. And you had this machine that would really wrap a wire, a 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 going to be where you thought they were going to be on the chips. Precisely. Got it. But when you looked at it, it's like a rass nest. And what happened is that when I presented to Ballium, they were tepid. They said, let me think about it. And when I called back to the plant, they told me about the earnings that it was making at the local bar. So you would put a prototype in. Yeah. When I heard how much it was, I called it ballet. I said, Midway doesn't want it. And, and, and you mean how much money it was making at that bar? At 80 Caps. Yeah. Wow. Put it in context. The game was making over $300 a week. And. That's like three X. What a normal game would make, right? Oh, yeah. And the bill of materials on the machine was $325. 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 50 50 with the bar? How does the revenue split work? 50 50 in the next days. Okay. Okay. Two weeks. You're making two waves. You're making your money back. So now, 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 got to put it there. Got to put it there. And I said to myself, Hey, if I can't sell these things, I can operate them and be okay. Yeah. So I took all the money that we had in the bank. And it was enough to build like a dozen of them. And then from there, we got the money. And when we sold some, because people started hearing that this game was doing well. And so we went up to the San Francisco distributor and he ordered 10. The guy from Los Angeles ordered 10. I'm curious. What would the the bali and midway deals have given you? It was, 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. They did everything. So you're then saying, you know what? We're so confident in this thing. We're going to tell these guys that in a nice way and in a clever way that we're going to do this ourselves and that we don't, you know, no, I didn't say that we're going to do it ourselves. I said, we'll go ahead and finish the project, the driving game that you want it. Oh, I see. Which there's another chapter to this four months in. Bali came back to this and said, we'd like to do Palm. Huh. And you knew what it goes and gives you at it. And so I said, Oh, of course, at this time, there were 20 companies that were copying us because, you know, we had a garage shop. Anybody had a tin. Anybody that had a garage shop could knock these puppies out. We hadn't, you know, in those days it took four years to get a patent. We deployed for it, but we didn't have it. And so, you know, it was, it was oiled west. And so Bali was really noble by saying, Hey, and still just knocking us off. They took a license and paid us five percent. Wow. And stand up business practice right there. Stand up business and completed our contract. Wow. Wow. Was it around this time that you 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. Well, there was kind of the ball and paddle phase. Then we go went into what I called the game innovation phase of the company. I realized that in those days, the coin op distribution network, there tended to be two, sometimes three in every major city. And it was normal to have an exclusive relationship. So I could pick all the best distributors. The ones that 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. 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, you know, it was actually another place. And it was just before trade show and they had a game, which was the next in the line that we were going to 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. So we had 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 a secret forever. So we floated the rumor that these guys have stolen trade secrets and that we were sorted. Okay. And then a couple of months later, we floated the idea that we settled and that now we owned a piece of key games. And did you own the entire thing from the get go? The entire thing. That's great. And then we decided that we were going to merge the companies together. Take a nice photo, shake hands. Welcome to. Yeah. And then there was a question, distributors, what do you want? Yeah. Should we take the thing away or should we give you both warnings? At that time, so you changed the business practices in the industry because they didn't want to give this up. 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 op business in 1975, we had an 80% market share. Wow. Amazing. Wow. And so it's going from nowhere. You know, we were undercapitalized. Give us a sense of how many cabinets you then manufactured from what's 71 to 75? Probably 300 thou. Wow. And each of those earning roughly a couple hundred bucks a week. Correct. How'd you capitalize that or did you manage to get pre-orders and have sort of a nice working capital cycle? Actually, the business model, I'm more proud of than the technology because I built this company on each my partner and I put in 250 dollars each. That's the only capital that went into the company until dawn Valentine in 1975. Yeah. And so what we did, I figured out just in time inventory. So all the cost was in the cabinet, the TV set, the coin mech and the power transformer, the glue parts for the computer and all that. It was a lot of numbers, but not a lot of that sense. So we could actually, from the time a cabinet came on the floor, we'd have the TV set and all the other pieces come in all at the same time. And so we were turning inventory 28 times a year. Oh wow. That's like Amazon levels. Exactly. So we were able to essentially sell a product and have 60 days to pay for the the the the the version of the company operating possible cash well. Wow. And what were the payment terms when you would deliver one of the units to 30 days. Okay. But we'd give a 10% discount for five days. But then we found this factory company that would buy our receivables. And so I get immediate cash. Wow. So you grew to millions of dollars a year on no no capital. No capital. Wow. How do you spoken with with Don Valentine or any other investors and to foreshadow? The capital had really been invented yet. Yeah. Well done. Yeah. And from what I read, the sentiment around the time sort of associated coin drop with mafia activity. Yeah. And gambling people didn't want to be involved in investing in this sort of mob controlled or mob perception in industry. Yeah. Well, it was true. During the prohibition, the mob provided illegal booze illegal gambling, loan-charging and prostitution. When prohibition was repealed, they still had their three the troche. And then the games modified, you know, in the species they had roulette and slot machines and the whole nine yards. But when all of a sudden the species 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 very rare. Oh. So that's why pinball had such a negative stigma because of pinball, but because they were actually slapping machines. They were disguised farm machines. They were. Yeah. Wow. The proto venture capital industry that we talked about, the Arther rocks and you know, the folks that were the Tommy Davis's life, they weren't gonna. I'm sure you didn't even talk to them. I didn't know. I hadn't heard of venture capital. I, you know, it was just wow. So how did you. I was just young and dumb. How did you and Don intersect then? He came to visit me. He found me. I didn't find him. And at that point in time, we were in six buildings and we were up about 30 million in sales. And this is like 74 or at least 75 somewhere in there. And so we were kind of getting to be big shits in the valley. Yeah. Wow. And he had just set up Sequoia capital. Yeah. Taking it independent from capital group. No, you get, get this. He says, can I see your business plan? Oh, listeners, I wish you could see the face Nolan just made. Business plan. We had no business plan. I'd been running this thing by the seat of my pants. He says, well, I'll set you up with a guy that can write your business plan for you because I need it for an investment because 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 when you're already doing 30 million in sales. Yeah, I know. Wild. Different world. And when Don first approached you, was it called Sequoia capital at that point yet? Yes. Okay. So he had fully spun out from capital group. Correct. And how did a deal get done? What did he offer? Did you? How did you broached the conversation between the two of you of accepting capital to a business that had never had capital before? Well, to get the right patina on this, we had the summer of just content. And I told you how we operated in positive cash flow. That's all fine and good until you fill up your production line with products that you can't sell because there's a part that's missing. What happened there? We almost went out of business because- That may or may not have withheld the part now. There was a chip that we needed to get and it was on backlog for three months. And so one month in we were way behind on our payments. We got sued and three months in all of a sudden 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, you know, coming to collect assets. What they really want to do is collect 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. And so we would just go every week we'd use a different checking account to pay our people. Wow. Oh my goodness. Because you're trying to keep the doors open. You're trying to stay in business. You think this will get resolved and you want to keep your great people and your great business too. So was it in this really tumultuous time when you did the deal with Don then? Yeah. We were damaged. And I did a reorganization with all my creditors. And basically I gave them I said if you want a hundred cents on the dollar you've got to give me six months. If you want 50 cents on the dollar I'll pay you in two months. And if you want cash right now I'll give you ten cents on the dollar. And then I said and if you sue me you'll never get an order for me again. Wow. In our life. And then to get the line going again I went to Jerry Sanders from AMD and I said we've just been cut off because of credit hold. I said but I laid out what what the option to do is and I said I need a 50,000 dollar credit line for your parts. And if you give that to me you'll be my preferred vendor from now on. Wow. Who are using Fairtelps before? Fairchild. Fairchild. Okay. And TI. And they were just jerks. And Jerry said okay. Wow. It probably was worth 50 million dollars to AMD to be the prime supplier for Atari. Yeah. Pretty good. Okay. Very good. Okay. So that we've been good friends since we've got. 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 during the time of of tumult and before the AMD agreement. Yeah. But of course you hadn't closed yet. And closed. You know you're you're maybe a month or a few more months goes by and you're getting ready to close the deal. And we've gotten much healthier. We know all the things that we've done. We've fixed up things that we were shipping and all of a sudden we weren't under stress again. And so it became time to close. And that night I said to Joe, the president, I said I can't do this. This isn't this is not the right deal. Don had champagne iced up in his trunk and came out and I said sorry the price isn't right. And I said this is the condition when I agreed to this this condition now the price is double double double. Wow how did he react? Oh he was pissed. But I was willing to walk away. You didn't need the capital. I didn't need the capital. Two days later he came back and he said okay. Wow. What a story for the first investment. Well it was my relationship with Don was always a little bit love hate. You know I could see that. And because you don't you don't dick with Don Valentine. Well I've heard then that board meetings could take place in hot tubs. You know that can you describe the Atari culture at this point. We talked about you as the first hacker archetype as a CEO or I don't know if you called yourself a CEO president founder. I see you. Okay. What was the company like and how is it different than other companies? I think to understand that 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 in our tie-dye shirts and go up to San Francisco and and be posters. Yes you guys were engineers and we were engineers but you know sometimes it was kind of fun to go up there. And so there was this ethic the summer of love and all that and you know don't trust anyone over 30 and you know smash the state and all that. But what really was it was a an idea that should treat everyone fairly not based on history not based on legacy not based on you know who you were and what what you came but but what your soul was what your capabilities were. And so we actually created this company manifesto or a constitution. And so we encapsulated equal pay for equal work very first one in Silicon Valley. So we felt and we had some amazing women that worked for us that were just love the whole idea that we had this manifesto. 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 jobs. Yeah. Uncam dirty. He just walked in one day and said he's not going to leave until he had gone to job. And what was it this like I mean you guys have become pretty big in the valley 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 I heard about the culture and yeah absolutely and you know he liked the idea that we were doing something that wasn't bombs wasn't you know military and by being in the game business we actually had a real advantage because a lot of the businesses had some military outlook. And so if you were foreign national a lot of times you couldn't work for those company. So we had our pick of the crop in terms of you know the brits at the time had just wonderful engineers and Germans and and what have you from all over the world. Wow yeah and you had that you a unique recruiting advantage. Well not mentioned. You're in the Bay Area to be a nomad probably just ended at this point. Yeah pretty much. I'm sure there are a lot of people in the Bay Area at this moment in history who were none too keen to be working for companies that were selling to militaries. Yeah. I'm sure you've you've spoken many times about your experience with with Steve Jobs and Steve Wozniak. You are one of the very few people in the world that were ever either of their boss. Right. How did that go? How were they as sort of young budding talent and what are some of the things that they did together at Atari? So I want to clear up this. Yeah. Wozniak never worked for me. He was always working at HP. Yeah. And I put Steve Jobs on the night ship because I knew Woz would hang out with him. Ever the entrepreneurial? Well I called it getting two two steves through the price of one. And you got an advisor. And Woz is and was a true subant. I think actually Woz doesn't get enough credit for the success of Apple because he could design discrete logic chips. I mean he did the Apple II as a design construct was brilliant. It was the most efficient articulation that you could probably Woz did it all night or two nights in a row. Developed the drivers in the hardware to interface this floppy disk drive to the Apple II. Took Atari seven months. Wow. And we had some smart people. Wow. Wow. So those sorts of things for me just gives me tremendous respect for the man's capability. We had a deal where the engineers at Atari could bid on the projects. We'd give them 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 this game called breakout. And nobody wanted it. Quite success out in the world breakout. Well the perception was that ball and paddle games were over. And this was a ball and paddle game but with a twist. What year was that? 74. Okay. So we're two three years after the amazing success of Pong. Right. Got it. Might have been 75. I'm not sure. But they'd never been a single player Pong. No. And it turns out that breakout was actually the game that that launched the Japanese market for video games at all. Yeah. And so at this point in 74.75 Atari had just started shipping home consoles. You would 75 75 75. Got it. The VCS that became the 2600. Right. So many of us had. My understanding was you were the the sort of game designer and kind of visionary behind breakout. This was a game that you'd sort of really come up with a concept for. And so you put it on this list for different people to bid on. 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. I knew that he wouldn't do it but was would. Amazing. Was is not an employee of Atari. He's just hanging out with jobs at night. How's the IP work on that? It was different employees. Yeah. Crazy. Wow. And so was does all the technical design of breakout? Yeah. Now I did a deal where they got a bonus based on how few chips they could use. Yeah. So I read something about this that the cabinets typically had 75 plus boards in them. But it would save Atari like a $100,000 if you could remove each chip. Yeah. And that's absolutely true. And so the was as design was like 40 chips. I mean it was unheard of. Wow. But it had sort of feedback systems that made it really hard to test. And so once the game was done and everybody could see that it was fun. They did a re-hatch. But I paid the bonus based on the number of chips that came back which was $5,000. And that was a lot of money in those days. Yeah. Subsequently, was 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 I said, 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 $2,500. He said, this is jobs did it to me again. Jobs told me it was $500 and he got $250. Wow. And this is before they started Apple together. Oh, no, no, this is after. And you know, was I said, you know, I really don't care. He said, because of jobs, I've made a lot of money much more than I ever thought I would at that. And I said, and he must have had a better need for it than I did. Wow. Wow. What a feeling guy. Yeah. Did jobs come and tell you that he was going to leave Atari and go start Apple? Yeah. How did that happen? Well, he asked me to be his first investor, $50,000 for a third of Apple. And I just said, no, which I've kind of regretted. And but that's okay. Don made a mistake with Apple too. Well, it was really a thing where I actually think if I said, yes, the world maybe have been a slightly different place because Mike Markler, who did the first investment, was also very hands-on mentor. 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. And remember, Markler was the first president of Apple. Yeah. Markler had worked for Don Valentine, right? Yep. And the story is that Don sent Markler over to talk to Steve. I sent Steve to John. Don sent Steve to Markler. Wow. David, can you just catch us up on the timeline, moving through the mid 70s, sort of what happens in 75, 76. And let's get to what the next financing would look like for Atari as a company. So Sequoia and Don invested in 75. Right. Then in 76, you end up selling the company. How did that happen? We were far down the design path of the 2600. We knew that we had to one build a new factory, two, that it was going to be a highly driven by fourth quarter sales. And we just know that we didn't have enough capital. And so we started down the path of taking Atari public. And we had an S1 drapped up and everything that. And then the market kind of did a hiccup. And he said, maybe not. So we went down. So we said, okay, we'll see if we can get a corporate partner. When we started down that path, Don says, hey, why don't you go talk to Warner people. The Warner people came out and said, that's kind of interesting and what have you. And maybe maybe what we can do is we can do a structure where we buy it. And you guys make all the money and do all this stuff. And you know, it was, you know, we were young and dumb. I had a lot of hate coming out of my shirt. What have you. And so they send the Warner corporate jet to pick us up at the San Jose airport. And we climb on board. And of course, just to really do starstruck, they stopped in Sun Valley and picked up Clint 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 Clint and their girlfriend. Wow. That didn't come up in any of the research. Really? No. No, yeah. Well, and then we get picked up at the airport when a limo drops us off at the Waldorf Astoria side entrance. That's where the VIPs go. The VIPs go. We go up and we're in a suite of rooms that has a library and a pool room and a kitchen. And I mean, it's basically a 5,000 square foot apartment that we're in, you know, and you know, it's the Warner corporate apartment. Yeah. And there were three of us. Joe Jean Lebckin 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. So 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. And can you give us a sense for the size of Atari's business at this point, revenue or profit or anything you can call it. It's probably close to 40,000, 45 in revenue. Revenue. But this is all in the arcade business, right? And you're about to enter. No, we were doing Home Pong. Oh, okay. You're doing Home Pong, but not the 2600 yet. Got it. I didn't realize actually that you had marketed home single game consoles. There were two big dials, right? You sort of grab it and each player would twist them to move the title. Yeah. So anyway, we got into a few sticking points. What have you? Hadn't quite shaken hands. We were invited over to Steve Ross's for dinner. He has a fifth avenue apartment on the top floor, top three floors. And of course, there was a screening Vatlog Josie Whales. Four Clint and so on. Wow. Amazing. Wow. Talk about being sold to you. Yeah, exactly. We kind of like this life. So at the end of the day, we kind of shook hands on a proposed deal. Wow. And so that, if I read correctly, was a $28 million all cash offer to the shareholders of Atari and wasn't all cash. There were some debentures involved. And that was done as much for tax reasons as anything because you wouldn't have to pay tax on all the ones. So that's right. Cheaper. But in addition to that, there was a huge payout, like there was a 10% bonus pool. So we personally, we'd get a big taste of the success of Atari. Oh, like a, like an earn out. Oh, wow. Yeah. Which is before startups learned that big companies always structure the earnouts in their favor. Oh, 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 hypothesated the bonus pool to get additional capital for Chuck E. Cheese. So this is an excellent lead into, okay, a few of us who had looked into this before knew that you are also the founder of Chuck E. Cheese. Which when you, the first time you learned that, you know, your mind's blown and you get 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, as I felt we were selling these coin-operated games for two thousand bucks and in their life they'd do 30 to 50 thousand in coin drop. It didn't take rocket science, Sam 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 for arcades and malls and what-have-you. So I said I'm going to have to create my own location. And so I said okay if I'm going to be building a big arcade, what's my best draw? And I said well we've got to have food and what the food needs to be is pizza because there's a wait time, ideal time for that. Then the most successful- I do not have to go play the games while you're waiting for the pizza. Yeah. The most successful pizza parlor in the Bay Area was a thing called pizza and pipes where they had a deconstructed World's Earth Theor organ all over the place. And so 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, see a miss before. I can do something like this. It turns out that I was going to take my daughters to Disneyland. I was trying to get some ideas about what I could do that wasn't a World's Earth Theor organ but had the same marketing and we went to the teaky room and I said oh my engineers can do this and we can replicate it till the caskumall. Yeah. And so that became the working prototype for Chuck E. Cheese in terms of concept and we literally opened the first one three weeks after we closed the Warner deal. Wow. Was it in San Jose? It was in San Jose. It was in an old brokerage house. It was 5,000 square feet and the day we opened we knew it was too small. You know, the typical piece of parlor was a 500 square feet maybe at thousands. And this was 5,000 and yet it was way too small. Wow. And did the first one have, I mean, my memories of teaky cheese are the whole elaborate system with the tickets and the prizes and all the animatronics, the show every half hours. Was that all there in the beginning? Most of it. Most of it. I always felt that the right way to market it was we would survey the cost of a large pizza. We then up that by 15% and then give tokens that if valued at 25 cents would look like we were 15 to 20% cheaper. 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 bought ski balls and things like that from others. But it was off to the races. Okay. You want me to tell you the deal I got from Warner? Desperately. Yeah. They they said, you know, I was talking about expanding it a budget meeting. And they said, I don't think we want that. And I said, really? It's really good business. I said, all by it. They said, how much how much you want to pay? I said, I don't I don't know. I said, I'm going to really have to work at this. I ended up. The carny wheels are turning. So I got it for half a million bucks. How many? How many? $1,000 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. But that one threw off $700,000 of cash flow annually. You're sitting in the corporate finance department at Warner. Didn't get this. I mean, they clearly just didn't didn't believe in it. I mean, 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 got to think that way. Yeah. Yeah. What year is this that you you you buy it for 500K? 77. 77 or at least it's the year that you start five payments of 100K. So that's in 77. Over the next, I don't know, decade, decade and a half. Chuck E. Cheese has close to 300 locations that you've opened. 250. 250. 125 company stores, 125 franchises and sold it to Brock Hotel. 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. I made more money on Chuck E. Cheese than I did on on Atari. But I did it through selling stock going on. But the company, 1983 was when the video game kind of did. And Chuck E. Cheese was hit by that a little bit. And so I had hired a new president of Chuck E. Cheese and started really seriously campaigning a sailboat. IE Scrooing off. And I might add in 1977, I got married again. And you know, once I had sold the company to Atari, it took a little bit of the fire out of my belly. So sold Atari to Warner. Yeah. And so I got married. I was spending a lot of time wooing and wetting my bride. And then we'd hang out and you know, got the big house and did a remodel. And you know, all this stuff you do when you have a lot of cash. When I was campaigning a sailboat, I won the Transback Newport to Hawaii in 1983. That's a big sailboat race. You're talking to someone who doesn't. I'm not a big yes. This is like a very well known sailboat race. It's basically longer running the America's Cub. But it's considered to be not quite America's Cub because it's mostly downhill. What is it? The wind is always at your back or something? Yeah. Exactly. So you want a boat that is very flat bottom that can get up and surf. You fly spinikers all day long. But it doesn't point up wind at all. And the America's Cub, you have to be an all-around boat. I see. Instead of what they call Transback competitors or called sleds. It's great. But anyway, I won in 1983. Congratulations. And the minute I hit land, I get this call. We're going to miss our projections and lose money in the third quarter. And your public company at this. And your public company. What happens is when you lose money, I had a couple of lines of credit out there and that violates covenants. It just starts to create a shitstorm. So get out of that. I ended up sewing. Not for a lot of money, but it's okay. There was another company. I mean, you've started so many companies in the years since and continue to. But there was one more company we want to talk about before we move on to acquisition category here that came out of check ETs that you ended up selling to George Lucas. Can you tell us a little bit about that? Yeah, I had a project called Kedabrascope. And what I wanted to do is create computer-aided animation. And I felt that doing tweens and things like that, that the technology was good enough. And we created some pretty good software. But the computers were so crappy in those days. I mean, it was taking 48 hours to render a complete frame. I mean, you know, and half the time the computer had bombed before it finished. So, you know, if you got one frame a week, you were really rocking. And this was with a back 780, which was the go fast scientific computer at the time. And these frames are 640x480 or less? No, they were, they were, no, they were. They were 640x480. Yeah. One a week. One week. Wow. And there's not a business there. I imagine it in one frame a week. Well, I'll imagine it in like 2065. Yeah. So, I ended up selling my software to George Lucas when Chuck E. got into trouble. He was scrambling for cash. And so, in some ways, I liked to joke and say I found it Pixar, technically. But George Lucas took it and did it. And while I, while at Tabriscope, I should name it a technology that you got. Yeah. 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. And so, he came to me when he was offered Pixar. And I said, from George Lucas. Yeah. 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 figured out how to do a render farm. So, where you, where you basically, add amize the problem and get a whole bunch of different computers to work on it. That was the first render farm that ever existed. Wow. Wow. Anyway, that's so cool. There's fun acquired history too, because Pixar was our first, 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 Lucas Filman. What a cool story that was. And here we are 100 episodes later. Getting the, you know, even deeper origin story. It's just really cool. Yeah. Wow. Super cool. All right. Let's go into our section after history and facts. And this is an illustrious, amazing history and facts. What we tend to talk about now is what would have happened otherwise. And the way that I want to frame this, on this episode is what if Atari was never started? How do you think 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 it wouldn't exist at all. And that, you know, probably not true. There's another view that is it would be no different than it is today, which is also probably not true. So what do you think is the middle there? I think that there's a 90% probability that there would be in a video game post the 6502 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 with state machine technology, which isn't an obvious thing to most engineers. And I think that was my unique contribution that is far enough out of the mainstream that it may never have happened. Or it made it. You just never know. There's a lot of, I would say that we were running down the hallway of a hotel and you're checking all the doors. And sometimes you know, there's a broom closet. And most of the time it's a regular room. But every once while there's a ballroom. And you're not there alone. There are many people running down those same streets. And I think it's extremely arrogant to think that you were definitive in something. I read somewhere. I don't know if it's true. 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 VMACOM. Can you say, do you know anything about how that? I just know that that was an opportunity and it was turned down. Wow. That would have been a very different history. So I want to add one thing that about the TransPack. Because another important thing happened over the chart table. For in the morning, we did the Ruff4Etech, which was the foundation for navigation systems. You know, if you have a mapping system in your car on your iPhone, it's all based on the technology we created. Wow. And I think I remember reading in the research that at Etech, which is one of the companies you created that did navigation technologies, you had an arrow based on the space invaders. That's correct. Yeah. 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 because of that, right? Yeah. That's kind of fun. That's awesome. Pretty cool. What happened to Etech? Sold it to NewScore, who sold it to Sony, who sold it to... Tell Alice and Afterton. Tell Alice. Yeah. Wow. Oh, how these things find their way through history. Earlier this season, so it all comes back around. One other question for moving on is Atari pioneered video games in so many senses, but is not relevant today. How could Atari have traversed the waves that came over the next few decades and been what Nintendo became, especially in the United States? It all comes down to management. The company never had a strong sense of self. In fact, I think Atari is maybe the only company in the world in which the market leader abandoned its market. Can you imagine that? Yeah. But it did. And the sale to Jack Tramil, you know, it was just a total cluster. That this is Warner sold it off? Yeah. Huh. They just didn't have a feeling for it. I mean, 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... Well, they were in East Coast company. I mean, like we covered in our last episode, it's just like Fairchild, like an East Coast corporation running a West Coast technology firm. It's just wrong. It just didn't work. Yeah. It just didn't work. And Ray Cossard totally screwed up the corporate culture. Like we went from not allowing executives to have reserve parking spots. Because I felt that having the workers pass an empty slot with Vice President was just an us versus them trope. Totally. And I said, I want this... I want us to be as egalitarian as possible. And yeah, I'm going to make a little bit more money. But you know, I've got more responsibility. And you know, we all are in the same cafeteria. We're all hanging out together. When we have a beer bust on the back dock, we're all there. And we went from that to a private executive diner room by a four-star chef to limos and reserve parking spots and all kinds of us versus them tropes that was just not a tarry. The irony is, now in Silicon Valley, there's a private dining room with four-star Michelin chefs for everybody and everybody tells you for blackstork and like the company pays for all of it. That's as it should be. Yeah. Well, our next segment that we typically do is acquisition category. So we decide, you know, and there's very clear cut in easy episodes where, you know, the company bought it either. It was a people acquisition technology product business line. It was for an asset. 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. How would you characterize why they bought the company and what it was for? I've often thought that Steve Ross, who was suffering from prostate cancer, Bertle, had a very clear idea of what a tarry was. When he got sick, I think the record guys didn't, you know, in a very significant way. And that's where it kind of came off the rails. 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 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. You know, before we close up, I got to 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 and the AI under it and the speed recognition and everything and became mesmerized. 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 and that will answer. And so now we have St. Noir, which you can go into at Amazon right now by the board game, then download the St. Noir app from your 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 St. Noir. And there are 12 creepy people, one of which is a murderer. Oh, that's fun. And the townspeople have to tell the truth. Oh, it's like Mafia or Werewolf. Kind of. Yeah. And but the perpetrator lies. 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 is it a multiplayer or single player or both. I always play with three or four people and we decide and talk about things. But there's the board game and it's gorgeous. And I suggest 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 a bunch of paper for 40 bucks, that's almost just good. It's almost 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. Next generation gaming is interesting. But the most popular emerging podcast category is True Crime. And this notion that sort of like you could have interactive gamified true crime is really cool. Not to be actually working on one of those. Oh, awesome. Cool. That's mentioned board games. Yeah. Oh, except when you say true crime, I'm not sure that it's going to be true. No one, thank you so much. My pleasure. It was fun. This has been a true honor. We're so glad you joined us. And what a great moment in acquired history to bring a full circle with Pixar. A very first episode to be talking about the origins of Silicon Valley. And you know, you guys played such an incredible part in that. So thank you so much for sharing the stories with us. Well, I appreciate it. Listeners, if you aren't subscribed and you like what you hear, you totally should. And listeners, we will see you next time. We'll see you next time.