Traitorous Eight

The Traitorous Eight is the moniker, originally derogatory, for a group of eight brilliant young scientists and engineers who, in 1957, left their jobs at the Shockley Semiconductor Laboratory to form their own company, Fairchild Semiconductor. The group, which included future legends like Gordon Moore and Robert Noyce, was recruited by Nobel laureate William Shockley to develop silicon-based semiconductors. However, Shockley's increasingly erratic and paranoid management style created an untenable environment, prompting their mass resignation. Shockley felt betrayed and labeled them “traitors.” Far from being a story of treachery, their departure is now celebrated as a foundational event in the history of Silicon Valley. The founding of Fairchild, backed by one of the first true venture capital deals, ignited the region's unique culture of engineering-led startups and spin-offs, directly leading to the creation of the modern technology industry.

The tale of the Traitorous Eight is more than just a workplace drama; it's the creation myth of Silicon Valley and a masterclass in the importance of human capital over a single genius's ego.

The “traitors” were, in reality, visionaries who would go on to shape the digital world. The group consisted of:

• Julius Blank
• Victor Grinich
• Jean Hoerni
• Eugene Kleiner
• Jay Last
• Gordon Moore
• Robert Noyce
• Sheldon Roberts

These weren't just employees; they were the intellectual engine of Shockley's company.

William Shockley, a co-inventor of the transistor, was undoubtedly a genius. As a manager, however, he was a disaster. He was publicly abusive, micromanaging, and distrustful of his star team. When the eight's concerns were dismissed by Shockley's financial backer, they realized they had to leave to pursue their vision of a silicon-based transistor. They contacted a young East Coast banker named Arthur Rock, who recognized the immense potential not in an idea, but in a team. Rock convinced industrialist Sherman Fairchild to back the eight, creating Fairchild Semiconductor as a subsidiary of his existing company. This deal, where capital was invested directly into a team of technologists to build a new venture from scratch, is considered the template for modern venture capital. Shockley's company, meanwhile, faltered and eventually faded into obscurity.

The story doesn't end with the founding of Fairchild. In fact, that was just the beginning. The company itself became an incredible success, but its most enduring legacy is the talent it cultivated and the companies it spawned.

Fairchild Semiconductor became the de facto university for the semiconductor industry. The intense, innovative, and meritocratic culture nurtured a generation of engineers and executives. Over the years, alumni of Fairchild—often dubbed “Fairchildren“—left to found dozens of their own groundbreaking companies. The two most famous examples are:

• Intel: Founded in 1968 by Robert Noyce and Gordon Moore.
• AMD (Advanced Micro Devices): Founded in 1969 by Jerry Sanders and a group of other Fairchild executives.

Furthermore, Eugene Kleiner would co-found Kleiner Perkins, one of the world's most influential venture capital firms, funding titans like Amazon, Google, and Sun Microsystems. The Traitorous Eight didn't just build a company; they built an ecosystem.

While at Fairchild, Gordon Moore made a famous observation. In a 1965 paper, he predicted that the number of components on an integrated circuit would double approximately every year. This prophetic insight, later revised to a doubling every two years, became known as Moore's Law. It served as the golden rule for the entire technology industry for over 50 years, driving the relentless miniaturization and cost reduction that have put supercomputers in our pockets.

For the value investor, the story of the Traitorous Eight offers timeless wisdom that goes far beyond a simple history lesson.

The biggest mistake Shockley and his original investors made was undervaluing human capital. They had the Nobel Prize winner, but they lost the team that created the value. A value investor must always look beyond patents and products to the quality, culture, and stability of the management and engineering teams. A toxic leader can destroy even the most promising enterprise.

Great companies don't just exist; they create. Fairchild's real long-term value wasn't just its own profits but the entire industrial forest it seeded. When analyzing a business, consider its role as an incubator. Does it attract top talent who might later create new ventures? Does it foster an environment of innovation that could lead to valuable spinoffs? Investing in such a “keystone” company can yield returns far beyond its own stock appreciation.

The collective genius of the eight was an intangible asset of incalculable worth, yet it never appeared on a balance sheet. A great investor learns to identify and weigh these non-physical drivers of value: corporate culture, brand reputation, intellectual leadership, and the ability to attract and retain generational talent. Often, what you can't see in the financial statements is what matters most in the long run.