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Fall/Winter 2010

Lifestyle Investment

A Silicon Valley capitalist buys a stake in the good life.

by Ethan Fletcher

Michael Marks is a busy man.

A founding partner of South Bay private equity firm Riverwood Capital, Marks serves as a board member for a laundry list of organizations, including billion-dollar, multinational tech companies and respected nonprofits, such as the V Foundation. He plays basketball and piano, teaches two business classes part-time at Stanford, is a minority owner of the Golden State Warriors, and even briefly ran the electric car company Tesla Motors. He made his mark in the business world by building Silicon Valley–based Flextronics into a global leader in the technology manufacturing industry. The company boasted $25 billion in revenues and more than 100,000 employees by the time he stepped down from a 13-year tenure as CEO in 2006.

“I do a lot of stuff; that’s just my DNA,” Marks says. “I’m always working. I’ve just always had a lot of energy.”

So, it might come as a surprise that the first order of business when he and his wife, Carole, purchased Gemstone winery in 2008 was to do … nothing. The Marks made a point of maintaining the same vineyard manager and the same winemaker (the internationally respected Philippe Melka), and even kept the vineyard’s former owners, Paul and Suzie Frank, on as consultants.

“It was a classic ‘if it ain’t broke, don’t fix it’ situation,” Marks says. “When you buy something this good, you don’t want to go mucking around because all we could do is make it worse.”

After all, it didn’t take a razor-sharp businessman (which Marks is: He was named a Hero of U.S. Manufacturing by Fortune magazine in 2000) to recognize that he had something special on his hands.

Founded in 1992 by Paul Frank, a former executive in the jewelry industry, Gemstone was unique from the start. Frank made a point of studying the geology and geography of the finest wine-producing vineyards in Europe, before purchasing a modest tract of land in a primarily Cabernet-producing region in Yountville. While small in size, Gemstone hosts a startling range of grape diversity: Frank plotted the 17-acre vineyard into more than 16 microlots, consisting of multiple unique clones of cabernet, merlot, and cab franc grapes, in addition to varietals of petit verdot and a chardonnay, each individually cared for and harvested.

“I remember being advised against doing it by a viticulturist because it would be very labor intensive and difficult to operate. Vineyard economics back then tended toward low cost and high production,” says Frank. “Our goal was to make the best we could in small quantities.”

The results validated Frank’s gamble: Gemstone quickly developed a cult following among wine lovers, after its first vintage in 1997. Since then, its wines (the signature Gemstone blend as well as the less expensive Facets label) have amassed a steady stream of 90-plus scores and garnered awards and plaudits from a barrelful of wine experts. Not the least of those experts is the renowned critic Robert Parker, who has described past Gemstone vintages as “absolutely gorgeous” and “stunning.”

It was clear that the Franks would sell their labor of love only to owners interested in maintaining the integrity of the vineyard. While not, by their own admission, wine experts, Marks and his wife—who were familiar with the wine and heard about the opportunity from a wine industry friend—fit the bill. Not only were the couple committed to keeping a quality product, they were drawn to the winery’s mom-and-pop feel. Despite their CEO lifestyle, the couple retain a folksy vibe that seems rooted in their Midwestern upbringing. Gemstone’s small size also appealed to the couple because they weren’t necessarily looking to get into the wine business to make a huge profit but to tap into the charitable spirit and laid-back lifestyle of an area they had come to love, as an escape from the hectic atmosphere of Silicon Valley.

“We’re at the stage in our lives where the kind of investment we do is in things we’re interested in learning about,” says Marks. “We’re not trying to make a bunch of money doing this. We both drink a lot of wine, and we really, really like the aesthetic around wine. It’s the nicest, most charitable community I’ve ever been around.”

That’s not to say it’s been all Cabernet and caviar. Marks chuckles ruefully as he points out that they bought into the industry shortly before the start of a recession that has hit the Napa wine industry hard. Marks likens trying to keep up Gemstone’s sales to “hand-to-hand combat.” Inventory that had once sold out in about six to eight weeks now takes nearly a full year to unload. But Marks says this is where his business experience—he went through two economic slowdowns with Flextronics—pays dividends: “During downturns, you just suck it up and get through it.” He’s beefed up the sales team and widened Gemstone’s distribution, and is hopeful that things will pick back up by next year.

According to Melka, Marks’ combination of commitment to quality along with his business savvy helped make for a seamless transition. “He’s given us a lot of confidence and helped us to say, ‘Hey, let’s keep doing what we’re doing and not try to change strategy, even in difficult times,’ ” he says. “Michael knows the wine, buys it; and actually one of the jokes was that he purchased Gemstone just to be able to get more wine.”

An exaggeration maybe, but not a huge one. Marks admits that the couple have been sucked in to the wine-making process, devoting more of their time and energy to it (they recently purchased the house adjacent to the vineyard). And Marks is clearly passionate about the winery, becoming animated when speaking about the wine, how it will change each year, and how much fun it’s been to share it with friends.

“The good news is that we get to keep drinking it, whether people are buying it or not,” he says. “The absolute best part has been serving it to our friends, pouring it last night for the charity auction. … This is the most fun we’ve had in our lives—we’re just having a hoot.”

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