Home
Help

Click


Back to Globe Magazine contents

Related Coverage

City
Boston abuzz

Money
Launch time
Here's the pitch

Power
Different bedfellows

Community
A better mix
In this together
Block partisans
Past our bedtimes

Columns
CURRENTS
-New Bostonians
IN PERSON
-More than a feeling
INTERVIEW
-Margaret Spencer

Prior Coverage

Y2K Magazine editions
-New(er) England
-1000 Years of Sin
-New Frontiers

Future-geared sections
-Visions of millennium
-Shopping online
-High-tech offices
-House of the future
-E-commerce takes root
-Y2K computer glitch

Magazine archives
Issues since 06/97

Letters to the Magazine editor:
Letters to the Editor, The Boston Globe, P.O. Box 2378, Boston, MA 02107-2378. The email address is magazine@globe.com or use our form.

The Boston Globe OnlineBoston.com Boston Globe Online / Sunday Magazine June 20, 1999
Let's do launch

So much venture capital, so little time.

By Scott Kirsner

James Chung plays his voice mail like Vladimir Horowitz. His thin fingers dance over the keys - saving, deleting, pausing, rewinding. With his free right hand, he scribbles down notes on a lined white pad. The phone is set on speaker mode, and, with a few quick pecks of his middle finger, he increases the volume.

There are 10 messages for Chung, the 33-year-old chief executive of Beansprout Networks, an Arlington-based Internet company that aims to connect parents with their pediatricians and child-care providers. Four are from people either looking to abandon their positions at big companies for jobs with Beansprout or people whom Beansprout, which has 20 employees, is trying to lure away from big companies. Two are from Beansprout board members calling about this week's meeting. One is from a client. Three are from venture capitalists, all of whom want to give Chung money. ''We want to make sure you know that we're still very interested,'' says one. Another is practically breaking down the door: ''Maybe we can come up and meet the rest of the team, get a sense of their backgrounds, their commitment, their vision, and so on. Does Wednesday the 19th work?''

It's early May, and Chung is in the final phase of assembling a syndicate of venture-capital firms that will pour $6 million into his company, whose services are so far being used by only a handful of pediatrics groups and child-care centers around the country. This is the first time that Chung, a graduate of Harvard College and Harvard Business School, has started a company, but his idea is compelling: to foster better communication between parents and child-care providers, and between parents and pediatricians, who spend a mere seven minutes, on average, with each patient. Once he has knit together those three constituencies using the Internet, Chung says he will have built the largest network in the country of wired doctors and day-care centers and will serve as a digital middleman between the buyers and sellers of supplies like tongue depressors and paper towels, extracting a small fee from each transaction.

When you are starting an Internet company in turn-of-the-millennium Boston, the money is easy. Venture capitalists showered New England companies with a record $552.7 million in just the first quarter of this year. A single Web development shop, Zefer Corp., got an infusion of $100 million in May, exactly one year after the founders won Harvard Business School's annual business plan competition.

''Our investors are just throwing money at us, and we need to find places to put it,'' says Tom Crotty, a partner at Battery Ventures, a firm that recently raised $440 million that it will invest in start-ups over the next three years.

In the 1960s, a group of young adults with ambitions of being the next Beatles or Rolling Stones might have rounded up some guitars, amps, and drums and practiced in a garage, dreaming of landing a few gigs and getting discovered. In the late 1990s, they find a spare bedroom, plug in a few PCs, start building a Web site, and fantasize about going public, just like Jeff Bezos of Amazon.com. (A fantasy almost as pleasant involves getting bought by Amazon, which this year acquired Cambridge's Exchange.com for more than $200 million, and last year purchased PlanetAll, also in Cambridge, for about $100 million.) The same desires are at play: wealth, fame, freedom from the strictures of the 9-to-5 workday, a chance to change the world. Only the odds of succeeding with an Internet start-up are much better than they ever were for a rock band.

Chung, who worked at Fidelity Investments before starting Beansprout, is one of many willing to make the gamble. He has a feline smile that curls up at the corners as he talks, a soft voice, and a tendency to end statements with question marks. Though his idea of office decoration is a Ben and Jerry's calendar taped to the wall, he dresses the part of the Harvard MBA-turned-entrepreneur: charcoal-gray pants, a brilliant-blue dress shirt, and a yellow-and-blue checkerboard tie.

''We've made a lot of friends along the way and met a lot of really nice venture capitalists,'' he says. ''But we're going to have to turn some of them down.'' Beansprout only needs $6 million at this stage, and the venture capitalists are lining up to offer much more. Fifteen firms have expressed interest in participating in Beansprout's first round of institutional financing; Chung has winnowed them to a short list of six. Only two or three will make up the syndicate.

I spent the better part of last month hanging out with Chung and a number of other Boston-area Internet entrepreneurs, probing the ecology and anthropology of their culture. It's one with few links to Boston's social or political power structure, in part because its members are so young, and in part because they often are closeted in their offices 14 hours a day. It's a culture whose only geographic links to the city are its reliance on people and technology from the universities; because of the pervasiveness of the Internet, customers and business partners and even venture capitalists can come from anywhere.

And it's a culture that is drawing employees from big companies into small ones; they are in search of a more meaningful work experience, adventure, and an opportunity to make a difference and get rich at the same time. Sitting in the main conference room at Marketsoft, a Lexington start-up that makes software to help companies convert their marketing leads into actual sales, Bob Hiss, the company's vice president of client services, explains why he left a position as a partner at Andersen Consulting to join a company that at the time had no customers and no revenues.

''At Andersen, I had a predictable, steady income stream in the six figures,'' says Hiss, sitting at a conference table purchased dirt cheap at an auction held by Firefly Network, after the Cambridge start-up was acquired last year by Microsoft for $40 million. ''When I came here, Marketsoft had 11 people. But I knew if I didn't do it, I'd be kicking myself forever. I traded the pride of belonging to something that was good for the pride of building something that was good. There were no stock options at Andersen. I was never going to hit the home run. I was never going to have generation-passing kind of wealth with Andersen.''

Or, as a fortune-cookie message taped to one of the computer monitors at Beansprout Networks says: ''Now is the time to try something new.''

Greg Erman, Marketsoft's founder, is fastidiously but quite quickly consuming a breakfast of coffee, orange juice, and a bowl of fruit in the lobby restaurant of the Marlborough Radisson. He is wearing dark-blue pants and a light-blue shirt, no tie. He is terrifically trim, almost aerodynamic, and has brushed-aluminum, close-cropped hair. Today, he faces one of the pivotal challenges of the start-up CEO: selling his product to a customer that has been getting along just fine without it.

Erman's first job out of Rutgers College was with Digital Equipment Corp.; soon, he became one of the computer maker's youngest national account managers. The company helped pay for his MBA , then shipped him from his native New Jersey to Maynard to be a product manager. He left in 1994 to work for a software start-up called Softlinx.

''I was frustrated by how slow Digital was to bring innovation to market,'' Erman, now 35, says. ''One person could say no and kill a project, but it took a million people to say yes if you wanted to get approval.''

At Softlinx, Erman learned how a start-up gets itself bootstrapped. All the financing was from the customer revenue. But after differing with management about several strategic issues, Erman decided to start his own company.

Waypoint Software, founded in a spare room of Erman's Sudbury home in early 1996, set out to build tools that would help companies publish their catalogs on the Web. In a single week in October 1996, he got his first big customer contract, incorporated, and closed a million-dollar round of financing, from BankBoston Ventures and Zero Stage Capital. Four months later, in February 1997, Erman sold his 12-person company - which, incredibly, still didn't have a finished software product - to Cambridge's Open Market, an e-commerce pioneer, for $13 million. ''Open Market wanted to retain all Waypoint's employees,'' says Erman, ''but I didn't want to go work for a big company.'' (At the time, Open Market had about 500 employees.) ''To me, the start-up world is the funnest. You can make change very, very quickly. And if you want to make $20 [million] or $30 million off an [initial public offering] or an acquisition, you can't do that at someone else's company.'' Erman stayed at Open Market until his product was released, in September 1997, then left to begin researching his next start-up.

Erman is running a bit late for his 10 o'clock sales call at the New England headquarters of 3Com, a Silicon Valley company that makes networking hardware, as well as the popular PalmPilot. After paying the check, we hop into his midnight-blue BMW 540i. ''This was my only indulgence after the Waypoint acquisition,'' he says. ''I bought the car and put the rest of the money into a bond fund.'' As we wend our way toward 3Com, he shows off the Beemer's built-in cell phone, which has its controls on the steering wheel and can recognize spoken names and automatically dial the appropriate phone number.

We arrive at 3Com's hilltop headquarters, a 1.2-million-square-foot complex spread over five buildings in Marlborough. In a conference room called Africa - the conference rooms are all named after the continents - we meet up with a 3Com marketing director and with David Birnbach, Marketsoft's head salesman. Birnbach and Erman are not wearing ties; the marketing director is.

Birnbach is an incredible salesman, and seeing him in action is like watching a how-to video. The pitch: how Marketsoft's product helps companies more efficiently manage sales leads. ''There's this black hole,'' he says, ''and leads go in, but they never come out. It happens at every company we've talked to in doing our research. Does that resonate with you?'' The marketing director agrees that it does.

Back in the car, Erman says he feels confident about the sale. But Erman, ever the serial entrepreneur, is also thinking longer-term, entertaining the idea of moving back to New Jersey someday, after ''disposing'' of this company. The unspoken exit strategy is either a sale at a far higher price than he sold Waypoint for, or a public offering.

''I'm a start-up guy,'' Erman says, cruising east on Route 2. ''I want to do this over and over until I die.''

Mitch Kapor is a legend in Boston's high-tech entrepreneurial community. After dropping out of MIT's Sloan School of Management, Kapor founded Lotus Development Corporation, which marketed the first popular spreadsheet program, Lotus 1-2-3. In Lotus's first year of business, 1983, the company sold $53 million worth of software; in 1995, the company was sold to IBM for $3.5 billion. Today, Kapor is a venture capitalist with the Silicon Valley firm Accel Partners, splitting his time between Cambridge and Palo Alto, California.

What does he make of the explosion of entrepreneurial activity in Boston, and how does it compare to the early 1980s, when he started Lotus? ''Today, computing and communications are such dominating forces in the economy,'' he says. ''That was not the case back then. With the Net, everyone has heard of it, everyone is on it. As an entrepreneur now, you're much more part of the world, rather than in a tech ghetto.''

Kapor says the stock-market frenzy for Internet IPOs, coupled with intense interest from venture-capital firms, makes being a high-tech entrepreneur in 1999 particularly exhilarating. But aside from the eye-popping sums being scooped up by Boston-area technology firms, Kapor suggests that many of the rewards of starting a company are less quantifiable. ''People want to have an impact in the world, and starting a company is one way to do that,'' he says. ''You're building something from nothing - nothing but people, ideas, talent, and commitment. It's very life-affirming.''

That alchemy is fun to watch. It creates not only new products but also new kinds of organizations. Visiting Abuzz, a 34-person Cambridge software company, is a little like going to a frat house, only slightly more hygienic. Several of the employees are wearing shorts. There's a hammock in one corner, near a window, occupied by a dozing programmer. Several patches of the carpeted floor around the chief technology officer's desk are covered by piles of dirty laundry. In a tiny cinder-block utility room, there is a dome hockey arcade game. Andy Sack, the company's founder and chief executive, muses about installing an indoor climbing wall, but he's worried about the liability issues.

Beneath the laid-back, anything-goes atmosphere is a real commitment to egalitarianism and a total lack of office politics. At the weekly staff meeting (it kicks off with a series of stretches, knee bends, and head rolls), anyone is welcome to raise an issue or make an announcement, and Sack is always happy to address the rumor of the week. There are cheers for employees marking an anniversary at the company and gentle jokes for those just starting.

At an engineering team meeting the same day, Abuzz employees don't jockey for status or make lengthy pronouncements just to hear themselves talk. Abuzz has released the first version of its product software, which helps employees in big companies share what they know and solve one another's problems, and the agenda is, simply, how to make the next version better.

While the dome hockey is a nifty diversion, and Abuzz runs an ongoing tournament whose sole purpose seems to be humiliating the CEO, much of the excitement of a tech start-up like this springs from another source: the utter blank slate-ness of the enterprise.

''We have the dual task of building a company and building an industry,'' says Janet Krause, a cofounder of Circles Online in South Boston, an Internet-based concierge service. Log on, and Circles takes care of your dry cleaning, tracks down tickets for a Sox game, or arranges to have someone at your house to meet the cable guy in the middle of the day. There are no rules for how one builds such a company, and that forces Circles to be a fluid organization. Many problems are being solved for the first time. There are new services to be launched, new markets to be conquered. Job descriptions are hazy, to say the least.

To ensure that everyone is thinking about the same goals, that the lack of formal structure doesn't result in a lack of direction, Circles has a very open communication policy. ''We want people to understand as much as they can about the business,'' says Krause. ''We encourage employees to listen in on a sales call or a board meeting. We're open-book with our basic financial data.'' Every week, each of Circles's three top executives takes a different employee to lunch, and there are frequent softball games, apres work beer-and-brie celebrations, and weekend parties.

The biggest problem that Circles faces - one it shares with all of Boston's high-tech start-ups - is not raising capital but hiring as fast as the company would like to grow. By 9:15 on a Friday morning, three candidates have already been in for job interviews. Krause says that the 31-person company has about 19 open positions, and her cofounder, Kathy Sherbrooke, says she set a record this week for the number of job interviews in a single day: nine.

At Abuzz, a sign in the kitchen lists the goals for 1998. Number one is recruitment. At Beansprout, Chung says, ''I used to worry about capital constraints and whether the users will want the service. But the one worry I have now is hiring the right people. We need people who are able to make a difference really fast.''

That point is emphasized by the first task new Beansprout employees are given. From a solid-core wooden door, a set of four sections of white plastic pipe, and a box full of screws and connectors, they must construct a desk.

Chung explains: ''We want people to know they're expected to build something every day.''

It's not difficult to find skeptics who think that the supportive economic environment for Internet start-ups can't endure. What's surprising is that they are some of the same people who finance them.

''Something's got to give, particularly in the Internet space,'' says Tom Crotty of Battery Ventures, the firm looking to invest $440 million in the next three years. ''It's so hot as to be overheated. You have companies with mediocre ideas and mediocre people raising phenomenal amounts of money. You have a bull market generating extraordinary wealth, and people need to figure out where to put that money. One of the most lucrative places to put it is in early-stage software, Internet, and communications companies - by way of a venture fund.''

As long as that eager money keeps flowing into venture-capital funds, entrepreneurs like Erman and Chung and Sack are likely to have smooth sailing. The money is easy, and the broader culture, which has lately begun celebrating start-up successes like Bill Gates and Steve Jobs in television miniseries, has warmed up to the techno-visionary.

The funding frenzy hasn't, however, spilled over into non-technology sectors. While visiting a company called Boatscape, which operates an e-commerce site for the seafaring set, I met John Pepper. Pepper is a Harvard Business School graduate - and son of the chairman of Procter & Gamble - who started a chain of quick-service restaurants called The Wrap. He uses a spare office at Boatscape in exchange for feeding the company's 14 employees, a barter deal he set up with Jay Wilkins, Boatscape's founder and an old Dartmouth College buddy.

''Most investors are biased toward technology companies,'' Pepper explains. ''With restaurants, you know what's going to happen. They're either going to go out of business or have really slow, steady growth. I was talking to one of the investors who funded Starbucks and Jamba Juice, and he sent me an e-mail that said, 'John, we no longer invest in food-service concepts. We do strictly e-commerce companies.''' Even Howard Schultz, the founder of Starbucks, is now putting his money into the Net; he owns 5 percent of Drug store.com, the on-line pharmacy. The Wrap hasn't yet received any venture funding.

Across the hall, in an office with windows that look out onto Boylston Street and the Hynes Convention Center, sits Wilkins. A former Army helicopter pilot, Wilkins regularly fields calls from venture capitalists snooping around Boatscape, which he founded last June.

''From [John Pepper's] perspective, it has been frustrating. The pace of the Internet is so much faster,'' Wilkins says. Still, the two old friends are doing the same thing. Building something from nothing, as Kapor puts it - nothing but people, ideas, talent, and commitment.

On my way out, Wilkins points out a framed dollar bill that hangs on his office wall. ''This is the first dollar that my great-grandfather earned when he started his own company,'' he says. ''He had a company in Buffalo, New York, called Consolidated Packaging Machinery Corporation. I turned 30 recently, and my grandmother, his daughter, gave this to me.''

The 1899 bill is more serious-looking - more ornate, a deeper green - than today's currency. But there is a handwritten exhortation from his great-grandfather along the margin, the rallying cry of the entrepreneur, then and now: ''More where this came from. Go get it!''


Click here for advertiser information
Fleet Bank

Boston Globe Extranet
Extending our newspaper services to the web
© Copyright 1999 Globe Newspaper Company

Return to the home page
of The Globe Online


Pointcast
Get The Boston Globe on The PointCast Network