eBoys : The First Inside Account of Venture Capitalists at Work

by Stross, Randall E.

• ISBN13: 9780812930955
• ISBN10: 0812930959
• Format: Hardcover
• Copyright: 2000-05-01
• Publisher: Crown Business

Summary

The first inside account of life within a Silicon Valley venture capital firm,eBoysis the fascinating true story of the six tall men who backed eBay, Webvan, and other billion-dollar start-ups that are transforming the Internet and setting a new pace for the economy. Randall Stross, author of acclaimed books on Microsoft and Steve Jobs, blends a business historian's perspective with a journalist's flair for suspenseful storytelling to look at wealth creation up close. For two years, Stross gained unprecedented access to the venture capitalists at Benchmark, an upstart firm founded by thirtysomething renegades whose average height happens to be 6´5´´. Since Benchmark's founding in 1995, each partner's net worth has increased, on average, $100 million annually. Stross was present as the Benchmark boys debated which businesses to support, and by recounting their conversations in testosterone-rich detail, he offers readers the most precise and enlightening account of the ways in which venture capitalists think, evaluate prospects, and wield influence. Stross also gained access to a number of the Benchmark-backed start-ups, including a small, privately held San Jose company called eBay. The value of the company grew from $20 million to more than $21 billion within two years of Benchmark's investment, an increase of 100,000 percent.Business Weekcalled it "probably the best venture capital investment of all time." Venture capitalists have become iconic symbols of our time, just as investment bankers, investigative journalists, and hippies defined previous eras. In eBoys, Randall Stross has vividly captured the interplay of ambition, personality, experimentation, and risk, all acted out, larger than life, as the men of Benchmark and the entrepreneurs they back play their remarkable roles in the new world of Internet commerce and the creation of vast, sudden wealth.

Author Biography

Randall E. Stross teaches business history at San Jose State University and is a contributing editor at <i>U.S. News & World Report</i>. He is the author of four previous books, including <b>The Microsoft Way</b> and <b>Steve Jobs and the NeXT Big Thing</b>. He lives in Menlo Park, California, and can be reached via his website, www.randallstross.com.

Table of Contents

The Cast	xi
Introduction	xv
The Right Answer	3	(12)
Good People	15	(15)
Go Big or Go Home	30	(18)
Accidents Happen	48	(13)
Don't Get Screwed	61	(13)
Room at the Top	74	(10)
Privileged	84	(14)
Name Your Price	98	(24)
World Class	122	(10)
All e-, All the Time	132	(13)
Buds	145	(14)
The Art of the Deal	159	(12)
Getting Out	171	(13)
Techniqued	184	(11)
Go Fast or Go Home	195	(11)
One Monkey Don't Make No Show	206	(12)
Off the Dole	218	(13)
Communist Capitalism	231	(13)
``R'' Toys Us?	244	(17)
Crash	261	(14)
Hoover Dam	275	(13)
Built to Win	288	(13)
Acknowledgments	301	(2)
Notes	303	(10)
Index	313

Excerpts

When eBay, a small Internet auction company based in San Jose, California, sought venture capital, it had to pass an informal test administered by the venture guys before they would consider making an investment: Was there a reasonably good likelihood that the investors could make ten times their money within three years? In eBay's favor, the company displayed some mo -- momentum measured in revenues and profitability. It did not have much visibility in the public at large, however, and the growth potential of its business -- what seemed to be nothing more than a flea market online -- was unproven. There was risk that the best that could ever be said about it would be that it was a good little business, with the emphasis on little.

The venture capital firm that in the end backed eBay was Benchmark Capital, itself a start-up, then only two years old. When Benchmark invested $6.7 million in eBay in 1997, the auction company's valuation was put at $20 million. eBay grew, prospered, went public. In September 1998, after the first day of public trading, eBay's market capitalization was $2 billion, and Benchmark's original $6.7 mil-lion stake was now worth $400 million. Little more than three months later, the stock had gained more than 1,300 percent. By the next spring, the company was valued at more than $21 billion; the value of Benchmark's stake had grown 100,000 percent in less than two years' time, making it the Valley's best-performing venture investment ever. The eBay story happened to unfold right in front of my eyes -- and my tape recorder; I must confess I was as surprised as anyone.

A year before eBay knocked on Benchmark Capital's door, I had knocked there, interested in writing a book about a corner of the financial world whose inner workings remained shrouded, even to those in other precincts of professional money management. Yet venture capitalists, who were concentrated in Silicon Valley, were entrusted with ever increasing amounts of capital by institutions, such as university endowments and charitable foundations, to invest in newly formed companies. In 1996 venture funds attracted $10 billion in capital; in 1997 the total jumped to $20 billion; and in 1998 it passed $26 billion.

It was a form of investing that brought higher risk than investing in shares of publicly traded companies found in the stock market, but it offered the prospect of higher returns, too. As for the venture capitalists, they received a significant cut -- at least 20 percent -- of any resulting gains in the portfolio's investments, so in flush times their personal wealth, on paper at least, grew as fast as the valuations of the new companies they funded.

Anyone who had followed the rise of Netscape, Amazon, and Yahoo -- all were venture-backed -- had already figured out that the venture guys were seated at the center of the New Economy. Endowment-fund managers who had not previously developed connections to the top venture capital firms pounded their fists on closed doors, begging for entry, but even with recent increases in size, the funds were already oversubscribed.

Business-school graduates headed to Silicon Valley in numbers never seen before, spurning six-figure salaries with management consulting firms to seek their fortunes with venture-backed start-ups. It appeared that entrepreneurial fever was spreading well beyond business schools, too. One in twelve American adults surveyed in the spring of 1999 said that they were at that moment trying to found a new business, and some unknowable multiple of that number surely daydreamed of such. Entrepreneurship was increasingly touted as a panacea, the best means of fighting poverty, according to advocates in nonprofit initiatives that sprang up to teach entrepreneurship in neighborhood classes, schools -- even in kindergartens.

And all of these entrepreneurs and would-be entrepreneurs and institutional investors and individual investors -- the entire money culture -- trained their attention on the venture capitalists, who were the gatekeepers to the world of high-tech start-ups, the place where new firms grew the fastest and investors reaped the greatest returns. The venture guys made decisions that appeared to have oracular power. By the approach of the year 2000, the venture guys comprised the symbolically preeminent profession that served to define the zeitgeist in the nineties in the same way that investment bankers had in the eighties, investigative journalists had in the seventies, and hippies -- as the antiprofession -- had in the sixties.

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Excerpted from eBoys: The First Inside Account of Venture Capitalists at Work by Randall E. Stross
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