Dot-Flops

The Godfather of Silicon Valley: Ron Conway
and the fall of the Dot.coms
By Gary Rivlin (AtRandom.com)

A Very Public Offering: A Rebel’s Story of
Business Excess, Success, and Reckoning
ByStephan Paternot (John Wiley & Sons)

Dot.Bomb: My Days and
Nights At An Internet Goliath
By J. David Kuo (Little, Brown)

When the dot-com boom was in its heyday — a period that lately seems more distant than ever — the "first-mover advantage" was a popular idea. In the new economy, apparently, capitalism had become a raw sprint, to be won by those who were first to recognize and claim a new business "space." More recently, the dot-com unraveling has set in motion another competition: the race for first-mover advantage in recounting where the new economy went wrong.

It seems likely that The Godfather of Silicon Valley, by the journalist Gary Rivlin, was not conceived this way at all. The subject is a man named Ron Conway, a wealthy investor with a gift for networking. After amassing a fortune in the computer business, by 1997 he had started making "angel investments" in tech companies like Marimba. Usually angel investing refers to financial backing for a tiny start-up that can't get help from more mainstream sources. That's why it's angelic.

Conway, though, seems to have been trying to get a piece of deals that already looked hot, or that's the spirit that animated the two investment funds he soon formed. He raised tens of millions of dollars from the well-off folks in his apparently infinite Rolodex — from those famous in the tech world, like Bill Joy and Esther Dyson, to those who are simply famous, like Shaquille O'Neal, Arnold Schwarzenegger and Henry Kissinger. Conway returned to the Rolodex and spread much of this money over a range of Internet start-up deals.

As you've already guessed, things have gone rather poorly. By early 2001, 43 of the companies Conway backed were out of business, and he had written off dozens more. Instead of scoring a return of 10 times their original investment, Rivlin concludes, it now seems possible that Conway's high-rolling investors may actually lose money.

This raises two questions. First, why should we care about the travails of Ron Conway? Rivlin does a nice job of telling his story in this brief book, and it's not his fault that by now such stories sound so familiar. Probably Conway seemed more interesting when he was the Most Powerful Investor You've Never Heard Of, but as it turns out he's just another dot-com also-ran. And few readers are likely to be outraged that Shaq isn't getting the return on investment he'd hoped for.

The bigger question is, what exactly made Conway and all his investors — many of whom are smart people, or at least employ smart people to manage their money — believe that they could earn such massive returns? A key moment Rivlin points to is the initial public offering of Theglobe.com, an online community business, in November 1998. "To some in the Valley," Rivlin writes, Theglobe's one-day leap from $9 to $97 a share "represented a critical inflection point," as "an overly forgiving stock market seemed to drop all pretensions of rationality."

Theglobe, famously, was the brainchild of two Cornell students, one of whom is Stephan Paternot. His book, A Very Public Offering, begins on the morning of that memorable I.P.O. He and his partner, "dressed casually," settled in at the offices of Bear Stearns, their firm's underwriter. Briefly that day, Paternot, who is in his mid-20's and calls himself a "rebel," was worth $97 million.

Maybe because of his limited experience of life generally and business in particular, Paternot seems to have no real insight into the weird hothouse environment that made Theglobe's I.P.O. a landmark event. Instead he tells us the documents for the preoffering road show "were certainly sleek. We insisted that our S1 be matte black with hip green graphics, which was very much considered taboo." (There's a rebel for you.) And he goes on at some length about his briefly euphoric high life: Manhattan nightclubs were "mind-blowing." Flying in a private jet was "phenomenal." Making it to the top was "slammin'." O.K., that last example is actually from Ice by Ice: The Vanilla Ice Story in his Own Words. But Paternot's offering is less like a business book than like a pop star's self-serving reminiscences of a fleeting moment at the top: every success is the fair result of hard work, every skeptic is a small-minded player-hater.

More seriously, Paternot still seems confused about the relationship between a business and its share price. While he claims he was frustrated that others focused on Theglobe's stock as it gradually sank into the single digits, his own anecdotes make it seem that there was more internal focus on ways to "goose the stock" than on building a profitable enterprise. He grouses about those who doubted him and his partner "even though we'd just made them a 1,000 percent return in one day." In fact, those who made such a killing by flipping the stock the first day it was traded profited precisely from their skepticism. It was the suckers they sold to, who really believed in Theglobe, who got crushed.

By the book's end Paternot has left the company, and he announces that he plans to "channel my creative drive into film." Theglobe's stock has been delisted, and, since the book went to press, its flagship site has shut down. Whatever "inflection point" caused people to bid the shares of such unlikely companies into the stratosphere has passed. But who were those people? Did anybody really believe this or that dot-com would eventually justify the nutty valuations they briefly achieved?

J. David Kuo believed. Dot.Bomb, his memoir of life at the ill-fated e-commerce firm Value America, begins with him punching away at his laptop, trying to corral shares in that company on the day of its market debut. "I had heard about the quick riches that e-commerce I.P.O.'s offered," he explains. The opening price was $21; Kuo got in at $72, "assuming it was still going to go to $100." This did not happen, of course, but it turns out that Kuo did land a job at the company, as a public relations executive. He got in at the top — and was on hand for the whole ride down.

This means Kuo wasn't there for the company's creation or early growth; he seems to have dealt with this by interviewing those who were on hand, but he's often vague on his sourcing. A bigger problem is that a great deal of the book recounts office politics and insider bickering at a company that seemed marginal even during the peak of interest in dot-coms. Value America's main moment in the spotlight came as a result of its first-mover advantage among dot-flops.

As at Theglobe, executives there spent an inordinate amount of time worried about the sinking stock. (Maybe all happy dot-coms are different, but it seems unhappy ones are all alike.) On several occasions the company badgered stock analysts to issue positive reports — especially the analyst for the investment bank that took Value America public. From the company's point of view, Kuo writes, this analyst "needed to be . . . telling the world that we were better than AOL or Microsoft had ever been. . . . That was the way this world was supposed to work." He should have been "pimping our stock." Since ripping analysts has become such a popular pastime, it's worth noting that the Value America team never did get the support they wanted. (Theglobe.com had a similar problem with its analyst at Bear Stearns, who actually downgraded that stock.)

But here as elsewhere in the book, it's hard to figure what Kuo really makes of all this. Sometimes he seems to believe the company could have made it, sometimes he seems to be saying the whole thing was a house of cards all along. Craig Winn, the company's founder, comes across alternately as a visionary or a near-delusional tyrant. All these things could be partly true, I suppose, but they never really get reconciled; like Paternot, Kuo seems content simply to offer anecdotes, not judgments.

These first rough drafts of dot-com history mostly tell us things we know: how some of these companies soared and then crashed with dizzying speed. One suspects there is more to say about why this happened, and how our world really has changed (or not) as a result. Maybe the lesson —a familiar one in the "new economy" — is that that the first movers may not get the last word.

This essay appeared in the November 4, 2001 issue of The New York Times Book Review.