Eboys: The First inside Account of Venture Capitalists at Work

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In eBOYS, Randall Stross takes us behind the scenes and inside the heads of the gutsy entrepreneurs who are financing the hottest businesses on the Web. The six tall men who started Benchmark, Silicon Valley's most exciting venture capital firm, put themselves at the cutting edge of the new economy by backing billion dollar start-ups like eBay and Webvan. The risks were enormous--but the rewards have proven to be staggering. Within two years, eBay's net worth grew from $20 million to more than $21 billion, while ...
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2001 Paperback New Ex display copy, shopsoiled cover, lightly discoloured page edges-last copy a. IN STOCK NOW, despatched daily from the UK En Stock, tous les jours de ... exp√ ?di√ ?s du Royaume-Uni EN STOCK NOW, despachar diariamente desde el Reino Unido por correo a√ ?reo IN STOCK NOW, auch wenn t√ ?glich aus dem Vereinigten K√ ∂ nigreich per Luftpost. *****PLEASE NOTE: This item is shipping from an authorized seller in Europe. In the event that a return is necessary, you will be able to return your item within the US. To learn more about our European sellers and policies see the BookQuest FAQ section***** Read more Show Less

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Overview

In eBOYS, Randall Stross takes us behind the scenes and inside the heads of the gutsy entrepreneurs who are financing the hottest businesses on the Web. The six tall men who started Benchmark, Silicon Valley's most exciting venture capital firm, put themselves at the cutting edge of the new economy by backing billion dollar start-ups like eBay and Webvan. The risks were enormous--but the rewards have proven to be staggering. Within two years, eBay's net worth grew from $20 million to more than $21 billion, while each Benchmark founding partner saw his own personal net worth soar by hundreds of millions of dollars.
For two roller-coaster years, Stross had total access not only to Benchmark's executives but to the companies they financed. He was a fly on the wall as fortunes were made in an instant, snap decisions got locked in, and new ventures took off--and sometimes crashed. Here are the testosterone-pumped conversations, round-the-clock meetings, and gutsy deals that launched the eBoys and their clients into the stratosphere of mega-wealth. Written like a novel but absolutely true, eBOYS brings to vivid life the glory days of the greatest business adventure of our time.
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Editorial Reviews

John T. Landry
Venture capitalists have replaced investment bankers in the business spotlight. But rather than profiling a star, this book focuses on an egalitarian team of VC partners, the Benchmark Group, from 1997 to 1999. The author, a business historian, provides little critical perspective of his own. Instead, readers get a lively, blow-by-blow account of the firm's friendly debates on successes such as eBay, question marks such as Webvan, and flops such as TriStrata.
Harvard Business Review
Business 2.0
...a fascinating fly-on-the-wall look inside a venture capital house...
Fast Company
A [blunt] assault on the entrepreneur-as-hero myth...provides an inside look at Benchmark Capital, one of Silicon Valley's most successful venture firms...[Stross] packs his book with juicy accounts of bickering and preening among the firm's partners. — (June 2000)
Wall Street Journal
Eboys by Randall Stross, is one of the first books to look at venture capitalists as stars unto themselves. Mr. Stross gives readers a ringside seat at a singular moment in business history. — (May 23, 2000)
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Product Details

  • ISBN-13: 9780345428899
  • Publisher: Random House Publishing Group
  • Publication date: 5/28/2001
  • Edition description: 1ST TRADE
  • Pages: 352
  • Product dimensions: 5.52 (w) x 8.26 (h) x 0.77 (d)

Meet the Author

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

1. The Right Answer
The guy. No special emphasis on either the or guy, but no intervening pause, either. TheGuy.
That's the person needed to head a start-up once it has grown beyond a seed. To wit, a stud, ideally, a big honkin' stud or a total fuckin' stud. He (or, yes, she) will not lack for balls, at least in one sense, but in another will work his nuts off, or his ass off (these being valuable pieces of anatomical real estate; you never hear "works his index finger off"). A high-hustle guy. A total can-do guy. A winner. Smart. Someone with integrity-off-the-charts. Scrappy. A kick-ass dude, a nail-eatin', nut-crushin' (that trope again!) decision maker, a competitor with killer instincts. Someone who attracts and hires A's, unafraid to hire above himself. A player. A hitter.
Finding TheGuy--finding the Right Answer--for companies in need was Dave Beirne's world for ten years.
Thanks to happenstance, Beirne's career as a search guy had begun at the age of twenty-two in cold-call hell. Freshly graduated in 1985 from a small school, Bryant College, with a business degree, he had an appetite for work. During his last two years of college, he had taken a full course load, worked at IBM virtually full-time as a marketing assistant, captained the lacrosse team, and led buddies in sundry intramural sports--and in what in the 1980s was defined as the back half of work-hard/play-hard (the lock-and-load party, for example: the dorm door was locked, and a concoction of liquor and Kool-Aid that filled a giant garbage can in the room's center was drunk until every person was loaded).
He had his coterie of mates, to whom he was fiercely loyal. But outsidethat circle, he was not a gregarious person. In fact, he was unable to mix without putting many on the defensive. He walked with a chip on his shoulder that he took no pains to disguise. He had a particular aversion to anyone whose status derived from inherited privilege. A college friend would later liken his attitude to that of a ghetto-hardened tough: If it was given to ya, don't think you're better than me.
His own family had prospered from blue-collar roots, working for General Motors. His grandfather was a union leader who worked forty-two years on the assembly line at the Tarrytown, New York, plant, and his father, Gus, had followed, directly out of high school, hanging doors on the line. While Dave Beirne was growing up, his father worked the swing shift. But eventually, Gus was able to make the jump to line management, and when Dave was in high school his father moved into the upper reaches and eventually would oversee fifty thousand people at his career's peak before retiring. The ascendance of this high school graduate happened too late for his son Dave to think as ambitiously as he might have about where to take strong grades when applying to college, and too late for Dave to change his own sense of class status. At Bryant he all but shouted: Don't think anything was handed to my dad or to me.
Graduating from a small school without the national reputation of an Ivy, he was at a disadvantage for entree to the most promising career tracks in business. Resolved to gather the experience and money he would need in order to obtain a Harvard MBA, the instrument that would give him parity, he spoke with anyone he could think of about entry-level positions. He was introduced to Chuck Ramsey, an executive recruiter at Sales Consultants who worked with technology companies; Ramsey was willing to overlook the fact thatthe kid did not even know what a recruiter did and give him a try.
Hiring Dave Beirne was not an especially expensive risk; the only pay was the commission earned when a candidate was successfully placed, and it was up to the "account executive," as Beirne was grandly titled, to obtain the recruiting assignment from an employer willing to pay a contingency fee when hiring a recommended candidate. Beirne was given a phone, a desk, Yellow Pages, and training that consisted of a simple injunction: Have at it.
It was not clear why either a prospective client or candidate would take Dave Beirne seriously. He was young, and looked even younger than he was; his job experience at that point--summer work on the assembly line and the IBM assistantship as essentially a gofer--had not provided a tour of the upper floors of power. He had no list of successful placements. Why would anyone look at him and sign on?
The answer: No one did look at him. The business of placing low-and midlevel sales people was conducted entirely on the phone. What prospective employers and employees heard was a baritone that conferred the authority of someone twice his age. He was a quick study, put in more hours than anyone else, talked his way into assignments, and found recruits.
Because debt was anathema to him, he had started with the in-tention of first saving up enough to pay for business school, and only then applying. But commissions rolled in, almost instantly. (After only six weeks on the job, the kid had suggested to Ramsey, twenty-one years his senior, that the two should leave their employer and start their own firm; Ramsey demurred.) Beirne did sensationally, and the savings were in place in months, not years. He had simply leaped over the stepping-stone of business school to the other shore.
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Table of Contents

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


Chapter 6: Room at the Top

"God is not on the side of the bigarsenals, but on the side of those who shoot best."

Voltaire's words had been used by the Benchmark partners to solicit capital for their first fund. Would institutional investors welcome another first-time fund such as theirs? Their prospectus optimistically quoted Daniel Webster: "There is always room at the top."

They had sought $85 million at a time others were raising $250 million, reasoning that small is beautiful. Whatever the size, Benchmark's backers expected the capital to be invested in a reasonably short period. With a smaller fund, the Benchmark partners would not feel pressure to invest in deals of only borderline quality, merely to put money to work. A smaller fund should be attractive to entrepreneurs, too, they reasoned. Each investment the partners would make would mean one more board seat that a partner would have to take, so with a smaller fund, they would avoid the danger of shortchanging an individual entrepreneur by having to serve on too many boards.

They successfully raised the fund, but one should look back and note the fragile position of the shooters without a large arsenal, of Benchmark itself, and of its tiny portfolio companies. Successes in a portfolio naturally draw attention, but the stories of companies that do not take off in a dramatic fashion, the ones that falter, are invaluable for reminding all bystanders that the start-up business is actually hard, even in golden times. The brave talk at Benchmark's inception-that young sharpshooting David will win over Goliath-was not borne out immediately.

Of Benchmark's first ten investments, two-Compact Devices and C. W. Gourmet-went out of business without glory. Xantel, which makes PC-based office-telephony hardware, almost did. A small stake in PointCast, the online news-delivery network that was the toast of the Valley in 1995, had brought with it endless headaches as the company groped for a business model while bleeding red ink. Jamba Juice and Broadbase, a software company that developed tools for analyzing large databases like customer lists, did moderately well. PictureVision, which developed a system for digitizing snapshots, could have sunk out of sight were it not rescued by Kodak. Benchmark's very first investment, Silicon Gaming, was done with Weiner Perkins and initially did the best of the first ten. It was the first to go public-but then the stock sank. It appeared that the brightest star of the early batch would be the eleventh investment, in Genesys Telecommunications Labs, one of Bruce Dunlevie's companies, which made software for routing telephone calls from customers in large corporate call centers.

The collective value of atypical venture capital portfolio will go down before it goes up-the pattern is called the J curve-because the companies that are not going to survive die before the best performers begin to shine and pull the value of the portfolio up with them. That, at least, had been the pattern in the past. In Benchmark's case, even though the partners would later talk about their first year of investments as a time of gaining their sea legs and learning how to refine their group approach to investment decisions, and even though the poorest investments were clustered in the very first group, Benchmark never passed through the dip of the J. By the end of its second year, boosted by sixfold gains from Genesys and Silicon Gaming, Benchmark reported to its investors that to date the fund was returning at a rate exceeding 100 percent annually. That's the beauty of a portfolio effect.

Entrepreneurs do not have the luxury of holding a basket of eggs, however; their egg, usually their only egg, must not break. Often the biggest threat to the embryo is not adult birds of prey, the entrenched competition from the Fortune 500, but rather carnivorous fledglings, fellow start-ups, some of which will have first-mover advantages and perhaps better capitalization. In eBay's case, at the time it was still sitting in the nest and Benchmark had invested in it, The Economist estimated that there were more than 150 online auction sites on the Web. One of those was far ahead of the rest, backed by Kleiner Perkins, and was already a public company with a market capitalization of about $175 million.

Onsale's founder, Jerry Kaplan, was at forty-three a well-seasoned entrepreneur with a Ph.D. in computer science. But he could as well have been a showman. He launched Onsale's website in 1995 just as his memoir, Startup, hit bookstores. The book spun an engrossing story of how Kaplan had, in essence, flushed $75 million of Kleiner Perkins's money down the toilet in a vain attempt to make a go of Go Corporation, which produced an operating system for pen Computers. He had dusted himself off and launched Onsale, creating a bidding experience that he described as "part Las Vegas, part P. T. Barnum, and part Price Club."

He had to start out with just his and his partner's money because Kleiner Perkins and every other venture firm he shopped the business plan to had turned him down. When he launched the company, John Doerr publicly derided Kaplan as being far out of his element, noting that he "doesn't have any merchandising or mass-marketing success." Amazingly, Kleiner Perkins later decided to let bygones be bygones and signed up to back Kaplan once again. Kaplan likened his ongoing ability to raise capital to the workings of Hollywood: "Just because you make Waterworld"-referring to the soggy 1995 flop whose reported budget of $175 million was the most expensive to date"doesn't mean you're not ever going to make Titanic."

Kaplan's original business vision was to provide merchants with an online auction site for baseball memorabilia, and initially its offerings were eclectic, including Mickey Mantle autographed baseballs, manufacturer's discontinued computer equipment, fine wines, and the last caboose in use by the Duluth, Winnipeg & Pacific Railroad. He relied on professional merchants or closeout houses, but by structuring Onsale as a commission-based business, he anticipated Auction Web/eBay's, model.

Kaplan quickly shed all lines other than closeout computer equipment; he also shifted away from commissions and instead purchased the closeout merchandise, gambling that Onsale could make a higher margin by taking ownership of the goods than if it remained content with small commissions. The inventory and price risks were tricky, especially so in the computer hardware business, where prices declined daily.

The problem seemed to Kaplan and his backers to be merely theoretical. The company could boast that it was already modestly profitable before it went public, and it appeared to hold special appeal to male buyers in search of computer gear. Ron Rappaport, a Zone Research analyst, described the appeal of Onsale to those buyers: "They go out, they find a good bargain, they hunt it, they kill it, they take it home. And then they're proud of it. They hold that carcass up in front of other Web users and say, `I got this same computer for twenty bucks less!'"

Even if it wasn't twenty bucks less, the hunters returned happy. Kaplan, the showman, could not resist telling the world that Onsale bidders enjoyed the hunt so much that they ended up paying online at his site more than they would have for the same goods in a physical store. A new television set that would normally cost $245 was sold at auction for $340; an $800 notebook computer was won with a bid for $909. "We're shocked at what prices these things go for," he said; he offered by way of explanation the site's tapping into "competition, winning, beating other people."

Onsale's trumpeting of the opportunity for "beating other people" is about as antithetical to Pierre Omidyar's eBaysian culture as it is possible to imagine. At eBay, every completed auction with more than one bidder did of course involve someone beating out someone else. But where Onsale fed blood lust, eBay averted its eyes and pretended the bidding process was entirely bloodless, and instead devoted its efforts to promoting amity. Omidyar would have been content to remain the disengaged pacifist, letting auction buyers choose between it and the warrior philosophy of Onsale, but in September 1997 the barbarians came right to eBay's door. First, Onsale attacked with what eBay feared was a multimillion- dollar spending blitz on exclusive portal deals. Second, rumors were launched that Onsale was going to add a new auction site that would depart from the closeout computer-equipment business and instead be modeled after eBay's, involving individual sellers offering a wide variety of items to individual buyers.

Until this point, eBay had not spent anything on marketing. It only had eighty-five thousand listings on the site, but its computer systems were too fragile to sustain any more traffic, so questions about a marketing budget had been moot. In fact, before the installation of a new system, eBay had to limit to ten the number of items any given seller could list. But when Onsale began to lock up portal positions, public investors seemed to feel that Onsale was securing an impregnable position; as September progressed, the trading price of Onsale's shares jumped and now, in just five months, were trading five times above their offering price of $6. Onsale's market cap had reached half a billion dollars.

Let's remain calm, Bob Kagle urged Omidyar and Jeff Skoll (Meg Whitman had yet to be hired). He said that the portals would not deliver the "competitive preemption" they were selling to Onsale. They would segment their sites, simultaneously meeting the strictly legal terms of the contract with Onsale yet selling advertising space to Onsale's competitors. Let Onsale spend its money there; Kagle favored low-cost guerrilla marketing. Throwing big bucks at portals, whose touted benefits had not been independently confirmed by research, would burn up cash without establishing the eBay brand. Experimental, inexpensive trials with Yahoo and AOL were inaugurated instead.

In mid-1997 Jeff Skoll received a call from Onsale: Would eBay like to sell its customer list? No, it would not, he replied. After this conversation, eBay's engineering staff noticed that bots-software agents-were crawling all over the eBay site, vacuuming up the e-mail addresses of buyers and sellers. Their source was traced back to Onsale. EBay had an attorney send a letter demanding that the crawling stop. Sorry, Onsale replied. Didn't realize it was going on.

The night before Onsale launched its new site, Onsale Exchange, several hundred thousand eBay users received e-mail from Onsale, offering free listings to sellers as an introductory enticement. EBay denounced the e-mail as spam and issued a furious press release, "Internet Community Outraged by E-Mail Assault," in a vain attempt to stir up media attention. Onsale shrugged, saying that it wasn't spam, it was "value-added e-mail." Michelle Kaplan, Jerry's wife, dropped in on the eBay chat room and invited everyone to "come on over to Onsale."

On the same day that Onsale Exchange launched, another competitor, Auction Universe, was relaunched, under the aegis of its new owner, Times Mirror. At the eBay offices, a conference room was dubbed the War Room and decorated with sheets of camouflage and dog tags. The executive staff met daily to plan responses and revive one another's spirits; eBay was feeling encircled by much better capitalized competitors. And when, in December, eBay's listings remained flat for the first time ever, it looked as if eBay's remarkable ride was over.

That was the low point. In January listings picked up; Meg Whitman agreed to come on board as soon as she could extricate herself from responsibilities at Hasbro; and Onsale apparently was not doing so well, because it extended its free-listings offer. Bob Kagle had some news for his Benchmark partners: Jerry Kaplan had approached Pierre Omidyar about merging Onsale and eBay, suggesting that John Doerr and Bob Kagle join the two of them and figure out a deal. Kagle reported to his partners, "Pierre talked with Meg, and they decided they were going to use the excuse, 'Geez, we're just hiring a CEO, and want to get that all integrated and everything.' I told them I thought that was not a good idea." Kagle predicted that agreeing to even talk about the merger would lead to Kaplan and Doerr urging Omidyar to abort Whitman's being hired. Kagle coached Omidyar to say instead: "This deal makes all the sense in the world, and it's bound to happen, there's no doubt about that at some point, but we just have to get public first and have a relatively fair valuation for comparison to make the decision on it."

"In other words," said Kevin Harvey, who relished cutting through politesse, "We like this deal-when we're buying you!"

"The `fuck you, die' thing," said Dave Beirne.

"No," Kagle corrected, "a friendlier version than that. So Pierre is going to call Jerry and let him know that."

EBay had an enormous advantage over the competition that it only then, under challenge, was coming to appreciate: a nicely balanced critical mass of sellers and buyers in each of hundreds of categories. This delicate balance had been achieved through the natural evolution of the eBay ecosystem, without the intervention of any guiding hand. If in any given category there were too many sellers compared with buyers, the sellers would have been discouraged and quick to jump to eBay's rivals to try their luck there. If there were too many buyers, and in order to win an auction one had to offer up a ludicrously high price, this too would have led to mass defections. Fortunately for eBay, the number of sellers and buyers, while growing exponentially, had remained well apportioned.

EBay's users remained loyal for another reason: feedback ratings. Buyers, after a transaction, could send in a report about their experience with the seller, which future prospective buyers could consult; sellers had an identical opportunity to evaluate their experience with the buyer. Over time, both sellers and buyers accumulated a number of positive-feedback ratings at eBay, a neatly quantifiable reputation, that they were loath to abandon. The eBay "community" stayed put.

In May 1998 Jerry Kaplan probed again, this time approaching Bob Kagle instead of Pierre Omidyar. There's only one winner in each category, so the two companies should join forces, he told Kagle, who recounted the conversation to his partners. If eBay and Onsale remained competitors, at best they would always have to explain why the one was different from the other.

Bruce Dunlevie laughed, mimicking Kaplan speaking to Kagle: "You're profitable!"

"That's right," Kagle said, continuing in the same spirit. "Our margins are ninety, yours are ten; let's start with that, then we'll go from there."

"Ours is a good business, yours is a shitty business," added Harvey. Kagle granted that Onsale was doing some things well. Kaplan had been at his gracious best when he said that he just wanted to be part of the winning team and did not himself need to be TheGuy. We'll get a banker to figure out which company would get what percentage of the merged entity, he told Kagle. Whitman could run it. He suggested that the new company be called E-Sale-the place to come to buy and sell anything.

Bruce Dunlevie asked Kagle if Kaplan had shut down his personto-person auction. No, Kagle said, it was still in operation. It presently had 7,000 listings, placing it fourth in size among personto-person auction sites. Collectors Universe, which was second only to eBay, had 22,000. And eBay had 450,000.

"I was thinking," Kagle said, "why would you want to dilute what eBay has with all that crap? I still feel that way, ninety-nine percent to one percent. But there was one thing that did impress me, and the systems side is very, very well run. The guy who is running operations for them is out of Schwab. I think their downtime is measured in some tiny infinitesimal fraction of what ours is. You know how you get that `server's busy' all the time at eBay? Part of it is they've got a fraction of our traffic. But still.

"So Meg's going to meet with them, just to chew the fat a little bit. I still think it's stupid to diffuse the pure play. But it might make sense after going public. Stay tuned."

That Kagle would not categorically rule out a merger did not sit well with the others. Bruce Dunlevie would not let the conversation end there. It was time to administer the same medicine that Kagle administered to other partners whom he thought needed to take a firm stand-what Kagle called the "spine stiffenola."

Dunlevie lifted his chin high and looked across to Kagle with a face of incredulity: "What I heard you just say is the real reason to buy Onsale is they have a good MIS guy"

No, Kagle demurred, he was not proposing an acquisition. EBay's systems could be improved, that's all.

How much customer overlap between eBay and Onsale, Kevin Harvey asked.

"That's the key question," Kagle said. "I said, `Jerry, I just don't see it.' He was giving me this thing about the mall. I said, `Look, the people who hang out at the mall are not the people who go to the flea market.' He said he has data. So I said we're open to data, and we'll take a third-party look at the data and see what we can learn. If there's a huge amount of customer overlap, then there's something to think about, right? But if there's relatively little, which is what I suspect-if there were more, his Exchange would be doing better." "Right. By definition."

"So I just don't believe it," Kagle said. "I think he's blowing smoke."

"He's good at that," Andy Rachleff said.

"Here's my view of the cultures," Kagle said. "EBay is the fair, open, honest marketplace that treats people the way people want to be treated and all that. And Onsale, I can tell you from being there an hour, is make-a-buck. It makes sense. Discount merchants. Toward that end, they've done some things pretty well there. For example, I spent ten minutes or so with one of the merchants who's monitoring all these auctions in real time, figuring out how many do we offer tomorrow, and where do we start the bidding, and how many weeks of inventory do we have of each one. They're turning their inventory on average in three weeks' time, which is amazing, at that level of business. That's not a terrible business. It's just no eBay. Whether you would ever want to take the execution risk of merging them together is a real question."

What are the numbers, Dunlevie wanted to know. How much do they lose on how much revenue? What's the break-even point in their business?

"Well, they have broken even in the past, at one point."

"Before they went public," Rachleff pointed out.

"Right, before they had to start buying traffic," said Dunlevie.

"Exactly," Kagle said. "All he told me is, `We're six to twelve months away from breaking even again.' I was reading tough quarter on his face. We'll see. He seemed a little too anxious."

Harvey, like Dunlevie, remained extremely skeptical of Onsale's business model. "Only on the Internet do you see this kind of revenue multiple on ten percent gross-margin businesses. That's going to go away. Unless you have a brand that's bigger than life."

"Unless your business is huge," Dunlevie said.

Kagle now seemed less ambivalent. "There's a lot of reasons to keep eBay pure-play. The story. The community. The culture. Everything."

Rachleff laughed. "Bob, I don't think you're getting any pushback!"

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Introduction

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.

The Walls Come Tumbling Down

The Bruderhof community is not the only insular one whose life has been turned upside down by forces operating far from its doorstep. Globalization has become, quite simply, the most important economic, political, and cultural phenomenon of our time. Around the globe, the integration of the world economy is not only reshaping business but also reordering the lives of individuals, creating new social classes, different jobs, unimaginable wealth, and, occasionally, wretched poverty. From Washington to Beijing, politicians are increasingly defined in terms of their attitudes toward globalization. The key political arguments of the next few years--between Islam and the West, Euroskeptics and Europhiles, the new left and the old -- will all be variations arising from one underlying conflict: the one between globalizers who want to see the world reshaped in their own image and traditionalists who want to preserve fragments of traditional culture and local independence.

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