Stanford has been intertwined with Silicon Valley for more than a century. In 1909, a Stanford graduate founded one of the earliest big Silicon Valley startups, Federal Telegraph. David Starr Jordan, Stanford’s first president, was an angel investor. But Clinkle made students, faculty, and alumni uneasy. Should the university president be advising a company that is recruiting students to drop out of school? Should professors be investing in their students’ companies? The questions around Clinkle had no easy answers, but certainly it would look better for everyone involved if Clinkle turned out to be a massive success—the kind of endeavor obviously worth leaving school for.
Lucas raised convertible debt, which is common for early stage startup funding. Early stage funding is typically either equity—stock in the company—or convertible debt. This debt then converts into equity in the startup’s next round of funding, usually a Series A. Had any venture capital firm or person invested $30 million on their own, they would have gone through a rigorous due diligence process, vetting Clinkle’s team and technology inside and out. But none of the sixty-odd investors had a significant amount of money on the line. And so, there was no one with sole responsibility, let alone a board seat, when things started to go to hell for Clinkle.
And it didn’t take long for things to head south. In October 2012, half of the company walked out feeling Lucas had misled them about the stock options they would be receiving. As with many startups, employees took salaries well below their market rate to join Lucas and Clinkle, expecting to be rewarded with equity in the hot new startup. But for many, the equity never came.
Nonetheless, Clinkle pushed forward. Every startup hits bumps in the road to glory, and while the October 2012 exodus was tough, it would be a footnote once Clinkle hit it big, many still thought.
In April 2013, The Wall Street Journal ran a breathless story about Clinkle, complete with a quote from President Hennessy suggesting that Clinkle might well be different from the many startups started by undergraduates that “won’t make it past the summer.” The story, which featured a picture of Lucas crowdsurfing on top of nearly two dozen employees, was light on details about how Clinkle’s product actually worked.
“This isn’t the next social app,” Lucas said in the article. “Clinkle is a movement to push the human race forward by changing how we transact.”
A group of a dozen Clinkle employees stayed up all night eating doughnuts and working like they were back in college until the article came out at 6 AM. For most, the college vibe felt familiar, as Clinkle was their first job after graduating from or dropping out of Stanford. Clinkle’s office at the time was only a short drive down El Camino Real from Stanford, in Mountain View, in Google’s complex of buildings known as the Googleplex.
In the summer of 2013, Clinkle’s public relations staff reached out to over a dozen publications, from The New York Times to TechCrunch,3 asking them to cover “the largest seed round in Silicon Valley history.” While Lucas was happy to wax poetic about how Clinkle was going to change the world and how much money he had raised, he refused to talk at all about the product or technology behind Clinkle. Now, Lucas was attempting to keep the product and technology in stealth mode, while announcing the company to the world. It was a bizarre strategy.
Like most young founders in Silicon Valley, including Evan, Lucas looked up to Steve Jobs as his idol. He wanted to create a company like Apple, polished and ready to dazzle consumers. Lucas never wanted to talk to users or customers—he felt he should decide what was best for users and deliver them an amazing, innovative product that was a massive improvement over their current wallets. But hyping Clinkle to the press was one of Lucas’s fatal errors, as he put inordinate pressure on the young company. Evan and Bobby shipped a minimum viable product in Picaboo—that is, the lowest-quality product that’s still acceptable to early users, who will provide feedback to improve the product. It took Evan and Bobby years to add in all the features they wanted beyond the initial disappearing picture-sharing app only for iPhones. They were able to see how people used the app and iterate quickly. More than anything, what killed Clinkle was Lucas’s refusal to ship a minimum viable product. Lucas killed Clinkle as much as Evan birthed Snapchat.
Clinkle got bogged down working through regulations and trying to bring a banking partner on board to legally process users’ money. With $30 million in the bank and a talented, hungry team, Lucas indulged seemingly every idea he and his team of engineers had. Typically, early stage startups are so strapped for resources that they have to ship products that are worse than they’d like them to be. However, these constraints force the founders to focus on what really matters most to their product.
Clinkle never came close to feeling this sort of pressure. This long runway, combined with their insistence on perfection, became toxic as they spun their wheels, creating many products that never saw the light of day. The team created nine different sign-up processes but weren’t able to test which one worked best with users because they hadn’t launched.
Head designer Rob Ryan designed a beautiful app that looked and acted just like a real-world wallet, mimicking the motions of pulling dollars out and handing them to a friend. But Clinkle sat and waited and never launched the app. Eventually, the design world shifted away from skeuomorphism—the design concept of creating digital products that look and feel like the real-world products they are mimicking—and Clinkle’s app looked odd and antiquated before it even launched.
Clinkle employees were constantly told by Lucas and his brain trust that they were just a couple months away from launching to consumers.
Being a startup CEO is a lot like being a quarterback or a goalie in sports—win and you get all the glory, lose and you get all the blame, whether you deserve it or not. In Lucas’s case, he earned the blame for Clinkle’s failure.
At Snapchat and other successful companies, employees are happy to experiment and work hard on products that may never see the light of day because those products that do get shipped have a major impact on millions of users. At Clinkle, no product had shipped, and no one knew when a product would ship. So engineers worked on products for months and had no idea what would become of them.
* * *
In the summer of 2013, former Stanford classmates and Clinkle cofounders Frank Li and Jason Riggs both left the company after having issues with Lucas. Lucas became more secretive, refusing to show Clinkle’s app to prospective hires and even some Clinkle employees. Some employees began to suspect that the demo they had been shown in their interviews was not the same as the company’s actual product.
Later that summer, engineering head John Rothfels gathered the team and told everyone Clinkle’s new plan: to send users debit cards. Clinkle’s entire mission, the three words that they had repeated over and over to recruit employees and investors, was “eliminate the wallet.” But the company’s technology for making payments to vendors in a coffee shop or restaurant via sound waves wasn’t working well enough. Clinkle could have released a peer-to-peer money-transfer app, like Venmo or Square Cash, while continuing to work on their merchant payment system. But they had already ceded significant ground to the aforementioned competitors by not launching eighteen months earlier. And Lucas was obsessed with launching a full peer-to-peer and merchant payments system.
In September, Lucas visited Clinkle investor and entrepreneur Richard Branson in London. The two posed for several photos with four wads of $10,000 in fake $100 bills and an iPhone loaded with Clinkle’s beta app. For the final picture, to symbolize how Clinkle was going to destroy physical currency, the duo set the money on fire and smiled for the camera.
Back in San Francisco, Lucas made a key hire in October 2013, bringing on Netflix chief financial officer Barry McCarthy to serve as the proverbial “adult in the room” and bring some stability to Clinkle.
Later in October, Clinkle took its sales team out for a celebration after they had signed up 100,000 college students to a waitlist. Clinkle, with no liv
e product, had twenty people emailing college students in fraternities, sororities, and student groups offering prizes and other promotions in exchange for sending over their group’s email addresses. Clinkle would then add all these addresses to their waitlist, which they would theoretically sign up once the product launched. After the sales team had their big night out on Thursday, they were all laid off on Sunday. Some found out when they went to check their email and found themselves locked out. Lucas let Barry handle most of the layoff discussions.
The week after Thanksgiving, Lucas called an all-hands meeting to proudly introduce a new member of the team. Chi-Chao Chang had joined from Yahoo to be Clinkle’s new vice president of engineering. Chang stood up and addressed the team, introducing himself and noting how excited he was to be joining Clinkle. The next day, Lucas called another all-hands meeting. He stood next to Barry McCarthy in front of about forty assembled Clinkle employees.
“Chi-Chao has left Clinkle,” Lucas said. “He decided it’s too much for him.”
Chi-Chao had arrived at Clinkle and learned that the company only had a demo—not a fully functional product. Lucas and the Clinkle leadership had spent so much time going back and forth over features and design that the system’s architecture wasn’t ready, key security features weren’t ready, the sound for merchant payments still didn’t work, and, oh, Lucas still wanted to make more aesthetic changes.
Barry McCarthy left the company in March, less than five months after joining. He had joined in October believing Clinkle would launch its product in November, but the product still had not launched. Clinkle had become such a laughingstock in Silicon Valley that its brand was toxic, so it attempted to rebrand to “Treats.” Clinkle put a “Treat Bot” on campus one day at the University of California, Berkeley that gave students $20 bills. In theory, it was supposed to get students to talk about Treats, download Treats, and share it with their friends. In reality, it was burning money faster than Lucas did with Richard Branson.
Some investors asked for their money back, while others just quietly disassociated themselves from the company. In May 2015, the last remaining loyal employees walked out after Lucas lied to them about Clinkle being wooed in acquisition talks.
Clinkle died an ugly death. But its death illuminated some thorny questions for Stanford.
* * *
“If the Ivy League was the breeding ground for the elites of the American Century, Stanford is the farm system for Silicon Valley,” Ken Auletta wrote in a New Yorker profile of the school, dubbed “Get Rich U” in April 2012. Auletta’s New Yorker colleague Nicholas Thompson later bemoaned, “The school now looks like a giant tech incubator with a football team.” Thompson readily admits that he is also a Stanford graduate who founded a digital media startup, and when he needed funding, he raised venture from his former classmates.
Much like professional athletes, computer science students can perform ridiculously impressive tasks at equally young ages. But this is a far different time frame than traditional career paths. How does it change college if we need to be ready for our prime by age twenty-two? There was a shift at some point, from smart kids saying, “I want to solve X problem” to students going, “I want to start a startup. Now I just need a damn idea!”
The environment at Stanford could be fantastic for innovation—the number and quality of opportunities was, and still remains, unparalleled. But there are negatives to being in this echo chamber. While most people have some vague idea of a startup or product that they could make, at Stanford there is an air of hubris around new ideas. Some of this was positive, as students feel empowered to jump and commit to their ideas. But some is inevitably negative, as teenagers walk around talking about their weeks-old ideas as if they are the greatest things to grace the earth. The air people breathe in the Bay Area is innovation, entrepreneurship, and disruption. But overindulging in this bubble can get a founder too far away from regular users of their product, distorting their true north. Steve Jobs famously left Silicon Valley to travel in India. And soon, Evan Spiegel would very purposefully leave Silicon Valley to create Snapchat.
CHAPTER FIVE
LAWSUIT POSSIBLE
SUMMER 2011
THE STARTUP HAU5
PACIFIC PALISADES, CA
John Spiegel’s house sits in a picturesque neighborhood in Pacific Palisades, a posh enclave that lies above Santa Monica and the beach in western Los Angeles. The quiet sidewalks are lined with manicured green lawns and skyscraping palm trees. Although it is just a short drive down the winding hill to the chaos of the city, it feels secluded and serene.
Inside the house, Reggie, Evan, and Bobby laid their plans for an internet revolution. While Evan’s class hadn’t loved the idea of disappearing photos, it was different from what other people were working on, and Evan thought that was important. The prototype they built in the spring was far too slow, and it would need to be scrapped and rebuilt entirely. This was Bobby’s purview, as he was the only one with real coding chops. Evan, a product design major, worked with Bobby to create the new version of the app. While Reggie did not have Bobby’s or even Evan’s technical skills, there was plenty of nontechnical work to be done. After they rebuilt the app, Evan, Bobby, and Reggie would need to launch a marketing and public relations campaign to entice people to download and use Picaboo.
Reggie and Bobby stayed in Evan’s sisters’ old rooms, and the three of them commandeered the kitchen as their Picaboo headquarters. Evan dubbed the place the “Startup Hau5,” their startup home’s name written in the style of the popular DJ deadmau5. John Spiegel had a private chef keep the house stocked with food and meals for the boys. Given that the trio hadn’t raised any funding, they were covering all expenses out of their own pockets—known as “bootstrapping” in Silicon Valley parlance—so the free rent was a big plus. Despite John’s repeated urgings for Reggie to call him by his first name, Reggie, with his Southern manners, called him Mr. Spiegel the whole summer.
As they rebuilt the app, Evan talked Reggie and Bobby through the design choices and constraints he wanted to build into it. Picaboo would always open directly to a camera, so that users could quickly take a photo of whatever they wanted to share with friends. They realized users wouldn’t want their impermanent photos to be screenshotted and saved forever; lacking a way to make it impossible for users to take a screenshot, they came up with a clumsy alternative: users would have to keep their finger on their phone to view a photo, making it more difficult to press two iPhone buttons and take a screenshot. They also worked out a way to notify a user if the recipient took a screenshot of their photo.
They would need a logo for the app, something that instantly enticed users to download and use Picaboo. Reggie and Evan sat together and created the logo over the course of a few hours, going back and forth on ways to symbolize the disappearing nature of the app. They settled on a friendly ghost who was smiling and sticking out its tongue. Evan drew the ghost in Adobe InDesign while Reggie tossed in ideas. Reggie named the ghost Ghostface Chillah, after the Wu-Tang Clan rapper Ghostface Killah.
Evan studied the hundred most popular apps in the app store and noticed that none had yellow logos. To make Picaboo stand out, he put the Ghostface Chillah logo on a bright yellow background. Reggie slapped the logo on Facebook and Twitter pages he made for the app.
While Evan worked hard on the design and vision for the product and Bobby coded, Reggie contributed less. Plenty of successful Silicon Valley founders do not write code; but they play other roles, relentless hustling in the early days of their companies, dominating nontechnical jobs like marketing and user growth. Reggie simply wasn’t doing that. Having recently turned twenty-one, he wanted to enjoy the Los Angeles nightlife, and he stayed out into the wee hours of the morning. While Evan and Bobby lived the plot of Silicon Valley, Reggie was more Entourage. Evan had always remembered and valued what Clarence Carter had told him when he worked at Red Bull, “When everyone is tired and the night is over, who stays and he
lps out? Because those are your true friends. Those are the hard workers, the people that believe that working hard is the right thing to do.” His co-founders felt Reggie was not pulling his weight, and it was beginning to cause resentment.
By the end of June, they had a working beta version that Bobby emailed out to some technically inclined friends to test. Evan, Bobby, and Reggie went out and celebrated the milestone. Later that evening, they arrived back at Spiegel’s house and Reggie and Evan got into a drunken argument about how much time and effort Reggie was—or wasn’t—putting into Picaboo.
Reggie, having had enough of Evan’s outburst, retreated upstairs. But hearing Evan and Bobby continue to discuss Evan’s grievances in the kitchen, he paused on the landing, halfway up the staircase. He overheard them talking about getting rid of him and bringing in someone better, someone more experienced, to run marketing. Reggie’s temper flared, and he thought about running back down the stairs into the kitchen and shouting at Evan, “What the hell are you talking about?”
But he knew Evan would fire back and things would escalate. So Reggie walked to his room, his head swirling with emotions, ideas, and cocktails. He took out his bound writing notebook and jotted down everything he had contributed to Picaboo, punctuating the note-to-self with a reminder:
Lawsuit possible.
The next morning, cooler, albeit hungover, heads prevailed. Reggie had gone outside and Evan and Bobby came out to join him. The three of them discussed the argument, apologized to each other, and agreed to move on. For the moment, at least, things were fine.
Putting the fight behind them, Bobby continued making improvements to the codebase, while Evan mocked up better designs and new features. Reggie typed up a Terms of Service, FAQ, and Privacy Policy for users based on templates Evan had found and sent him. Reggie organized receipts and records for when the company would eventually need to file tax returns. The three of them voted and changed the name from Picaboo to Pictaboo then back again to Picaboo.
How to Turn Down a Billion Dollars Page 5
