The New New Thing: A Silicon Valley Story

by Michael Lewis

It was a difference of temperament as much as anything else. Clark had walked up to a roulette wheel surrounded by more or less reasonable men, and laid all his chips on 00.

  And it scared the hell out of the others at the table. The VCs could tolerate companies’ going bust—they had so many of them—but they could not tolerate missing out on the new new thing. And so they poured their money in. They threw good money after bad into an enterprise they suspected would fail. They had wanted to be chickens; Clark forced them to be pigs. “I think Jim knew exactly what he was doing when he called Mike Long and said he would give him all the money he needed,” says Dick Kramlich. “Jim has come a long way since Silicon Graphics.”

  12

  New New Money

  One summer afternoon, after a meeting with the venture capitalists about Healtheon’s future, Clark hopped into one of his sports cars and launched himself in the direction of San Francisco. With the top down and the speedometer’s needle nudging past 100 he had to holler to make himself heard. “I’m starting to feel poor!” he shouted.

  He intended it as both a joke and a complaint. He felt poor, and he realized that it was funny, or at least odd, that he felt poor. After all, his Netscape holdings were still worth nearly $600 million. Even if Microsoft succeeded in driving Netscape out of business (which Clark believed it would do), he thought he would soon be much richer than he now was. Despite all appearances he felt certain Healtheon would be an embarrassingly big success. Indeed, one of his purposes at the meeting that morning was to increase his stake in the company. No, he was less concerned about Healtheon than about the new new thing—whatever that might be. Whatever it was, it had to be even bigger and more dramatic than Healtheon. That was Clark’s one rule about his new new things: each one bigger than the last. “The idea so far is that I’ve put all my wood behind a single arrow,” he explained. “The risk now is that the next time the arrow gets so huge that the whole world is looking at it. And it’s not an arrow anymore, it’s an ICBM. ‘Well, Jim Clark failed.’ That’ll be the story. And it’ll be a big story.’”

  The thought made him happy. He was saying that he could live with his inevitable failure, because it would, inevitably, be spectacular. Just twenty minutes before, when we’d climbed into his car, he’d been in a dark mood. He’d cursed Silicon Valley venture capitalists as “parasites,” and complained about the fees charged by Wall Street investment bankers when they took Silicon Valley companies public. Yet now, suddenly, he was happy in the world. The adventure story telling itself to his imagination had soothed him. Or maybe it was just the speed of his car. All he had to do is gun some machine into its highest gear to rediscover the sunny side of life.

  The trip from Healtheon’s main office on the northern fringes of San Jose to downtown San Francisco took an hour. We rolled up in front of a skyscraper, parked illegally, strolled into the elevator, and pressed a button. Up, up, up we rose, and as we did I became aware of his incongruity. Downtown San Francisco was one of those old-fashioned places where businessmen went to work in suits and measured their status by their views of the Bay. Clark wore a yellow polo shirt, khaki slacks held up by a soiled sailor’s belt, and his rat-gnawed pair of sneakers with their grimy MEPHISTO label. The bike messengers were better dressed.

  He had come to San Francisco to open a Swiss bank account. Why he wanted a Swiss bank account was complicated. It had to do with Europe.

  Clark’s arrival in the Dutch boatyard had caused a financial mating signal to be broadcast across the European landmass. Princes, dukes, counts, barons, and every species of European lounge lizard came running to embrace the future. Clark’s tendency to trust people when he first met them had landed him in a mess. He’d lent one of the more egregious lizards a couple of hundred thousand dollars so that the lizard might buy shares in @Home. The lizard had made a bundle for himself and then, perhaps out of some fuzzy Jamesian notion that rich Americans were sufficiently awed by European lounge lizards that they would rather forgive them their debts than make a social stink, failed to repay the loan. At that point Clark’s tendency to destroy people who betrayed his trust kicked in. (It may have taken him a hundred years, but Henry James’s American had learned a lot.) He found the name of the man’s Swiss banker, Bank Julius Baer, and flew in to see the head of the place to inform him of his client’s debts. Now, to complete the humiliation, he was opening an account at Julius Baer’s San Francisco branch, so that, if the lizard reneged on his debts, he would do so in full view of his hoity-toity bankers. Clark figured that the man would either pay up or suffer shame and humiliation in Switzerland.

  The head of Bank Julius Baer’s San Francisco branch met us as we stepped off the elevator. He was clearly delighted that the rich American was opening an account, even if he meant to deposit only the required minimum. His round face suggested his eagerness to please, his paunch a willingness to do lunch. But it was less his appearance than his manners, an unfortunate mixture of deference and command, that set him apart.

  “I won’t waste your time with our promotional materials,” he said, wasting Clark’s time with the promotional material, before tossing the glossy brochures to one side. He clasped to his chest a serious-looking document with no gloss at all, and led Clark into a room with a lot of dark wood. Clark sat on one side of the table, the Swiss banker on the other. From the document in his hand, the banker said, he would read a series of questions that all Swiss bankers asked new customers.

  “Occupation?” he asked.

  Clark paused. His face betrayed a perfect lack of understanding. The first question! Already he was stumped!

  “Executive,” he said, at length. Then he glanced over at me, apologetically. “They usually don’t have a category for what I do. So when they ask I just say executive.” The Swiss banker laughed nervously. “We never asked such things until very recently…ten years ago,” he said. “Until then we asked nothing. But now…” He shrugged, and in that tiny gesture was the silent scream of a man standing on top of a collapsing tradition. Some combination of direct pressure from the American government and indirect pressure from the public conscience had forced Swiss bankers to become indiscreet.

  The Swiss banking tradition, however, was wasted on Clark. The trouble with the new American rich, from the Swiss-banking point of view, was that they had nothing financial to hide. Clark’s wealth was as public as great wealth has ever been. People who cared to know how much he was worth needed only to check a few documents at the Securities and Exchange Commission. Or if they didn’t want to take the trouble, they could pick up a copy of the Forbes annual list of the four hundred richest Americans, on which Clark’s name and a fair estimate of his fortune now appeared. Or if they weren’t big on reading, they could just ask Clark. He didn’t see much point in pretending his money was some kind of secret.

  “Investment objective?” asked the Swiss banker.

  Clark said, “To get my money back.”

  “Risk profile?” asked the banker.

  Clark just stared at him. “What do you mean?” he asked. The banker didn’t quite know how to put it, so he paused and made a bit of small talk. You could see him trying to find the string of phrases, or perhaps the mood, that would cause an American searcher for the new new thing to hand over his financial affairs to the Bank Julius Baer. He was like a man working his way through a ring of old keys in a futile attempt to open a shiny new lock. The lock politely declined to open.

  Finally, the banker just skidded his questionnaire across the mahogany table and asked Clark to fill it out himself.

  Clark gazed intently at the document. “INVESTMENT PROFILE,” was written in bold letters across the top. The questionnaire might be new to Swiss banking, but it nevertheless reflected hoary Swiss assumptions about money. It assumed, in particular, that any money deposited with Bank Julius Baer was (a) not earned by anyone still living and (b) terrified of being lost.

  As Clark studied the document, his face acquired the pained expression
of a well-meaning child who is trying his best to answer a difficult question. He was often this way when faced with new situations, or with people he did not know. He wanted badly to do what was expected of him. It was only after he determined that this was somehow impossible that he went ahead and did whatever he wanted.

  Now he was doing his best to please Bank Julius Baer. Yet he could not fathom how the bank’s questions applied to him. He arrived at the first category, marked “Risk/Reward.” A simple-minded graph with an arrow pointing up and to the right illustrated the principle that the more risk you take with your money, the more you stand to gain or lose. In the past ten months Clark had “lost” $600 million simply by holding on to his shares in Netscape. “If they only knew,” he said. The Swiss banker chuckled unhappily. Clark remained straight-faced. His eyes drifted farther down the page, to a category marked “Return Objectives and Risk Tolerance.” This was a summary of the typical Swiss banker’s idea of the range of possible attitudes toward financial risk. It read,

  Conservative: I seek to…minimize investment volatility.

  Moderate Growth: I want to take some risk while also preserving capital.

  High Capital Growth: I have a minimum time horizon of five years with which to pursue my objectives.

  Next to each risk profile was a little square box. Clark passed quickly over the first two and paused for a moment at the third, wondering, probably, where they put the box for people who sought to turn ten million dollars into one billion in a few months. Finally he looked up with the most perplexed expression.

  “I think this is for a different…person,” he said.

  And then, at that moment, something inside him gave. There he was, the maker of the fastest money ever made legally. He was the spiritual leader of a new financial movement that believed in putting all of its chips on 00. He had not the faintest desire to “manage” that money, or to “diversify his holdings,” or to employ any of those gentle verbs that emanate from bankers and inspire people who are not bankers to hand their money over to them. At that moment Clark’s investment portfolio, such as it was, looked like this:

  Healtheon: 9,500,000 shares. Estimated Market Value: 0.

  Netscape: 15,500,000 shares. Estimated Market Value: $550,000,000.

  Microsoft was gobbling up Netscape’s market share, and thus Netscape’s share price, and thus Clark’s wealth. And yet Clark hadn’t a thought in the world of “preserving” that wealth. He had no interest in preservation of any sort. His life was dedicated to the fine art of tearing down and building anew. He didn’t buy U.S. Treasury bonds, or stock in companies outside of Silicon Valley, or for that matter stock in anything outside the outrageously volatile Internet sector. A year or so before he had bought and sold a million shares in @Home, and made a quick $45 million. Other than that he sank his wealth in his newest company, and left it all there until the new new thing came into view.

  This gorgeous financial myopia was common in the Valley, and one of the chief sources of its success. The technologist’s tendency to commit all his resources to new technology, by financing ever more new technology, had generated one of the great economic miracles in human history. Now this paunchy Swiss banker in his humid gray suit was offering up his Swiss recipe for handling money. In Clark’s mind it was a recipe only for mediocrity and stability, which came to the same thing. All the attitudes designed to keep people locked in one place were right there, in the questionnaire. Presenting it to Clark, and asking him to fill it out, was not merely poor commercial judgment. It was a social gaffe, on the order of inviting the fastest gun in the West to court at Versailles.

  “No one I know would know what any of this means,” Clark said, finally.

  By now he was actually giggling. The Swiss banker laughed too, but less sincerely. The customer was laughing! At the Bank Julius Baer questionnaire! At the Bank Julius Baer! Clark skipped over one of Julius Baer’s questions, then another, then a third. Finally, he paused at a section near the bottom of the questionnaire entitled “The Larger Picture.” It read,

  The assets invested with Julius Baer Group will be:

  Most of my financial assets

  Only part of my financial assets

  ______of my financial assets.

  As the Swiss banker attempted to divide a couple of hundred thousand into $550,000,000, Clark hunched down low over the third line on the form and entered “.00035.”

  “Wonder what their computer will do with that,” he said. Then he thanked the banker politely and left.

  Never was a man’s love of risk so beautifully amplified by his environment as Clark’s was in Silicon Valley. In late 1997 Healtheon was worth nothing, at least as far as the venture capitalists were concerned. By the summer of 1998 it was deemed worthy by Wall Street investment bankers of a public share offering. It still wasn’t a viable company; it was losing money at a rate of fifty million dollars a year. But it was suddenly plausible. That is, it could be held out to investors as a company that might one day make vast sums of money. Investors would believe this. Or so said the investment bankers.

  A bit more than a month after Clark visited the Swiss bank, the Wall Street investment bankers visited Healtheon. In 1986 when Clark had wanted Wall Street bankers to sell Silicon Graphics to the public, he flew to New York City, hat in hand. Many of the bankers treated him poorly. The CEO of Salomon Brothers, John Gutfreund, stood him up—left him sitting like some hick in the lobby of Salomon Brothers. These days the investment bankers came to Silicon Valley. This was only one of many recent changes along the capitalist food chain. Wall Street had gone from being the celebrities of the money culture to being its lackeys.

  It was in June 1998 that six bankers from Goldman Sachs visited Healtheon; directly on their heels came five more bankers from Morgan Stanley. Together with Long, Pavan Nigam, Jim Clark, and a dozen Healtheon employees, they crammed their lightly starched selves into a small conference room. What ensued was a wonderfully elaborate money ballet.

  It took an hour or so for the dance to begin: when billions of dollars are on the line, you can’t simply talk about money. It’s too important. Mike Long took the seat at the head of the conference table. The investment bankers took seats along the table. The Healtheon employees sat in chairs back against the wall. Clark took a chair by the door, which, to the consternation of the bankers, he opened a crack. They didn’t understand that nothing of true importance happened behind closed doors. The room stayed too stuffy for his tastes anyway, and all through the meeting he kept getting up and wandering around outside in the halls. Long introduced the Healtheon employees and then turned to the one man in the room who needed no introduction. “Jim Clark,” he said, “why don’t you tell us about your original vision here.”

  Jim Clark obliged. “Just after Netscape I was interested in a vertical market,” he began, deploying the usual Internet lingo. A vertical market was a market for a single good or service, like books or travel. A horizontal market was a market that cut across many different goods and services, like a Web browser. Netscape was in a horizontal market; Healtheon was in a vertical market. “I always thought that the biggest opportunity on the Internet was the vertical markets,” Clark continued. “I didn’t know anything about health care, but I was looking for something worth doing and…”

  He went on for a few minutes about why turning the $1.5 trillion health care market on its head was “worth doing.” Then he leaned his chair back on two legs against the wall and as much as handed the floor back to Mike Long. “The Internet changes everything,” said Long. “Everyone can get connected on the Internet. And thank you, Jim, for that.”

  The bankers chuckled appreciatively. By their tone and their manner they conveyed the general idea that everyone who mattered in this new world was in this one little room. They felt safe here. The playing field was now Silicon Valley. Of course, an investment banker in Silicon Valley wasn’t exactly a player. He was more of a waterboy. But at least he was in Silicon Val
ley. His colleagues back in New York were relegated to the bleacher seats of capitalism—and it nearly killed them. After all, what possibly could be the point of being an investment banker if you didn’t make more money than everyone else?

  Still, Wall Street bankers were higher up on the capitalist food chain than Swiss bankers. They participated directly in the miracle of Jim Clark, or thought they did. True, they’d been shoved a rung or two down the chain by entrepreneurs like Clark and venture capitalists like John Doerr. True, when Morgan Stanley and Goldman Sachs called Mike Long and said in their puffed-up way that they would take Healtheon public only if they were given sole possession of the deal, Long had only to say in a stern voice “put that in writing” before they caved and said they would do whatever he said, when he said it. But they’d made hundreds of millions of dollars off the Internet boom. They could plausibly claim, at least at that moment, to be the perpetrators rather than the victims of change. To take a company like Healtheon public they charged 7 percent of all monies raised, plus expenses. If a company raised $50 million, the investment bank would net $3.5 million for a few weeks of work. That fee was usually just a kind of down payment. Once the stock price of one of these Internet companies took off, it could be used to acquire other companies with lower stock prices. The Wall Street bankers acted as agents for these acquisitions. Their fees did not make them as rich as Clark or the people who worked for Clark or the people who worked for the people who worked for Clark or even the people who worked for the people who worked for the people who worked for Clark. But they were richer than Swiss bankers.

  The meeting with the Wall Street bankers lasted four hours, from two until six, with one long break for coffee and phone calls. Long introduced the company with the new Healtheon diagram. The new diagram was even more impressive than the Magic Diamond, which it had replaced. It looked like this: