Burn Rate

by Michael Wolff

  “I don’t think we ought to be shortsighted about this,” urged Rubin. “The value of this company is going to be based on its level of recognition. I’d like to move that we hire them.”

  I was rather curious to find out how famous I’d get for $40,000 per month.

  I reported, with perhaps more enthusiasm than my short conversation in the red-eye departure lounge with Robin Johnson, the CEO of Infoseek, deserved, how much Infoseek wanted to “partner” with us on the content side. “In essence, they will be our distribution partner. They’ll be like the network and we’ll be like the creator of the show. There’s going to be distribution and there’s going to be content. The search engines are going to be distribution. They have all this traffic. Now they have to feed it.”

  It was intellectually challenging that part of the job was to imagine how the business would work, but it was also alarming to realize that the theories of how the business model for the Internet would come together changed in fundamental ways as often as every other month.

  We digested, along with the mozzarella and tomato and arugula sandwiches, the monthly financial report.

  Jon Rubin, flipping impatiently through the spreadsheets, seemed only slightly annoyed by what we were politely calling “the cash flow reality.” He was much more agitated by his technology advisor’s concern about how we risked missing out on the move toward personalization features—the ability of software to know what you want and make choices for you. Firefly’s stratospheric valuation was rankling and inspiring to everyone at the table.

  The technology advisor (“I’m not here to express an opinion, I’m here to help facilitate options”) made a presentation about how we might approximate what Firefly was doing.

  He clearly believed that personalization was the future and that critical writing was the past. There was a strong utopian emphasis to his approach—the randomness of human relationships could now be ordered.

  I was not unmindful that this debate allowed us to avoid the issue that we had spent all of our money.

  “Is that where people think we should be going?” Rubin wondered. “Will personalization be hot next month, too? It is cool though. It’s really cool.”

  “But we’re not a technology company, we’re a content company,” I insisted, weakly, because, in fact, I was getting tempted by the magic. I mean, what if you could run an algorithm and find your true love?

  “It is so cool. Have you tried any of this shit?” Rubin asked Bob Machinist (but rhetorically, because the bankers did not use computers). “But do we want to develop a proprietary technology which can be knocked out by someone else’s version of the same technology? Can we support that?” Rubin asked, looking to his technology advisor.

  “Can we afford not to support that?” asked the technology advisor.

  “Let’s agree to do it. Issue the press release,” said Bob Machinist. “But let’s not spend the money. Let’s see if there’s really heat here first.”

  Most discussions about technology seemed to have three components: what would win in the distant future, what should win in the future, and, finally, what would prevail tomorrow.

  The first component was the VHS-or-Betamax debate. On the basis of that bet, empires would grow—or not.

  The next was infinitely more theoretical and had to do with, well, right and wrong, in a sense. We were inventing a new medium. The universe of information would be available to everyone. How could we make this information useful? How could we help turn it into knowledge?

  And the third component, independent of the first two, was how we, the people at the table, could make as much money as fast as possible—even if that meant doing what we knew to be wrong or futile.

  In each of these discussions, I had some self-interest.

  Running a business with three employees, then seven, then fifteen, then thirty, forty, fifty, sixty, seventy—new neighborhoods of desks every week, a whole city—I started to dream of being a great business story, of building something that was smart and sound and for the ages.

  As a journalist, I found the prospect of defining a new medium, of being Murrow or Luce, pretty heady, too.

  But the most powerful of these interests—my upbringing and personal codes to the contrary—was the prospect of making millions quick. Of making more money than you ever dreamed of. Of making the kind of money that would allow you to do all the things you ever dreamed of doing without the bastards getting you down. Fuck-you money. The sweetest lucre.

  This dream beyond dreams seemed best personified in my former classmate, who in school was someone I took no notice of but who was now larger than life. Ten years after graduation, during one of my first entrepreneurial forays, I was urged by other classmates to “go see him.” Or Him. Machinist’s success was already a legend—the Manhattan townhouse, the uniformed house help, the German-speaking wife and children, the racing cars. I went modestly, without jacket and tie or song and dance, hoping—assuming—that my lack of affect, my disdain for the world of high finance, would be as mysterious and compelling to him as his riches were to me.

  It was a perfunctory meeting. Machinist was clipped, curt, and uncomprehending. He got me out ASAP. I understood, too. Shown the door, I got it. He was for real. He wasn’t playing at this. The hairy, sniveling prep school boy had become an imperial liege. And that office! With its dining rooms, wall-size brand-name SoHo paintings, fresh flowers, and uniformed servants. It meant business on a global scale. Everyone who worked for him was serious; they all meant business. They all believed in business.

  Over the years I tried but seldom succeeded in getting Machinist on the phone. When occasionally he did relent, it was almost impossible to talk to him. Our sentences didn’t meet. There was always a disconnect. In part it was the money vocabulary, which I admired without comprehending, and in part I don’t think he could quite find a context for my small-time enterprises. A hundred thousand dollars was my dream, a hundred million was his. Still, I could drop his name. I could hint that he might be involved with one of my schemes.

  And then . . .

  One Monday morning in October 1994, the Banker rose at his country estate in Greenwich and his uniformed servants brought him his cappuccino, his fresh-squeezed, and his Wall Street Journal and there, disturbing his breakfast, he found me and my Internet activities as the featured story.

  Because publicity is the currency of our time, it is not unreasonable to assume that there is a Darwinian capitalistic earning process to such riches. Even people who should know better (even those for whom manipulations of the press are a daily accomplishment) are almost always impressed, or rankled, by someone else’s publicity. Even though we know nine times out of ten that the fix is in, we somehow can’t help regarding rich people as having earned their money, or publicity hounds as deserving their fame.

  In short order I received a formal letter from Bob Machinist, handwritten, in fountain pen, on personal letterhead. (He would later ask my advice on a book he thought he was especially suited to write—how to compose a letter for every occasion, including letters of condolence, letters of recommendation, letters to take over companies. Then, too, he was eager to have his wife write a cookbook; “a Jewish Martha Stewart” he saw her as.) It was a letter conferring high respect on my acumen and vision but sounding a clear cautionary note, too. An opportunity, offered to few people in a lifetime, had knocked on my door. I should look carefully at all that would be required to seize it.

  “You can be a big swinging dick for a few days, or realize an enormous amount of money for you and your family. I’m suggesting that you can create a capital base for generations to come,” he said in a follow-up phone call.

  It was a surprise to me that when you get your name prominently in the newspaper, people call you up. All kinds of people. People who want you on television. People who want to make you business propositions. People from deep in your past. No one is bashful. Of all the many people who contacted me and solicited me after the
Journal article—I could speak to business roundtables, I could have the article encased in faux mahogany, I could contribute to numerous worthy causes, I could fill my dance card with financial firms up and down the West Coast—I was most helplessly drawn to my former classmate, Robert Machinist.

  It was the dynastic sense of capital which he offered that turned me on. My children and theirs born alight, aloft.

  “We could get you out with five to ten million dollars right away,” he explained when we met in his office. “But that’s not, clearly, where you want to be. I know lots of guys who have sold out for ten million who are the walking dead. You have a family. You live in Manhattan. You don’t want to risk the public schools. I know your nut. You need at least fifteen million dollars—an after-tax net of eight, which would produce a fixed income of four hundred thousand dollars a year, if you didn’t make a big real estate purchase—to make ends meet. Our minimum goal is to get you out inside of eighteen months with thirty million dollars. That would provide you with the leverage to go on to other enterprises. We’ll play that against the opportunity to smack this way out of the park. I’m willing to share with you my personal goal which is to do a public offering north of two hundred million dollars.”

  “Okay,” I nodded.

  It was wonderful talk. It was a way of looking at the world in which impediments to the most overachieving daydreams—own a newspaper, perhaps a movie studio, become William Paley, Rupert Murdoch, Bill Gates—are just procedural hurdles, a series of capital requirements, that’s all.

  Put aside the inconvenient facts that I had never run a business with more than six employees, that I knew scant little about technology development, that I liked to sleep late in the morning and play with my children in the afternoon.

  It was the age of the entrepreneur. It was the age of the visionary. Ideas, concepts, constructs, theories, perspectives, perceptions, points of view—all had value if they were sweeping enough, grand enough, beguiling enough. The great, quick fortunes were all about imagining the future.

  In addition, bankers are highly competitive. The New York banking boutiques were losing out on the technology spoils. It was the Netscape factor. In order to achieve immortality in your profession as a banker, you had to turn an idea into a colossus and do it within a season or two. Out in Menlo Park, the financiers at Kleiner Perkins had had a disproportionate number of home runs. Here in New York, the financiers weren’t getting their bite of the cyber apple.

  But that was because New York didn’t have the right raw materials to work with . . . until now.

  “I’m fortunate enough not to have to do anything at all. Those people out there,” Machinist said, waving to the firm’s corridors of offices, “have to move the stones. I have the luxury of just being able to think about what makes the world tick, and how to make the cash register ring.” He was very pleased with himself. He stretched his neck and stroked it.

  “Really,” he said, “this is a beautiful moment for you. You just need to crystallize your thinking. I’m going to help you do that, you lucky man.”

  The uniformed office person came in with a tray of cappuccinos.

  “You are where everyone wants to be,” Machinist said, standing. “You’ve heard about the right place and the right time. Well, here. Now. This is it. You’re on it.” He seemed poised to skip around his office.

  What had to be accomplished was a course of financial engineering, according to Machinist. We needed the resources and wherewithal to build brand, to take the industry space, and to hire a management team that could speak to the Street.

  Over the next several months, Machinist provided a series of management consultants to consider our business and to suggest the ways we might position ourselves to raise the capital we’d need to transform ourselves into a mighty business machine.

  Once a week, I’d meet him for a cappuccino (he had a machine at every port) in his hideaway library. In a Socratic process, we tried to imagine the future. It was a future in which Content was King, technology was a transparent and low-priced commodity, and basic media principles ruled. On one hand there was a revenue stream that came from marketing partnerships, whether in the form of traditional advertising, direct sales, or sponsorship underwriting. On the other hand, a revenue stream that derived from content replication—how many times could you sell the same information? Advertising was good, but content replication was gold. Consider, for example, the music business.

  Yes. Yes!

  All right. Quietly now . . . what if the replication is achievable at no cost?!

  But . . . haven’t we given control over this replication process to the consumer? Anybody can do it. If anybody can do it, then who will pay for it?

  That’s the missing link! The consumer wants to pay! Nobody wants what’s free! This is the entertainment business! Do you want to listen to U2 or to your sister playing the piano?

  Personally, I found a strong point of view enormously energizing, especially when it was taking a contrarian stand. On the West Coast, the Wired disciples believed information wanted to be free; here in New York, Machinist blissfully believed information wanted to be paid for.

  It was only mildly disquieting that Machinist knew nothing about technology. “I have people in all the time. We hold classes. Do you think anyone goes?” The firm’s senior technology analyst, a portly young man who appeared fifteen years older than his real age, was openly disdainful of the Net. “I would not have time to use it, now would I?”

  This hauteur was nothing, though, compared to what I endured when I was brought before the firm’s most senior partner, whose enthusiasm for the project, or lack thereof, would determine the size of the firm’s financial commitment to us.

  Nearing retirement, Alan Patricof was an A-list name gracing museum walls and benefit committees and Democratic causes. He was arguably among a handful of financiers who had shaped modern venture capital investing (having made many prescient technology and media bets), gaining a vast personal fortune and the animus of almost everyone who had worked with him in the process.

  In fact, the Patricof firm had been one of the early investors in America Online (“We were the early money in AOL,” Machinist would say, stating his technology bona fides), although Alan Patricof had disputes with AOL management and the firm had gotten out of the deal as soon as it could.

  From a distance, there was something appealing about Patricof’s eccentricities and cragginess (and crankiness), his rumpled suits (although I suspected those suits were as costly as a car), his fulminating, his deep, penetrating scowls. If the alternative was California and its techno-VCs (homogenized sharpies who spoke the language of engineers), then New York and its worldly, intellectual class of financiers, whose perspective went back a tad longer than the advent of personal computers, looked pretty good to me.

  Except when you got up close. There, the senior partner resembled a mental patient. Perhaps it was the unsettling notion of newer and newer technologies, of being confronted with a world over which he had no knowledge and hence no control, that threw him into some kind of chemical brainstorm.

  “Net-scape! Net-com! Net-guide! What’s the difference? What’s the difference? What’s the difference?”

  “Alan, please,” calmed Machinist. “These are entirely different—”

  “So shoot me. I don’t get it. So shoot me. Shoot me!”

  “Alan, let’s just look—”

  “I’ve seen a computer. I’ve seen a computer. What do you want to show me a computer for?”

  A demonstration of the Internet, its capabilities, and prototypes of our products had been carefully choreographed, but Patricof snatched the mouse from my hand, waving it in the air in one of those eye–hand disconnects. “It doesn’t work! It doesn’t work! It doesn’t work!”

  “Who can use it? Who can use it? Who can use it?

  “Where’s the money? Where’s the money? Where’s the money? You’re gonna sell advertising? Advertising? I know about
selling advertising? Has anyone ever tried to sell advertising? It’s hard to sell advertising. You can’t just sell advertising.”

  “Alan, people sell advertising on the Internet,” explained his partner.

  “Yeh! Yeh! Yeh! Fine! You’re going to do what you want, so do what you want!”

  Over the years I have asked many people for money—small-time five-figure and low-six-figure sums. But so few people not related to me have ever given me money for my various projects that I have never given much thought to the nature, the motivations, the personality of capital. Except to realize that there is nothing more improbable than successfully raising money for a noncreditworthy venture. And while I was not doing anything different from what I had done before except now I was doing it on or in the vicinity of the Internet, suddenly there were some very serious check writers (distinguished by Machinist from another tier in the money-raising business: investors who were once, or more, removed from the capital source) sitting down and looking me in the eye.

  We wanted $5 million to spend against an almost entirely imaginary revenue stream. What’s more, we wanted this $5 million to constitute a relatively small part of our business, less than a third, for sure.

  Remember, please, that I had spent almost the entirety of my career working at home at the kitchen table. I should have been able to understand this laying on of millions as interesting drama or clever farce and to watch attentively, but such balance and objectivity is hard to sustain in real life.