Alpha Girls

by Julian Guthrie

  Under Zingale, Clarify evolved from doing one thing—call center automation—to offering various products for customer service, including marketing, analytics, sales, and support. It became a platform of services, allowing companies to modify the interface by adding fields, tables, screens, and other tools.

  By the late 1990s, Zingale and Stamm had learned to work well together, and Clarify had become a hot property. The industry was consolidating fast: PeopleSoft bought Clarify rival Vantive for $422 million; Siebel acquired Scopus for $460 million. And both PeopleSoft and Siebel tried to acquire Clarify. At one point, PeopleSoft was only days away from signing a term sheet, with a deal valued at about $1 billion.

  It was only a matter of time before Clarify would cash in. And as MJ saw it, what better way to win the IVP in-house contest than to bring in a huge deal for Clarify. But there was a catch: She would have to make one of the biggest gambles of her career.

  SONJA

  Like just about every other VC in the Valley, Sonja was inundated with e-commerce pitches on everything from dog food delivery to furniture sales. She studied the logistics and costs of warehouses and shipping and found that few people had figured out a cost-effective approach to inventory and distribution. She invested in one e-commerce company, Bravanta, which focused on corporate gift giving, but the sales to date were underwhelming. Sonja kept asking herself, Gosh, what’s a good category?

  So when Varsha Rao and Mariam Naficy walked into the conference room of Menlo Ventures in 1999 and began their pitch for the very first online beauty and cosmetics store, to be called Eve.com, Sonja was intrigued. Eve had $250,000 in seed funding from investor Bill Gross, one of the dot-com era’s greatest visionaries. Rao and Naficy had spent several months living out of suitcases while they incubated Eve at Gross’s company, Idealab, in Pasadena. Gross was convinced that busy women would not only buy cosmetics, fragrances, and skin care products online—they were small enough purchases—but would also replenish their beauty products online out of brand loyalty and expediency.

  Sonja liked the small packaging and relatively inexpensive prices in cosmetics, coupled with the high markup. She especially loved the replenishment model, versus a onetime-purchase model. The company’s initial target customers were women ages twenty-five to thirty-four; the potential market was huge. The dominant e-commerce markets of the moment were books and electronics. Sonja saw Eve as a new category leader. She had attended the road show for Amazon’s IPO, held in 1997 at the Stanford Barn. She didn’t buy into the IPO but thought books were a good market, given that consumers didn’t need to handle a book before buying it. She watched another online store, eBay, raise $5 million from Benchmark Capital that same year. When eBay went public in 1998, Benchmark’s shares were worth $417 million.

  Sonja was also impressed with the credentials of Rao and Naficy. Rao had matriculated through public schools outside Boston, earned undergraduate degrees in math and economics from the University of Pennsylvania, worked for two years at Wasserstein Perella, an investment bank in New York, and gone to work for McKinsey & Co. after graduating from Harvard Business School. Naficy, who grew up in the Middle East and Africa, had been an investment banker at Goldman Sachs and earned her MBA at Stanford, graduating in 1998. The women had entered the start-up world after seeing that women faced a slow slog up the corporate ladder. They wanted to build a business where they would be in charge. They looked at the consumer market as gender neutral: Your product was good or it was not.

  Naficy caught the start-up bug while at Stanford; Rao became interested in the Internet at McKinsey, where she worked with clients on new digital marketing. The two women were roommates after college, bonding over the Sunday New York Times, Bagel Bites, and similar immigrant backstories. Rao’s parents had immigrated to the United States from southern India—her father from Madras and her mother from Bangalore. Her mother had a master’s degree in physics and her father was an accomplished chemist. Naficy’s parents were Iranian and Chinese and had fled Iran for America in 1979, when the shah was toppled from power, when Mariam was nine.

  Naficy’s first idea for a start-up was a marketing automation software company. Rao wasn’t impressed. “That sounds interesting but kinda boring,” she said. “I’ve heard that something like ninety percent of start-ups fail. We should do something where we are the target audience, where it’s fun and interesting, and where our unique point of view can help us.”

  Which is how Eve came into being—and how Rao and Naficy found themselves in the Menlo conference room, with Sonja and her fellow VCs awaiting their pitch. The two women told the group that they had secured online distribution agreements with a range of high-end brands, from Versace, Bvlgari, Calvin Klein, and Elizabeth Arden to Urban Decay, Club Monaco, and Hard Candy. They had hired industry leaders, including former Glamour beauty director Charla Krupp, to provide an editorial point of view on must-have products for women. They had also picked up the do’s and don’ts of deal making: When visiting executives at Chanel, for instance, they made sure to wear only Chanel makeup and nail polish. They changed products with each company meeting.

  As Naficy spoke about the $7 billion U.S. market for prestige makeup and high-end brands, Rao observed Sonja and her fellow partners. Naficy knew from earlier pitches that most men didn’t understand why women would buy and replenish cosmetics and skin care online. The concept had no intuitive connection. Bankers and VCs told them, “Women don’t shop online.”

  When it was Rao’s turn to speak, Naficy had her own chance to survey the room. She had learned two things in the start-up world: She was going to be told no every day, and cognitive biases shaped how decisions were made. Ninety-four percent of VC investing partners were men, and 98 percent of the start-ups that got funded were founded by men. Similarity bias—the heuristic tendency to be comfortable with those like oneself—was implicit. Naficy, who had studied heuristics and animal behavior in college, was certain of one thing: People who look like you are more likely to protect you from being eaten.

  When their pitch was over, and it was time for questions, the men of Menlo turned in unison to look at Sonja: What does Sonja think?

  Sonja, although she still needed to do her due diligence, smiled and said, “I love it.” Menlo made its first investment of $1.5 million in Eve, with Charter Ventures also investing $1.5 million. With this cash, Eve was valued at $9.5 million.

  A few months after Sonja made her investment and took a board seat on Eve, her belief in the company was validated—though in a strange way. It started while she and a girlfriend were sipping wine and watching television. Barbara Walters was grilling Monica Lewinsky in her trademark caring-castigating way.

  A few weeks earlier President Bill Clinton had been acquitted of perjury and obstruction of justice charges for lying about his Oval Office tryst with Lewinsky when she was a twenty-two-year-old White House intern. “Monica, you have been described as a bimbo, a stalker, a seductress,” Walters began her interview.

  Sonja cringed throughout the two-hour 20-20 special. “Monica was left to twist in the wind,” Sonja told her friend. “It’s an abuse of power, a he-said she-said, and the he-said typically wins.”

  But the interview, hyped as the biggest TV event since the “Who Shot J.R.?” episode of the popular 1980s series Dallas, had unexpected consequences. Suddenly, women who had largely lambasted Lewinsky for her behavior wanted the lipstick that Lewinsky wore in the TV interview. Stores across the United States sold out of the lipstick—Glaze by Club Monaco. Women clamored to be put on long wait-lists to buy the berry-hued product.

  Only one online site had the rights to sell Glaze: Eve. In short order, Eve became one of the top ten e-commerce sites.

  As Naficy and Rao saw it, lipstick was more than lipstick. Red lipstick was what suffragettes had worn when they took to the streets to fight for the vote; it was what female workers wo
re during World War II, when red hues were given labels such as “Fighting Red,” “Patriot Red!” and “Grenadier Red!” It was what Rosie the Riveter wore along with her red bandanna, overalls, and bulging biceps. It was beauty and defiance in a tube.

  More venture funding flowed to Eve. Naficy and Rao staffed up and took out full-page ads in newspapers and magazines. They were invited by Vogue magazine to a party for the release of photographer Annie Leibovitz’s book Women, which featured portraits of famous women, including Hillary Clinton, and anonymous women, from coal miners to engineers. Leibovitz’s exhibit at the Corcoran Gallery in Washington would be followed by a small party at the White House, with President Clinton and the first lady in attendance.

  At the White House, Naficy and Rao listened to President Clinton give an eloquent speech on the power of women, with Hillary at his side. It was as if “Monicagate”—as some called the impeachment scandal and presidential misconduct—had never happened. Needless to say, no one said a word about Lewinsky or her plum-hued lips.

  Sonja believed that Monica Lewinsky had been largely mistreated by the press and in the public eye. But regardless, the wildly successful ride of Eve had reinforced Sonja’s belief that beauty had a place among bits and bytes.

  MAGDALENA

  As Magdalena became more familiar with her job as a venture capitalist, she came to expect certain things. Men would far outnumber women in meetings. Some of her ideas would get shredded by the Rabbi of USVP. Competition for deals was fierce, and elbows were sharp. Her friends asked her, “How did a nice girl from Turkey end up in venture capital?”

  When she first started as a VC, Magdalena had made the mistake of thinking like an entrepreneur. In those early meetings, she acted like one entrepreneur helping another, trying to solve problems from the inside rather than present ideas and solutions from the outside. With time, she realized her role was really adviser and coach, as Steve Krausz had described. She wasn’t the cowboy anymore; she was his trusted sidekick.

  Even in this time of a surging NASDAQ and Internet mania, Magdalena focused on nuts-and-bolts companies rather than dot-com start-ups. She invested in what she knew: Internet infrastructure and security. One of her first investments was made in a company that provided security services in e-commerce, business, and government applications.

  Magdalena regularly met with the founders and engineers, including a cryptographer and computer scientist. The company’s leaders included an Arab from the Middle East and an American Jew. The men appeared to get along beautifully, prompting Magdalena to call the start-up the “Middle East Peace Company.” But one day, as the men talked in Magdalena’s office about seemingly routine business matters, voices rose, and the two founders suddenly stood chest to chest. Magdalena moved instinctively toward them. Out of the blue, the Jewish engineer threw a punch at the Arab. He missed—and hit Magdalena smack in the eye.

  No one moved. Magdalena forced a weak smile and shook her head. She was seeing stars but remained preternaturally calm.

  “I’m okay, really,” she said, slowly sitting down. She did enough scolding of her boys, ages ten and eight, at home; she didn’t expect to have to reprimand grown men at work. The men stood awkwardly and somewhat defiantly until Magdalena made them shake hands. “Look each other in the eye when you do it,” she said, sounding very much like a mom. Finally, with the appearance of calm, Magdalena declared the peace company reopened for business—albeit with a shaky accord.

  After the men left, Magdalena sat at her desk and checked her eye in her compact mirror. She was going to have a shiner. While she loved men generally, she really had to wonder about them at times.

  When she traveled with her partners on business, she packed few clothes but several Hermès scarves. When she changed her scarf for dinner, her partners were sure she had changed her whole outfit. One day she returned to the office after getting a haircut and blow dry, and a partner didn’t recognize her. Maybe now, she told herself, the men wouldn’t notice that she had a black eye.

  Magdalena put the fisticuffs incident behind her and focused, as always, on what came next. She soon headed to her first off-site event with the men of USVP. They traveled to beautiful coastal Monterey, only to spend long days in air-conditioned conference rooms with the shutters closed, as they brainstormed over which market segments to concentrate on next, how to be a better venture firm, and how to spot trends before competitors.

  After another long day, the group left the hotel to head to dinner. As they walked together, Magdalena tuned in to the men’s chatter.

  “I bet Irwin got an erection watching the show!” one young partner said about USVP honcho Federman, who had recently seen a musical with sexy tango-style dancing.

  The ribbing continued until it dawned on the men that Magdalena was walking beside them.

  “Oh, jeez, I can’t say that anymore,” the partner said sheepishly. “We have a woman here now!”

  All eyes settled on Magdalena.

  “Listen,” she began, “you should say whatever you feel like saying. Humans are mammals. Erection is part of our biology. That’s the reality of humankind and I’m not offended by it.”

  She was genuinely unfazed. Talk about sex and human anatomy didn’t bother her. She knew few American idioms and deciphered language literally, like Spock from Star Trek. When she was punched in the eye that day in her office, she wanted to reply just as Spock had done when the Enterprise hit turbulence and tossed crew members around the cabin. Asked what had happened to him, Spock replied, “The occipital area of my head seems to have impacted with the arm of my chair.”

  At the same time, though, she drew the line on the topic of equal pay for equal work. Not long after the off-site meeting in Monterey, Magdalena, who had been working under the title of “venture partner,” was invited to become a “general partner,” which gave her more authority, responsibility, and “carry,” or “incentive allocation” based on profits. General partners shared in the upside of profits on investments. The limited partners got their share, and what was left would be allocated to the partners based on a combination of track record, current performance, seniority, and potential. The serving size of each slice of pie was a closely guarded industry secret, often even within a firm.

  Irwin Federman offered Magdalena 6 percent of the carry. She did the math based on the number of partners at USVP and figured equal carry would be roughly 15 percent. She didn’t expect to have the same profit percentage as the Rabbi or veteran partner Steve Krausz, who had joined USVP in 1985, but 6 percent was insultingly small, and not reflective of the value she was adding.

  “I’m honored by the offer,” she told Federman, “but the numbers don’t work for me.” She smiled and walked out. She was perfectly fine being a venture partner. She had been in enough negotiations to know that Federman could tell she wasn’t bluffing.

  Later that afternoon, Federman came into her office and closed the door. The firm was willing to up the offer. She would start at 8 percent carry. She smiled at the Rabbi and said she would love to join the ranks of the general partners.

  Magdalena hadn’t objected to the 6 percent out of greed. As she often said, “I made my money in Silicon Valley, and I’m willing to lose it in Silicon Valley.” But she wanted what was fair.

  The following Friday, Magdalena walked into the all-glass conference room as a general partner for the first time. She hadn’t expected any recognition or fanfare, but she was touched by the outpouring of support from the all-female administrative staff.

  Magdalena had startled the assistants when she served coffee and cookies to the partners. She had impressed them by hiring smart young women as assistants, telling them, “This job is a stepping-stone. I don’t want you to do this as your career.” She had changed the rules by bringing her assistants into meetings with her. When she was told that that wasn’t done, she replied
, “They’re my assistants. I can do anything I want. That includes bringing them to meetings. And by the way, you should do the same.” And when she learned that only partners were being invited to a birthday party being thrown for USVP founder Bill Bowes, she protested, saying the assistants worked harder than most and had to be included. No one seemed to be listening to her, so she said, “I’m not going unless they’re included.” In the end, everyone was invited.

  So when Magdalena took a seat at her first meeting of the general partners, the assistants silently cheered. Her win was their win.

  THERESIA

  Shortly after Theresia made partner at Accel, the firm hosted its quarterly off-site “team building” event. Accel co-founder Arthur Patterson had adopted the Louis Pasteur quote “Chance favors the prepared mind”; he liked to gather the team to talk trends coming down the pipeline. Partners from Accel’s other offices flew in for the off-site, held in the Napa Valley north of San Francisco. Patterson told one and all, “The more you engage socially together, the more it helps you work together in business. You have that much more knowledge and respect for one another. Personal interaction has to underlie professional cooperation.” An important part of the bonding involved a “fun and friendly” competition.

  So on a gorgeous early-spring day, Theresia gathered her things and headed out onto the field near Yountville for a game of football. She tucked her shirt into her shorts and wrapped the three-flag belt around her waist. Her assistant, Angela Azem, watched from the sidelines. She forced a smile and gave a thumbs-up. Angela had seen “fun and friendly” before at Accel. She feared Theresia had no idea what was coming.

  Theresia was on a team with all guys, including the silver-haired Patterson and Jim Goetz, an engineer and entrepreneur who had recently joined Accel as a partner. There were six players on each team, with five allowed on the field at a time. Patterson came from a successful New York family; his father, Ellmore Patterson, had been chairman and chief executive of J.P. Morgan & Company. Arthur had attended Harvard, where he played on the varsity football team. So had Jim Swartz, two years ahead of him. Swartz now headed up the other team.