“Nothing wrong with that,” Gordon answered with a smirk. “Zuckerberg made out like a bandit.”
“Sure, and so did a lot of those at the top,” Molly continued, “along with the early backers and underwriters, but look what people think of them. They came across as greedy. I don’t know about you, but that’s not how I want to be seen. That’s not why I work here. That’s not who we are.”
Sam eyed Brian evenly. He was fixed on his iPhone, which lay on the blue-bound prospectus in front of him, occasionally punching at it. She’d been living with Brian four years earlier, when they’d been bitten with the bug. She and Brian had seen the inherent weakness of Facebook and of the other social networking sites, anticipated how quickly users would become disenchanted as marketers leveraged them, and they stopped being fun. They’d constructed Toptical with all that in mind, more for the challenge of it than for anything else. They’d thrown into the hopper everything they wanted in a social networking site, and a real company had quickly emerged from that.
What they devised was a one-stop shop, enabling businesses and users to establish accounts that integrated user groups, topics, family and friend groups, affiliations, video, and much more. It was far more comprehensive than Facebook because it had topics that served as discussion areas, a place to post videos, pictures, and articles, buy media content, play interactive games, obtain notices of discounts and coupons, and much more. It was of particular use to business customers because it integrated their various public faces, but let them connect to their personal identities, keeping the activities and membership of each side linked, but still separate. From an investor point of view it had a built-in monetization process, underdeveloped as yet, but demonstrated the potential for a dramatic upside. The buzz surrounding the IPO was everywhere.
Inevitably, the concept wasn’t so original now as it had been then. Now it seemed every major Internet player wanted in on the action. But they’d been first, they were by far the biggest, and they had the brand.
“Who cares what people think about us?” Gordon said, looking around the table for confirmation. No one reacted.
“We should,” Molly insisted. “Right now, we’re cool, like Facebook used to be. If we stop being seen as cool, it will hurt us. It will affect how successful the company is down the road. We need to think about that.”
“That’s crap,” Brian said, glancing up from the table. “You brought up Facebook yourself, and it’s doing just fine. What counts is the quality of our product. Anyway, the time is right for this. We need to take adv—”
“We’ve got maybe a two-year lead on the others,” Adam said. “That’s more than a lifetime in this industry. I think Molly’s got a point. I’d like us to keep control without having to consider investors, the SEC, all of that, but I agree that this may be our only shot at real money. I get that, so I’m on-board for the IPO. What I don’t like is Morgan Stanley releasing more shares. I think we’re oversubscribed, and it’s going to dilute our share value.”
“They told me demand requires it,” Gordon said a bit defensively.
“And what if their principal clients don’t come in as strong as they claim?” Molly asked. “What if demand isn’t as high as they tell us it is? We’ve got trouble that’s what. The stock could go into free fall.”
“The company’s valued at a hundred billion dollars today,” Brian said, now fully engaged. “That leaves a lot of room for market adjustments.”
“That’s hype,” Molly said. “It’s thirty billion tops, Brian, like the prospectus says. The other figure is for PR.”
Brian smiled mischievously. “It’s still a lot of bil—”
“And where’s the money coming from?” Adam said, interrupting again. “Isn’t that the big issue here? It’s not my side of the business, but the underwriters are concerned.” He tapped the blue folder in front of him. “They dress it up, but it’s there. It’s why they released this at the last minute. They’re covering their asses.”
“Google, Microsoft, Twitter, even Facebook, they’re breathing down our necks wanting to buy us out, and they’ve got deep pockets,” Molly said. “The money they’d spend acquiring us would be a loss leader for them. They don’t need to make money with us. We do.”
“It’s not just them,” Adam added. “Right this minute, in some garage, there’s another Brian and Sam working on an idea to take us out.”
“What do you think, Sam?” Molly asked, looking at her eagerly.
Sam shrugged. “You all know what I think. I’ve said it often enough, and I was outvoted. You were one of those votes, Molly, if you recall. We should position ourselves for a takeover rather than risk an IPO. I agree with canceling next week. This prospectus gives us plenty of reason. Our subscribers will think we’re rock stars. Our future is brighter if we’re taken under the wing of a major player. We can cut our own deal, which leaves us running the show. We still get rich, but we get to keep control.”
“She’s got a point,” Adam said. “Those two at Google want us so bad they upped their offer just last week. They’ll cover any costs of canceling the offering. I ran the numbers for myself over the weekend. I’ll do about as good with them as with an optimistic reading of the IPO. I could go with Sam on this, especially after reading this update.”
“There’s no risk,” Gordon said, his eyes still fixed on Sam.
“Right. No risk,” she said. “As for the IPO I agree the stock’s overpriced. I don’t claim to understand what our underwriters are telling us, but they’ve got us valued at one hundred times last year’s profits. I think that’s at least double where we ought to be. It concerns me.” She tapped the folder. “This revised prospectus is a warning, Brian.” She looked across the table at her former lover. This company had destroyed their personal relationship, and over this last year, he’d largely stopped listening to her. “What if Morgan Stanley’s major clients back off like Molly says? I think this report is telling them to do just that. What’s going to happen is that the public who love us and come in on launch day are probably going to take a bath, and Molly’s right there too; it will hurt us. And we’re vulnerable right now.”
“We’ll be rich,” Gordon said slowly, as if speaking to children. He hadn’t been there at the beginning. He’d come later. Brian had never told her why he’d hired him, but Gordon had joined a running company, and so he had a different perspective. He’d located this building for them for one. A former synagogue, it had been in a sad state of disrepair and never brought up to speed. Because of the poor heating and an inconvenient layout, everybody hated working in it, but he’d told Brian it was some kind of deal they had to take. It had an attractive appearance and impressed the second round of investors who were impressed by cool. It served as a persuasive forum from which he smooth-talked private investors, even handled some of the media duties. He was a natural.
And Sam trusted him about as far as she could throw him.
“Our early investors want their payday,” Gordon said. “We need to get that. They’re tired of us, tired of HDTVs in the work spaces, tired of our frat boy mentality, the lack of a dress code or even basic professional behavior.” He’d argued against all of that since coming on board, Sam had to give him that. “They want a professional management team.”
Brian made a face but didn’t speak.
“The IPO’s being manipulated, Brian,” Molly argued, leaning forward aggressively across the table. “Wall Street doesn’t care about Toptical, about our vision, how it changes lives, what it means to the world. All that matters to them is how much money the launch makes. And there are jackals out there who will sell us short at the first hiccup next week. We need to back out, now.”
“I’ve got confidence in our underwriters,” Brian said. “I’m not pretending I understand all the ins and outs. That’s Gordon’s area, but he tells me the price is about right. This isn’t science, Molly. No one knows the real value of the company.” With that last comment he shot a look at Sam.
Sam could still see what had drawn her to him: his smooth style, his steadiness under pressure, but for the last year, ever since the IPO date had been picked, she had this feeling that he was out of his depth, and knew it.
“Molly,” Gordon said, “you’re going to be very rich even if the underwriters are wrong. The initial shares being offered largely come from this table, and projections are that they’ll be snatched up. It really doesn’t matter to us personally what happens downstream. By ten o’clock Wednesday morning, we’ll be more concerned about the tax bite than the price of the stock.”
“That’s something else we need to consider,” Adam said. “Founders and early backers typically represent about ten percent of the stock first sold to the public. We’re over forty percent, not as bad as Facebook was, but bad enough. It makes it look like we don’t have any faith in Toptical and want to get our money while we still can.”
No one spoke; then Brian said, “We’re always one bad move away from insolvency. I think you all need to remember that.”
“Thank you, Jeff Bezos,” Molly said. “I’m not in this just to make money. Toptical means something. It changes lives.”
“It’s social networking,” Gordon said, spreading his hands before him. “That’s all. And what do you propose we do, Adam?”
Adam shook his head. “I don’t know. Be careful I guess. Maybe do what Sam suggests. It’s a lot safer.”
Brian leaned back. “Look at it this way: We’re top dog right now, and I plan to make sure we stay there.” His eyes turned to Sam’s face, as if acknowledging her role. “But the big boys are right behind us, not to mention the kids in the garage. We have no way of knowing if we can stay in front. We need to make it now. All this—” He gestured toward their building as if they owned it, as if everyone at this table loved it. “—could be gone in months if the public turns somewhere else. Frankly, I wouldn’t want to be in Facebook’s shoes right now.”
“And what’s this about changing lives?” Gordon said sarcastically. “Toptical takes people out of their boring existence. If they had real lives, they wouldn’t be using a computer as their primary way to connect with other people.”
Sam grimaced. “What if it goes wrong?” she asked. Brian looked at her sharply. “What if these wonderful underwriters are stacking the deck so they do okay no matter what? What if the IPO is a disaster?”
“That can’t happen,” Brian said evenly.
“It happened to BATS, and it was their area of expertise. Nobody made any money there. All they got was a black eye they’ll never recover from. It can happen to us. Don’t kid yourself.”
Sam noticed from the corner of her eye that they’d drawn a crowd. She hadn’t realized how loud they’d become. Several employees were gawking openly at them. Seeing her look they hurried off. Life in a fishbowl, she thought savagely.
“Let’s settle down and focus on what we should really be concerned about,” Adam said. “All that pricing stuff is out of our control. It’s all in place now. It’s the technology that really concerns me. I talked to someone with IT at the Exchange. They’re using a new program for us. I don’t like being a test subject.”
“I know about that,” Brian said. “It’s a special program just for IPOs. They don’t want any of the problems BATS had—or Facebook, for that matter.” NASDAQ had courted Facebook to handle their lucrative IPO; then their software delayed selling for half an hour on launch day. It had sent a shiver through the market. There was no telling how much money it ended up costing the company because of lost confidence.
“Adam’s got a point,” Sam said. “We all know the track record of untested code when it goes public the first time.”
“It’ll be fine, they learned from their mistakes,” Gordon said.
“What the hell do you know about it?” Molly snapped. “Stop pretending you know everything. You’re the finance officer!”
They continued for another ten minutes and in the end, settled nothing. As everyone filed out Sam held Molly back. When they were alone, Sam said, “I know you’re concerned. I appreciate the passion, but this thing is set now, Molly. I’ve had to come to terms with it, and so should you. We’re just along for the ride at this point.”
“I know. I know.” Molly was close to tears. “It’ll just break my heart if it goes bad. Toptical means everything to me.”
18
EDIFÍCIO REPÚBLICA
RUA SÃO BENTO
SÃO PAULO, BRAZIL
4:56 P.M.
Bandeira’s office was located on the forty-third floor of the Edifício República, and he never failed to take in the expansive view at least once each workday. The towering skyscrapers, the choked streets below, even the ever-present pollution all represented wealth and power. They reminded him of just how far he’d risen. And as often happened at such moments, his thoughts turned to the past.
Though Victor Bandeira’s rise within the NL had been greatly facilitated by his marriage to Esmeralda, Carvalho’s unexpected death from a presumed heart attack just three years later placed him in a precarious position. Bandeira had not by that time been designated as the heir apparent—though that, it turned out, was what saved his life. He’d not been seen as a threat among those who vied for leadership.
Still, there’d been changes. For one, Bandeira had been removed from his safe sinecure and assigned responsibility for a street gang. The new chefe told everyone except Bandeira that the young man was soft, that he’d been coddled by Carvalho. To his surprise, Bandeira found he took pleasure in working the streets, taking part in the action, overseeing the executions or doing them himself. He understood finally the addiction of the streets, the allure of power, the sense of invulnerability that came with guns and violence.
But Bandeira was not a foolish man, and he knew that there was nothing in the streets in the end for him but death or prison. So when the opportunity came, after he’d proved his manhood to the chefe’s satisfaction, he was moved into finance, a safe cubbyhole where he was content to bide his time.
His movement up the ranks thereafter had been slow but steady. He’d been careful to remain on favorable terms with every potential leader and made no enemies. It had not been easy, but he’d managed to walk the tightrope. Only when he was finally in upper management, a mere rung or two away from the prize, had he acted. It had taken two deaths, one staged as an automobile accident, the other as a botched surgical procedure, but two years earlier, he’d emerged as the undisputed leader of Nosso Lugar. He’d moved quickly thereafter to clean out upper management of any potential rival. He’d not mentioned any of this to his son.
Over the years, Bandeira had studied the organization’s cash flow and slowly became convinced that it should move away from activities that made them the target of other cartels. They weren’t big enough to take them on. As chefe, he kept with the tried and true. NL still sold drugs within its territory and trafficked in prostitutes; these were the standards of their business, but he was careful not to expand. He ordered that they stop dealing in guns as he wanted to see fewer weapons on the streets and whenever he spoke with the other chefes, he made the point with them. Their men would always have the weapons they needed but it made no sense to be selling firearms to uncontrollable gangsters. He saw no sign that he was convincing anyone, but he kept at it.
Bandeira also cut back on the protection money NL took from small businesses. It no longer constituted a major source of income, and he knew from his own experience how counterproductive it was. He wanted thriving shops and stands in his area and his agents were able to use the loyalty of the merchants in other ways, as lookouts, to stash illicit items for a few hours or days, or to provide places of refuge when needed. In Bandeira’s view it had all worked out for the better.
While working in finance, even before becoming chefe, he’d become convinced that the future of real money was in computers and the Internet. He’d followed closely the growth of cyber-crime and even before he’d become
head man he’d set up operations. As a consequence, NL was a major world player in Internet gambling, running the three largest such operations.
He’d moved aggressively against his competition in the early days. He’d sent men to infiltrate other operations and sabotaged their sites at every opportunity. He’d used denial-of-service attacks against rival gambling Web sites and to that end had a team of bright young men led by Abílio Ramos setting up botnets constantly, botnets that sat idle for long periods until his other teams put them to good use.
A botnet was a collection of computers connected to the Internet, thousands of them, in which the cyberdefenses had been breached, and they’d been placed under the control of an outside party, unknown to whoever owned or operated each computer. The computers were co-opted when someone using them executed a bit of malicious software. They may have been lured into making a download, or been penetrated by a vulnerability in their Web browser, or even tricked into running a Trojan horse program, which likely came through an e-mail attachment, often from a known source. Such infected computers were used to recruit other computers. Once within the computer, the malware placed the computer under the control of the botnet’s operator, known as the “herder.”
Typically the herder directed the botnet group to his own ends. Among these were denial-of-service attacks, and just the threat of one allowed the herder to blackmail the potential target. Introducing spyware was not uncommon and allowed the herder to collect the user’s passwords, credit card numbers, and banking information all of which would be used to loot his financial accounts. The planted malware might be something so simple as placing ads on the computer without the owner’s consent or employing the computer to distribute spam.
The reality was that the herder had at his disposal a vast network of computers he could put to most any use he desired, all without the knowledge of the individual computer owner or operator or both. The NL’s vast network had proved highly effective against others but in analyzing the uses to which they were put, Bandeira had determined that such vast networks remained largely untapped as future sources of illicit income.
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