On the back of our door at the 230 Park Avenue Office was the famed “Wall of Shame” and Paul Allen’s name was front and center. In 1993, he was the one person whom we had sent a business plan who actually returned it after saying they weren’t interested. Soon after announcing that his venture arm, Vulcan Ventures, would be launch a cable channel focused computers had both Halsey and Bettina sure that he had stolen our idea and thus the prominent placing on the back of the door.
Fast forward to the beginning of the Fall of 1994 ad he is now interested in investing. Are they really interested or just fishing for competitive information?
Initially, his team heard that we had produced really great pilots and they asked to see them. Given the door placement, we were very wary of the request but felt we were not in a position to say no. Knowing that our onscreen icons were our killer idea, we sent them the pilots with the icons covered by a graphic that said “For Viewing Use Only”. There wasn’t a lot of trust on our side, but it was becoming clear that we needed to raise money and who were we to be picky at this point.
As I discussed in 1994 — The Year of Heartburn, we struggled all year trying to get a distribution deal. As the summer of 1994 proceeded, we went from believing we had a deal with VH1 to understanding that with Music First as its tag line we might not. We kept thinking that as soon as a distribution deal was finalized we would raise money off of that. As the distribution deal failed to emerge so did our fundraising options.
We had tried a few venture firms but we didn’t fit there typical profile (new area, media and inexperienced entrepreneurs). We also had spent the a good part of the year trying to pitch big media and cable companies for both distribution and money to no avail on both fronts. We were in a bind.
Vulcan Ventures was run by Bill Savoy. Bill was maybe 30 years old at this point, but looked as if he was in college. What he lacked in years, he made up for in ego. As you might guess combining an ego like Bill’s with Halsey’s might have a certain risk that it could go badly, so I took point on their interest. Lucky for me, Bill’s lieutenant on this project was Eric Robison, who the second you met you knew was decent and thoughtful.
The reason Vulcan had circled back to CNET was because he was pursuing a “Wired World Strategy”. He had a large vision of how important that digital innovation would be to the economy and world. He was right. Though he was often dismissed as “The Accidental Billionaire,” Paul was a geek at heart and had an expansive and optimistic view of computers much beyond the productivity focus of Microsoft.
I don’t remember how we connected with the Vulcan team, but I do remember sending them the tape. I would then fax Eric some pages from our business plan.
As the highlighted sentences point out, we were still under the belief that the VH1 deal would come through. This would become a problem in a couple of weeks when it became obvious that wasn’t the case.
Thankfully for us, Paul, Bill and Eric decided to come visit us in San Francisco. The set was pretty cool looking, so we had the ability to put on a good veneer. You can imagine how nervous we were and should have been. Though my memory is a bit foggy, I remember that Paul barely spoke for the first couple of hours. You can guess that stress level increased and then we served lunch (a bunch of sandwiches and Paul had the ham & cheese). Post lunch he loosened up and we always attributed that to the ham and cheese sandwiches. Ham and cheese sandwiches would be an inside joke at the company for a lot of years.
Kevin, Fred and Halsey really were an impressive group and had a vision and creative feel that was lacking in the industry. Most tech media was derived from tech magazines that just missed on the energy and excitement that our team brought.
Post visit, they were interested in talking investment. The problem was that we could feel the VH1 deal was in serious peril. John Sykes would not officially tell us, but we could not get him to respond to calls, messages and letters. At some point you, you just know that it is not happening. It was the 1994 version of being ghosted.
How were we going to break it to the Vulcan guys and not freak them out? All the material and projections we had sent them assumed VH1. We had agreed on a deal structure — sell them 20% of the company for $5mm. Seemed to be a relatively material chunk of value as to whether we had a distribution deal of not.
I am not sure how but I slowly started to introduce some uncertainty while still staying positive.
If you look at the financing document, you see how we resolved it. They would invest $2.5mm for the 20% and $2.5mm would sit in escrow until a qualifying distribution deal was finalized. If no deal happened by first quarter 1995, they got the money back and we receive half the valuation which would have been a down round.
And that is how the deal was finalized. We got the investment, but we had lit a fuse and had to somehow pull a rabbit out of a hat and sign a deal and had less than six months to do it. If we didn’t, down round and likely death spiral.
We don’t have a copy of the schedule with allowable networks, but it is safe to say we put on any network we could think of and then some.
In the end, Paul made the CNET Deity List. We all owe Paul, Bill and Eric a debt of gratitude. Twenty years later I would have some private time with Paul at the Sun Valley conference and I would tell him exactly that and thank him in person. That said, the real, lasting gift was Eric Robison who would be longest serving Board member for the company, a rock who would help us navigate some tricky future situations, and an incredible friend and advisor. When I earlier described him as decent, I under sold him. He continues to be one of the great people I know.
Next week, we will talk about how it turned out. Also, next week I want to tell you about some of the amazing folks that joined us in 1994, Lon Otremba, Paul Klein, Chris von Rumohr, Nancy Guilbert, Thom Bird, as well as others. Though a distribution would be great, the folks that we added to the team were better.
I know you have a lot of ground to cover, but the ham-and-cheese sandwich story is one of my favorites. I have told it maybe 200 times over the years, even though I wasn't present for one of the early signs of Matthew's earning of the "director of innovation" title.