Odd Lots - The Moment a Most Famous Dotcom Millionaire Knew the Party Was Over

Episode Date: July 7, 2022

The first real explosive Internet IPO was a company called TheGlobe.com. It was kind of a proto-social networking/message board site, and on the day it went public in 1998, its shares soared 606%. Its co-founders were briefly worth around $100 million each. They become overnight celebrities, known for their extravagant lifestyles and even their fashion choices. Of course, it all came to an end when the tech bubble collapsed. So what is the experience of a bubble collapsing and watching all of your wealth vanish actually like? On this episode, we spoke with TheGlobe.com Co-Founder and Co-CEO Stephan Paternot, about the IPO, and the moment he knew it was all coming to an end. We also discussed how he went from ultra-rich to needing help from his parents to pay the rent, and what it was like bouncing back from that psychologically.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. So Tracy, I think you know, and I think listeners know, that at least for me, my interest in markets, like, really came about during the dot-com bubble. Yes, you have brought this up a number of times. And I have to say, I love hearing the stories of you losing money during the bubble bursting. I made a little money, too.

But I also lost them. But for me, like, so many things or things that I've sort of learned or like internalized about how that markets work, like still come from more or less that period. And I think it's obvious that on some level, what we're seeing now in markets, what we've seen in crypto, what we've seen in tech has some pretty obvious parallels to that period. I feel like the late 90s, early 2000s tech bubble would be a good grounding for the current market situation. So I envy you that experience. But the thing that interests me a lot about 2000 when the bubble burst and all the tech stocks collapsed and all of that is when did people actually declare like tech is over? The tech bubble has burst. This is it.

Because this is a question that comes up a lot now, right? Right. So it's like what is over and what is real? And what like, so obviously a year ago there were a lot of people who on paper were worth a lot more money than. they are right now. But presumably, you know, people are like, oh, what's the bottom? When does this bounce back? What sticks with us? Like these are all like really interesting questions. And of course, no one knows the answer. But, you know, all of these conversations happened after the 1990, the late 90s.com bubble. And, you know, I think people forget, like for years, no one talked about

Amazon, like 2001 through, say, 2006 or seven. It was not a particularly prominent company that people talked about. Right. So this is the other thing that interests me. It's what comes out of the wreckage of a bubble bursting because everyone was very excited about the internet in the late 1990s. And so you saw a bunch of companies rise up to come up with some sort of internet-based business model. And then it all kind of went away after the bubble burst. But some companies that did phenomenally well decades later actually emerged out of that rubble. And the question of course now is whether or not the same thing might happen. Yeah. So the question. The question, The question is like, how do you know it's over? What comes after that? What is it like to lose

on paper, sort of like unbelievable gobs of money, which a lot of people are going through now? So, you know, obviously there were a lot of like the dot-com IPOs. People remember Pets.com was sort of infamous. There were like hundreds in the year. The sock puppet. Yeah, tons. But like, I think the real first one, the one that really caught people's attention just like, wow, there's an unbelievable amount of wealth here. I don't know. Do you remember TheGlobe.com? You know what? It rings a bell, but I'm not that familiar with it.

I think it was famous for at the time being like the biggest one-day pop in IPO history. Yeah, it was, I think, at one time. And it was definitely like one of the first ones. It was like a little bit earlier than the rest. And so it sort of had this meteoric rise and then fall. Anyway, the co-founders of the company, they were like in the media. and they're famous for like being really young and really rich and wearing plastic leather pants to parties as one does when you're young and really rich. And then of course the bubble collapse.

Is this what you were doing? No, but I was like, oh, this is like really cool. Anyway. So I'm very excited. I just want to jump right into it. This is like a personal thrill for me because, of course, this got me interested in markets. We're going to be speaking with Stefan Paterno. He is currently the co-founder and executive chair.

of Slated, which is an online film finance marketplace, but also he was the co-founder and co-CEO CEO of the globe.com. So we're going to hear some stories about what those years were like and maybe some takeaways for people today. So Stefan, thank you so much for coming on OBLOTS. My pleasure. That's quite an intro. So let me start with like maybe an embarrassing question. And I don't know if it's an embarrassing question for me or maybe it's an embarrassing question for you. But, you know, I know a lot about the Globe because I remember the surge. I remember the IPO. I remember that you and your co-founder were extremely rich.

I remember you're in the media. I remember the plastic pants. What I don't remember is like, and I don't even think I knew it at the time. What did the Globe do? What was the Globe? Well, you're not the only one who may have known the Globe primarily because of its stock price. Yeah, okay. Much to my chagrin.

The Globe.com was one of the first virtual communities. So back then we didn't call the social networking. It was called virtual community. And it was a much broader idea that the internet was new. And there was this idea that maybe people could plug in, log on, and exist online and build relationships online and interact with other people online. And that was the concept of virtual community. The tools to do it hadn't been built yet. So chat rooms and forums and homepage building, all these basic.

primitives is what we needed to build. And now we take for granted today, right? You don't think of these basic primitives anymore. Just think, you know, I'm on Facebook. I'm on TikTok. I'm on, Twitter. I'm on any of these things. And, you know, I just upload and share and post. That's just, it just works. But back then, that wasn't obvious. So that's what we, we created. It's first generation primitives for a virtual community. And lo and behold, it became one of these stickiest business models we could have ever imagined. And of course, you know, Facebook ran with that. much more successfully than us in the early 2000s. What was the journey like from starting this virtual community to eventually, you know,

listing in a public market because that seems like, you know, it's quite an upward trajectory. So how did that work? Well, it's, it was non-obvious. So, of course, looking back 30 years later, and that's terrifying to even admit that it's been that long, it all seems obvious like this was always going to happen. But back then, no one understood what the internet was. So, 1992, Tim Bernard Lee is one of the creators of the HTTP protocol and HTML. And it's something that's super fringe running on the DARPA net that's been built.

And only university professors and some really geeky university students are logging on to the worldwide web and creating web pages. And you really could only go browse other university websites. So it was really cryptic, hard to use. You really needed to know what you were doing. And to even get started, you needed to download what was called a browser. And the first one was really mosaic. It was an old beta version of Mosaic, which was something that Mark Andreessen had created before Netscape. And it just so happens that my old college friend, best friend at the time, Todd Chrysleman and I,

we downloaded Mosaic. We found her, we had dial-up modems. I was using a 14-4 modem. He had a 19.2-kilobit modem, so super slow. But we both logged in and found our way into what was the first chat room we ever experienced. That's how primitive things were at the time. And startup culture wasn't typical. Not everybody was doing startups.

That was very much a Silicon Valley thing. Most people who were in university like us were there to go get their degrees and then go and maybe become a banker, a lawyer, and earn your stripes that way. So for us to want to go and try to do something different and create a startup in college, let alone one in this new universe called the Internet, was super risky.

Our parents didn't understand what we were talking about. Most of our professors didn't understand what we were talking about. And we just sort of had to wing it and say, look, I think Todd and I want to, we think there's something there. There's this thing called the Internet. It's just beginning.

There's only a few million people around the world using it. But we've stumbled on this social experiment and chat that is so addictive. We think that could be the beginning of something huge. So that's where it started. Non-obvious, we were taking the path less traveled by, certainly not the safe choice that, you know, most of our friends were going to go and get jobs and earn, you know, 50, 60, 70,000 a year. We were going to go make nothing. There was no such thing as online advertising or e-commerce or any way to make money.

So we were going into the great, scary unknown with this. Well before there was ever the concept of an IPO related to the Internet space. So let's talk about that IPO. I think it was 1998, which is a little bit earlier than the real mad rush. You're a little bit earlier out of the gate than a lot of these companies. The stock surge 606% according to something I'm reading here. It was market cap was a little bit under a billion. What was that like?

What was that day like? And how much were you worth the day before that day and how much were you worth that day? Well, I think for you to fully comprehend, or for your audience to fully comprehend what it felt like that day, you would have to understand that, you know, for the four years between the inception of the globe and us going public, there was no IPO mania. Only a few companies had gone public in this space. One of them was Yahoo. One of them was Netscape first. And it sort of blew up. And it became this news item.

Yahoo went public. And that also became a news item. But in the short months after they've gone public, their stocks have tanked. So people were going, okay, we don't, we don't quite understand what this Netscape thing is, this Yahoo thing is. It doesn't seem to be working well. What is the globe bringing to the table that's new or different? Well, what we were bringing to the table in 1998, four years later, was this super addictive social interaction online that was capturing people's imagination.

it was still at a point where the market wasn't receptive to IPO. So we didn't know that our IPO was going to work. We were actually coming, we were in a recession in the summer of 1998. The markets had come down because long-term capital management had collapsed. We were running out of money and we were thinking, I don't know that we're going to be able to go public. We're probably going to run out of money and our business is just going to go under. And everyone will, no one will have ever discovered what the internet is, let alone virtual community. And that's a bummer because we've just been.

been added for four years talking about virtual community. But by November, and it really was on Friday, the 13th, November 1998, the market turned that week. And suddenly there were a couple other companies that went public. A company called Fox went public. And then a couple other small dot coms went public that went up pretty quickly. And suddenly after having done a three-week road show for our IPO and having been turned down by all the institutions that were looking at the market's collapsing,

as the market turned, the phone started ringing off the hook. They're calling all of our bankers saying, hey, hold on. What's this thing you guys have been saying again about the internet and virtual community? The globe.com? We want in. And suddenly this little 3 million share offering we had had something like 45 million shares of demand. Wow. Massively oversubscribed 15X.

We didn't manage to move the price up much again because we were worried that the market would turn again. and our S1 filing would go stale and that the ITO again would never happen and we would die right there, right, right, you know, at the goal line. So we just told the bank, let's not try to mess with the price, let's just take what we can get. And that day, we were pricing at $9 a share,

which was way down from what we had been hoping to raise earlier in our IPO process. But that, there was enough interest. And that morning, the bankers were telling us, hey, guys, the interest is climbing. we're going to go, you guys should be pricing right around 11 a.m. It's 9.30, 10 a.m., but it looks like this is going to price at $20 to $30 a share. And we were like, wait, weren't we priced at $9? How's it going up to $20 to $30? What's going on? Because this was very unusual.

Stocks weren't popping that way back in the day. And another half hour later, they're saying, oh, never mind, it's not going to go at $20 to $30 a share. And we're like, okay, so what is it, $9, 10, 11? And they're like, no, it's actually going to go at $50 to $60 a share. like okay, wait, wait, what's going on? And within another half hour, right as we're coming up to 11 o'clock, the main trader that day suddenly yells out, 87, 87 and then 97. And I just remember that hundreds of bankers on that floor at Bear Stearns stood up to look where we were standing, not understanding what was going on. And it turns out our stock had run up from 9 to 97 in the span of a couple hours. And we started getting phone calls on our cell phones.

and people were telling us, oh, my God, there's something on CNN and CNBC, and they're talking about the globe IPO and a world record. And, you know, so my partner and I taught we were like totally caught off guard. This sort of blew our minds away. It was head spinning. It was exhilarating. It was also terrifying. We didn't really know what an IPO was.

We were 24 years old. And the fact that it went out of control up 1,000 percent and was all over the news was unusual. And they're telling us it's a world record IPO. Is that good? Well, it's good because you're all over the media. But very quickly was like, my God, you guys left so much money on the table. Like, okay. Well, but Beirsters didn't want to reprice this up, you know, to 10 or 11 or 12, let alone 97.

So there was, you know, it was an exhilarating crazy day, but we knew we had a new lease on life. Our company was going to survive. Everyone was now saying, whoa, what is this internet thing going on? And our IPO somehow ended up becoming this lightning rod and kicking off IPO mania, right? Where every dot com wanted to go public and had the same thing happened to them that we just happened to us. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed.

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so you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. I have so many questions. I'm going to try to fit them all in into one mega question. Okay, one, what did you do that night? Yeah. Did you go out and celebrate?

Secondly, what do you think accounted for the big pop? You know, this was a sector that a lot of people were unfamiliar with, As you mentioned, there had been some IPOs that had flopped recently. So, like, why did everyone suddenly come together and, you know, seemingly want to have a slice of the globe.com? And then thirdly, what was it like pricing with the bankers? Because, you know, you mentioned you went public at $9. It felt like you might have left money on the table.

How did they actually work out that number? Well, let me start with maybe this last question and then work my way backwards. from there. So there had been a huge amount of capital sitting on the sidelines in the market because of the recession that it kicked in. Long-term capital management had unwound. Everyone was freaking out. Capital pull out of the markets. So there's a lot of money sitting there waiting to be deployed. And something like 100 plus road shows had been canceled. So tons of companies that would ordinarily go public that year had all pulled their IPOs. We were one of the last companies on the road show that refused to quit because we knew we were going to go under if we didn't raise the money.

The way that the pricing worked was, you know, the banks would like you to believe that there's some giant, brilliant formula behind all this, but all they can ever really do is look at comps. And what are comps based on? Other comps. And what are those comps based on? Other comps. So it's like, okay, it's basically what are other companies similar to you in concept? What are they trading at?

What's their multiple revenue? Or in the case of internet companies that have very little revenue, it was, well, you know, how big is your audience? You know, you guys have, you know, X millions of users versus Yahoo. How do we, you know, what are they valued at right now? Well, their stock is low. So maybe you guys shouldn't have such a high stock price either. So it was, it's very much, it's arbitrary.

And, you know, Bear Stearns had basically said to us, listen, we're going to take you on the road show to our institutions, to the TRO prices and Janus funds. And we think we can sell this at, you know, let me think, a finger in the air. you know, a $100 million company. And that would price you guys at, and the numbers may be inaccurate because it's been 30 years, and I don't remember exactly. But, you know, that's at $11 to $13 a share price.

And as we went onto the road and we said, okay, fine, $100 million company or $90 million company, $11 to $13 a share. We don't have a better guess. I mean, either way, we were only generating a few million in revenue. So these multiples seem big. Who were we to complain? But as we went on the roadshow and the markets were craft,

out and all that capital got pulled out. Everyone would take the meeting with us. They all thought the concept was, I guess, a little bit mind-blowing. Okay, there's this thing called the internet, there's virtual community, people are interacting with each other, okay. No one had seen the Matrix yet, right? And most people hadn't read Neil Stevenson's Snow Crash, right? So they couldn't really imagine a world where you plug into this thing called the Metaverse. But there was something to our story, a virtual community, right, that were not just a site online where you look up information. It's not just a magazine online. It's not a place where you just shop online. It's a place where you will build relationships and spend hours of your life because that's what our users

were doing, spending hours of their lives in chat rooms. Something about that resonated with all the institutions on the roadshow. But what didn't resonate with them was the markets are collapsing. You guys should stop your IPO. Didn't you notice everybody else cancel it? So we unfortunately after the three-week road show had no choice The Bear Stearns tried to lower the price So like well no one's taking it at 11 to 13 They're not taking it at 10 They're not taking it at nine

They're not taking it at eight like okay so no price is low enough And eventually Bear Stearns and this is just I guess Bear Stearns where they got some of their reputation They were like thinking that we'll we'll scoop up the whole of the globe And buy the whole thing at $6 a share And it felt like so sharky of them to want to pull that and we're like, no, we're not going to do that. So we held off. And it's only because the market turned around at a critical juncture where everyone was suddenly

going, oh, okay, okay, okay, what are the new IPOs on deck? Fox, cool. That got priced 10, 15% below their pop. So it was like well priced. And then there was another little dot com called EarthWeb that went up a couple hundred percent. And I think that made everybody click and go, oh, the action is where these dot com companies are. Who's the last company we all met with that we liked? The globe. So suddenly the timing, those vectors came together and Bear Stearns, you know, we then had to twist their arm to convince them, listen, move the price back up.

You know, six bucks of shares insulting. You know, like, okay, eight. Like, come on, that's way below our IPO price. It should have been 11 to 13. Okay, fine. Nine, but we can't go higher. Or we'll lose the interest and everyone will walk and your S-1's going to go stale on Monday. and it's Thursday today.

So we felt we were sort of stuck between a rock and a hard place. They didn't want us to interpret the 45 million shares of demand as something that should require moving the price, even though everyone on our team thought the price should move. We kept it at nine, and that's how it got set at nine. It's because of an accident in our market timing that brought us further down. Everyone else that went public, the following week and thereafter, were suddenly coming in way above their price ranges.

Forget $11 to $13. They were pricing at $20, $20, $30 a share on the same scale. And so we realized that this sort of blew everything up for everybody else. Unfortunately, we were the guinea pig. And what's more unfortunate for us is that all of these institutions, these big players that are supposedly there to own shares in your company and hold for the long haul. And the banks, you know, when they're taking it on the road show, they're telling you all about their institutional clients.

are going to hold your stock and, you know, they're big buyers buying, you know, five million dollar chunks and they're going to hold it for the long haul. That's going to be your base. You know, very little piece of it will go to retail. But what happened is the day of the IPO, when the stock went up 1,000 percent, all these institutions that bought in at $9 were like, holy shit, Christmas came early, we're dumping it. So they sold all their stock to the highest bidders, which were the ones bidding all the way up to 97. There were a lot of institutions and day traders at that time that didn't put in limit orders. So they were just buying at market, you know, at 87, 97. And, you know, it meant that all the institutions dumped the stock. The stock traded hands on

average five times that day, so 15 million shares and a three million share offering. And it meant that the globe was left being primarily held by retail investors. People who didn't understand what was going on. You know, the institutions did extremely well, but it meant that we had a base of investors that weren't classically long, long holders of stock. So sort of that, that set us up for not a good start to our public life. And what did you do that night? Yeah, that's what I wanted. Yeah.

Yeah. So, yes, that night, there was some celebration. Bear in mind the day before, two days before, we didn't know we were going public. Right. So we didn't really have time to call up all of our friends and tell everyone like, guys, you know, Friday night we're going to be celebrating. It was very impromptu, but there was going out. There was some champagne and or vodka at one of my favorite nightclubs.

And, you know, me explaining to my then very new girlfriend that something had crazy had just happened that day and she didn't really understand what the hell I was talking about. But it was a surreal evening for me and for Todd and for our company. Again, we went from our company's going to go under to new lease on life and apparently we did a world record with it. So this could only mean good things. So how much were you personally worth? How much were you and Todd? Are you personally worth at the top? And what was the deal with the plastic pants?

Because like I said, I didn't remember what the globe.com did. But I do remember that you were in the media for wearing plastic pants. So what do you answer about this? Yeah. So yeah, that's the story. We all have embarrassing fashion choices. So, you know, it's like I wouldn't want to look back at what I was wearing. Vinyl was big in the late 90s.

It wasn't? I think I just went a little too far. So, yeah, I mean, Todd and I each had a million shares in the company. We own 10% of the company each. So technically, at that peak day, we were worth 97 million each. And that was sort of the headline at the time, you know, net geeks strike it rich on the cover of the New York Post and pretty much all the tabloids. So suddenly having my doorman at the building recognize and go, oh, my God, congratulations. It was, I felt suddenly very vulnerable that everybody knew too much.

But yeah, the vinyl pants, that happened a year later. Okay. Among all of the wonderful media coverage and celebration and growing the business and becoming somewhat of a sensational story. Because back then, dot com whizkids wasn't a thing. So this was sort of the beginning of that whole thing. And everyone was fascinated. Like, international media in particular for them, this is a quintessential American. kind of dream, that only in America, can you be a young entrepreneur or a young celebrity and

make it rich? And that doesn't happen in Europe. So Europeans were just fascinated with this story, you know, a dorm, dorm room, college startup that suddenly ends up, you know, the nexus of Wall Street worth a billion dollars. That was completely surreal to them. And it was pretty novel as well in America. But in America, you know, there was a much more entrepreneurial spirit in general. and the concept of startups was not atypical. You know, maybe a public company at 24 was a little bit atypical. So some of the media wanted to just, you know, most of the time when we're being brought into interviews, it wasn't to get into the nitty gritty of our platform.

It was to be like, oh my God, what's it like being rich? Have you guys bought new houses, new cars? Tell us, tell us, tell us. You're getting marriage offers. It was sensational. And so to a certain extent, Todd and I accepted that, like, if we've become these dot-com whiz icons, okay, let's just play that game. This is how we get the media coverage and drive our traffic up.

Right. Let's not be boring about it. Let's play into that fantasy. Let's explain to them this great new virtual world we've created. Let's act like we're the cool kids who always knew what they were doing and that they were ahead of their time. We didn't. But eventually, you know, CNN came calling and they were launching a new series. I can't remember what was called.

I think it was called CNN Movers, half-hour documentary, with Jan Hopkins, and they wanted to follow us around. They wanted to know what was the life like of 24-year-old public company CEOs. So there I made the fateful decision to let them into my life, let them into our homes. That's what they wanted to do and follow us out. They knew that I liked to go out and go to a club and go dance. And they were like, can we follow you?

And I said, sure. Well, I wasn't going to go on CNN and just dance in jeans, was I? Obviously, you can't go on dancing jeans. These are the important decisions taken by CEO. You got to dance in vinyl pants. Exactly. Look, I mean, and back then, you know, this was way before the days of, you know, Elon Musk smoking weed on Joe Rogan.

And like, that's just, you know, a typical Thursday afternoon. I was thinking, what's the most crazy thing I can do that will capture everyone's imagination and go, yes, this is the embodiment of the American dream. Well, I'll put on my vinyl pants. in some tight t-shirt and spike my hair with gel, and we'll go to a club, and I will dance on a table and make sure that there's other pretty girls dancing there and shake a bottle of champagne.

I don't remember everything I did, but the cliche, what is now clearly a cliche, but now, of course, it's so tame. It's laughable. It's nothing compared to me. It wouldn't make any news anymore today because it's just not that interesting. So part of me wants to just ask questions

about what it was like clubbing in the 1990s, because I think that would have been an interesting experience. But I want to ask a serious question, which was you did the IPO, you raised a bunch of money, you had fundraisings before that. What were you planning to do with all the money? Like, was there actually a plan for expansion or acquisitions and things like that? Yes. So there was definitely a method to the madness.

And we had raised, I think, a couple hundred million dollars over like four, five, six rounds of financing. it's nothing magical. You raise the money you need to buy more servers, hire more people, and you build out your infrastructure and your team. And you never have enough money, right? Because back then it was called Netscape coined the term GBF, get big fast. So it was all about spend it as fast as you can to grow as fast as you can. Everyone, the only thing they cared about were eyeballs.

Whoever's getting the biggest audience doesn't matter what your revenues are yet. Doesn't matter forget profits. Just grow, grow, grow, grow, grow. So after our IPO and IPO Mania kicked in and all of our competitors, you know, we'd raised 27 million our IPO. Everyone else was raising 60, 70, 100, 200 million. We're like, oh, my God, they are outspending us in ads and servers and hiring. It became this race. And by the way, these are the parallels of every single crypto boom bust cycle.

It's interesting to say that because, you know, an ad scape was, of course, founded, as you mentioned by Mark Andreessen, Get Big Fest. We, like, just did an interview, like, you know, now thinking about all the Andresen Horowitz companies that sort of like, how many hundreds of, or thousands of companies have essentially taken that Netscape, Netscape, GBF model? And now it's like, that is the thing or that is really defined tech in this modern age. Yeah. Well, look, every boom bus cycle goes through that, right? But when you start off building something on really uncharted territory, no one's excited. Everyone thinks they're crazy and they're very. scared about putting money in. So first you have to tell the story and build a market and get the users and then other companies need to tag along and eventually when the demand is there and the excitement is there, FOMO kicks in, right? That's when all the fast followers come in. And of course, investors, they go through their wave as well, right? There's the laggards. And then there's the ones with the FOMO, not right in the beginning, but a little bit later who go, oh my God, everyone's doing

well with that, I got a pile in. That's where valuations go sky high. That's where the industries get built because billions of dollars flow in, but inevitably, we pass peak madness. And then, you know, eyeballs isn't enough. We need revenues. And then revenues isn't enough. You're losing money like crazy. You know, remember Amazon, they were losing billions of dollars a year famously. And it takes a shakeout. Right. So when the bubble burst in 2000, 2001, it's because there wasn't enough profits. There wasn't enough advertising dollars or e-commerce or the margins weren't big enough to sustain all of this. So the

using capital as this defensive moat to just outspend your competition, that started in the dot-com era and then it got carried through again in the 2016-2017 to 2018 ICO

mania. It also has been part of Web 2.0, right? Just from Uber to Lyft to you name it, everybody, capital as a defensive moat became a core strategy and inevitably always leads to this shakeout. So that's part, that's the bust cycle. But the beautiful thing is is we always come out of the bus cycle eventually, right? Some of the original players who usually started before a maniac kicks in and have been working from first principles, not from crazy

heyday money pouring, showering down on them, but from really good first principles, usually those players survive. Some of them don't, but it's the ones who work from first principles who usually do the best, then the ones who are the most disciplined and not spending their money as fast as they can, who then continue. But those who come in later at the point of FOMO will do so much spending to catch up and try to overtake the market. They'll be the first to get to implode when there's a market contribution. So can I just ask, when did you actually know it was over? Or let me Let me ask two things. Okay, one, when did you know it was over that the bubble had burst?

And then secondly, what was your first sign of real trouble? Like is there a moment or thing that you can pinpoint? Yeah. So we, for better or worse, we're the canary in the coal mine with the globe, right? We were early. We could see this was going to be exciting before everybody piled in. And then we could see that as everyone piled in and more and more money was getting burned by all companies, that it was becoming untenable to keep spending.

our way to stay ahead. And spending your money meant using some of that cash to launch huge ad campaigns, hiring more staff, bigger sales teams. You're doing that. But some of the cash and your stock as a public company was to acquire more companies. Well, if we can't organically grow fast enough, we will acquire companies. Then you acquire some companies. But their valuations are going up too. So you're now paying inflated prices for other small companies to try to bulk yourself up. And you name it, all the major companies, Facebook, Alphabet and all that, they've bought hundreds of companies over the years that don't largely get reported. So all you really ever see is this big top line growth number. But what you don't realize is what fraction of that was the original

organic stuff versus all the acquisitions and then the padding and sandbagging of their numbers so that the analysts can't quite see how you're buying your traffic, you're buying the revenues to try to help goose your overall top line figures. And we were having to do the same thing. We were buying more and more companies. They were helping, but not enough. And, you know, a lot of, there wasn't enough advertising dollars to go around for all the internet companies.

So there's a lot of barter advertising going on, which was getting accounted by a lot of companies as revenues, but it wasn't real revenues. So there's some, you know, some percentage is phantom revenue. And we could see that we're on the little, you know, Ginny Pig wheel here running as fast as we can. and it's getting harder and harder to keep up with that wheel. We can't feed the beast fast enough. So we could see the writing on the wall here that at some point, the music's going to stop.

And there won't be enough chairs to go around. So we kept playing the game and doing pretty well all the way into the beginning of the 2000s. We had our best quarter ever, which I believe was like a $10 million quarter, $30, $40 million a year run rate, which back then that was a big deal, but we were still losing money. But that's when my partner and I felt like we couldn't keep. up anymore. The sky was going to start, it was going to fall, and it was going to fall maybe on us first. And my partner and I, Todd, and I, we ended up resigning and bringing in a new CEO with more experience than us. We could bring more discipline and maybe help control costs and

would maybe navigate what we thought would be an upcoming storm better than us. And unfortunately, you know, even though our revenues were climbing and traffic was climbing, we could see the storm coming. My partner and I resigned, bring in the new CEO, and then months later, other dot com started going under. They were running out of cash. And then the stock market started to slide. Over the course of mid-2000, spring of 2000,

all the way until the beginning of 2001, everything fell 90%. So, you know, the globe, unfortunately, we got called out early as, you know, oh, this is exactly what's wrong with the whole internet space. It was always a giant hoax run by these dot-com kids. But two months later, everyone went down. Yahoo, Amazon, 90% drops in their stock.

Luckily for the big players, the market consolidated under them, right? They got to buy a lot of companies up on the cheap. They got to hoard enough cash. And they made it through. Yahoo obviously didn't make it through for very long after their Internet Renaissance. But out of the ashes, you know, Amazon came back super. strong. And then, of course, you know, the next generation portals came along, like Google. And then eventually the next generation

social networks like Facebook, right? So there needed to be a total washout. All of the costs, the costs of building.coms needed to come down by 99% for all these new second generation, Web 2.0 companies to sort of be born out of and have succeeded since. So what is it like on a personal basis to go from hundred million dollars plastic pants got the model girlfriend time to live an egregious frivolous life is i think you're quoted to i assume something a little less egregious and frivolous and a little less than a hundred million i don't know what's that like and then how do you i mean you have a new company now

so why don't you just talk a little bit about because there's there going to be a lot of people right now going through that who were like worth a billion last year and now worth you know what's that process like? Look, I went through an existential crisis. When the globe essentially folded a year later after the dot-com bubble burst and the internet went under and the media was basically like, ha-ha, we told you so, you know, it made me question my own sanity. Wait, were we all crazy with what this internet thing could be? Were we crazy? What virtual community the potential it had? maybe we were. And it took a couple more years of licking my wounds and retreating from the world. And by the way, by the end of all of this, not only did I not have $97 million, I was a million dollars in debt because I had borrowed a million dollars against my stock to try to also bet on other dot coms.

And they went under. So all of a sudden, I'm retreating from the world. I had to ask my parents to help me with to keep my roof over my head. And I barely pulled through financially. And luckily, the reason I was able to pull through financially ultimately is because three, four years later in 2004, the dot-com world came back with a vengeance. The internet renaissance kicked in. You know, Google appeared. And then a Facebook appeared. And I was able to corral enough of my original investors who had made 20,000 percent returns on the globe. They had invested in early and sold at the IPO and made a killing.

and luckily many of them said, hey, Steph, whatever you do next, we're in. Okay. Well, I don't want to run another company right now. I'm like still in shell shock here. But I see a lot of other entrepreneurs now who are going and doing their second companies. So I think the internet is really coming back. And so I created a bunch of angel funds, brought in my angel investors alongside me, made some bets. Those companies ended up doing really well.

Without getting through a list of all the things they did, they were part of the new fabric of internet 2.0. And so that got me back in the game and rebuilt my confidence as an investor and as somebody who understood the market well enough to see what good products might disrupt the world. But, you know, look, to be honest, my confidence was really shaken as a CEO and as, you know, hitting such a flying that close to the sun and having my wings melt. It took me 10, 15 years to really want to really consider getting. back in the CEO seat. So just on that note, I mean, when you look at what's happening in markets right now,

I mean like the NASDAQ down, I think 30% so far this year, crypto crashing, people talking about it crypto winter. What do you think is happening here? Is it the tech bubble all over again? Or is there something different about this cycle? Nope. It's, we'll just end it there. Same game, new players.

It's the same game. And it's quite obvious. And by the way, when I had my doubts and I lived, I got into Bitcoin back when it was at Mount Gawks, $60 a Bitcoin in 2013. And enjoyed watching it go from 60 to 600 and thought to myself, well, Jesus, 600, I better sell it now. And then it only went up further. So I bought back in. And then it only crashed. So I realized, okay, me trying to time the market and figure out mass investment.

investor psychology is not working. So what I'm going to do here is go to first principles. Is this a long hold? Is the promise of Bitcoin or really brought more broadly blockchain, does it really have the potential to change the world? And my feeling was, yeah, but this is actually more like the dot-com bubble before 1.0. This is like the laying down of DARPA net. This is like before people all get dial-up modems and before all of the great utility. of the internet appeared. This is laying down the fabric of what is Web 3.0 now. And so I'm going to be a long hold.

And it's once I stopped trying to bet the market and read people's minds and tea leaves about buying and selling that, I started to do really well. And I went through the first bubble in Crypto Winter, and then the second, and then the third. And it's in the third ICOMania where I was like, there's this other thing called Ethereum,

World Computer. I'm all in on that. And it's the same thing. went all the way up, then came crashing all the way down, just kept holding. And if you look at the four or five major bubbles and crypto winters on a logarithmic scale, they keep moving up another order of magnitude higher each time. And yes, because there's a huge amount of speculation and there's a huge amount, huge amount of capital and FOMO and people throwing money at bad blockchain concepts and bad level one or bad level two or God knows what other Ponzi schemes out there. But

that's what had to happen with the internet to begin with until you got to internet 2.0. You could truly say internet 2.0 was where the world discovered the real value of the internet. It just became hyper centralized. Well, most of the world hasn't even dipped their toe in yet to crypto, right? It's all been about the currency, not the utility. The utility, it's all started and focused on the Lego blocks, the building Lego blocks of the financial systems, defy, right? And then it started to find a broader utility with NFI.

T's, but again, very gimmicky. You know, board apes and yacht clubs and God knows what. That's cool for capturing people's imagination, but that's not the true unlocking of the broader utility of what blockchain can do. That'll come later. So it's a 10 to 20 year play before the world will discover the true utility with a staying power. And that will become Web 3.

And I am beyond bullish, despite seeing my crypto network plump. plummet 75%? No problem. I haven't been buying into it because of FOMO. I've been in it since the beginning and it's still early, early, early days. Imagine people panicking after internet 1.0 bubble burst and dumping their Amazon stock right there or dumping their Apple stock right there. Oh, it's all going under. It's all a fad. Well, you would have missed out on one of the greatest returns you could have ever had in the history of investments with Amazon. So you got to sit tight. Stefan Paternoe, honestly a real pleasure and a real sort of thrill to chat with you

and some incredible lessons. I actually like, we hit, we should, we should have you back. I think, you know, we could talk for like two more hours about so many, like hearing you talk about capital markets and that process was fascinating. You could talk longer just about like that period of being egregiously rich. There's so much more. Thank you so much for coming on odd lots. I thought there shows like a real treat and some like extremely interesting.

perspective on the internet and what's happening now in markets. So thank you very much. That was fantastic. I love that. I love that conversation. There were so many interesting things. You know, I was just looking at the globe's chart. You know, the peak valuation was less than a billion.

Yeah, but it's crazy that you can still actually call that up. Because I think it turned into, so if you have a terminal, you can look at the globe.com. I think it turned into like a shell company or something. Yeah, and I think they were like doing VoIP stuff for a while. Yeah. But what's crazy and Chom Channos talked about this on a recent episode, like, How tiny it was. Because, like, you know, he had his peak, it was like $100 million.

The company itself never was worth a billion. And then, of course, last year with like the SPACs, we'd have these like, you know, $40 billion companies that didn't do it. It's crazy how small the numbers were. The other thing that struck me about that conversation was when he was talking about Get Big Fast. Yeah. And it does feel like a lot of startups have internalized that motto.

And you kind of wonder if it's ever going to go away or if like just raising as much money as you can to get market share as quickly as possible, expand as quickly as possible, if that's just the standard forever. And the market and Jersen through line, the fact that that model like started in Netscape and now pervades through Andreessen Horowitz, it's really interesting. Also that the not just the get big fast, but the cycle and how the late players entered the game have to spend even more. And so it creates this race.

And then to hear him describe how an early 2000, the sort of like hamster wheel is on is Like, we can't, we're spending so much money and it just like the marginal value of those acquisition dollars or growing traffic starts to decline. Like I think serious lessons for like thinking about things that happened during this cycle. But also the realization that he described about having to bring in a new CEO and someone who could actually instill capital discipline and maybe have like a bit more of a strategy around finances. Because it feels like with a lot of these startups by, you know, I don't want to call them a tech bro, but you know. Technology brother.

Technology brothers. It feels like... Technology brothers and sisters. It feels like what you need to start something up successfully, sorry, in a garage and, like, develop new technology may not be exactly what you need to run a multi-billion dollar company, right? Yeah. No, so much stuff, I love that.

We got to have them back. Yeah. All right, shall we leave it there? Let's leave it there. Okay, this has been another episode of the Athlots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Stefan

Paternoe on Twitter. He's at Stefan Paternoe. And check out his book all about this, a very public offering, The Story of the globe.com in the first internet revolution. Follow our producer, Carmen Rodriguez, at Carmen Armin. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.