Tech Brew Ride Home - (IHP) TheGlobe.com Saga Part II

Episode Date: December 31, 2023

Ok, part 2 of the Stephan Paternot mega-episode right now. This is where we get into the meat of it, the good stuff, the whole crazy roller coaster ride of being the hottest startup of the dotcom era. And I was going to make this the last episode, but as I was editing this, I realized that after we get done with this story, Stephan talks a lot about what happens after... what happens after you've been on a crazy ride like this. How you have to reinvent yourself, and your life, and your career. Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Internet History Podcast. I'm your host, Brian McCullough. Okay, part two of the Stefan Paterno mega episode coming at you right now.

This is where we got into the meat of the story, the good stuff, the whole crazy rollercoaster ride of being the hottest startup of the dot-com era. And I was originally going to make this the second episode, the last episode of this mega episode. but as I was editing this, I realized that after we got done with this part of the story, Stefan then went to talk a lot about what happens after. What happens after you've been on a crazy ride like this, how you have to reinvent yourself and your life and your career. And he said so many interesting things about that, about what happens after your first entrepreneurial ride,

that for the first time ever on the show, I'm going to turn this into a part. Part 3 coming in two weeks so that we can give proper emphasis to that whole reinvention story. So right now, please enjoy part 2 with Stefan Paterno and The Globe.com story and look for part 3 in two weeks. You know, what are our options? It was between San Francisco that Todd and I, Todd had no interest in moving back to San Francisco. and I felt like San Francisco was too much of a one industry town. And I really wanted to feel plugged into diversity and coolness.

And I had a fantasy about what New York might be. So Todd and I decided, okay, New York is where all the advertisers are. There'll be a ton of talent. We won't have to compete with Silicon Valley. All the Silicon Valley companies trying to get the same talent. And New York sounds freaking cool. So we went down to New York City. And I think at that point, our burn rate, you know, again, doubled up.

and Todd and I were back, you know, trying to grow the business faster. Maybe we would raise more money, although with $2 million in the bank, I think we felt pretty comfortable in the beginning of 97 that we'd be able to last at least a year or two. Yeah, so at any time, 1997 or whenever, like New York City is not a cheap place to go take your startup. So how do you guys get hooked up with Michael Egan? The president of Cornell, who was aware of the globe from one of our other board members. In fact, the president of Cornell had done a completely surprising shout out to Todd and I during our graduation ceremony. Basically a shout out saying, congratulations to Todd and Steph for building one of the biggest sites in the world.

And what was so vindicating was that all the families and all of our friends knew finally what we'd been up to for these years. So it was an incredibly good feeling. And the president was probably doing what all presidents of universities do, which is visiting their wealthiest alumni. And he was down in Florida meeting with Michael Egan. I believe Michael Egan had just sold Alamo Rent a car for nearly a billion dollars to Wayne Heisinga of Auto Nation. and Michael Egan expressed interest in, you know, getting involved in a new business, something in the media space, something that had more sex appeal. And that was it. And the president of Cornell's name is Hunter Rawlings basically suggested to him he should meet with Todd and I.

And then Hunter called Todd and I, we just moved to New York and he was telling us, hey, I want you to meet with Michael Egan or you should meet with Michael Egan. and we've arranged the meeting back at Cornell. And of course, Todd and I, you know, we've done so many car drives and flights back and forth to Ithaca for a couple of years that we had basically sworn we're never doing another drive back, not for a long time. And so we went back up to Cornell. And we were a little bit skeptical because the fact that somebody from the car industry had expressed interest in what we were doing just seemed a little too far afield. But we, I think Todd more than I was convinced that this guy was legit and had real wealth and, you know, we should take it seriously. So, okay, we went up to Cornell, had this incredible banquet lunch at the Statler Hall organized by Hunter. And, I mean, Todd and I had been students at Cornell for four years and had never been invited into Stattler Hall and let alone have a private room, a banquet hall sort of lunch.

So this was just sort of eerie that this was being organized this time. And Michael Egan showed up off his private jet with his entourage. If that wasn't impressive enough, then, you know, being in the banquet hall with him and, you know, with Hunter Rawlings there as well, having lunch with us. It was all surreal. And we then proceeded to get to know Mike and he asked us questions. And Todd and I got into our pitch mode and pitch the hell out of what the globe. was and Todd and I were feeling pretty confident. I think that the nice part is is when you have a real business that's growing and when you've raised enough money that you're not desperate, you act more

confident, you project more confidence and that only makes you more appealing. So I think Todd and I were just getting more and more comfortable as the leaders of this business and we weren't desperately looking for money, which made us a little bit more laid back and hold our cars a little closer to our chest. And it only made Mike that much more excited to get involved. And he told us by the end of the lunch, like, that he just loved our energy and our vision. And I could see in his eyes that he was like a kid dreaming about the future. And he told us at the end of the lunch, you know, he wants in and he, you know, he'd be interested in putting up $5 million into the business. Todd and I think were a little bit

I mean we're probably on a personal level very happy that we were good at pitching and managed to get this guy hooked right away in one lunch but at the same time I think we were nervous that you know we had money in the bank we really want a new guy showing up and potentially having his own agenda potentially messing with what we're doing you know we'd have plenty of

fundraising before where it hadn't hand out in the way we wanted or it wasn't somebody we really liked and you know we had we dodged a few bullets and so we were wondering here is this is this going to be a bullet we need to dodge uh so we were a little bit skeptical but still receptive to the idea of bringing in another investor and that lunch then led to many more meetings with michael egan many more months of due diligence on his part and negotiation and And one of the early meetings we had where we flew down to Florida to get to know him better is when Todd and I, you know, decided we were going to, you know, make a final negotiation move here and see if we could move the needle a little from the initial $5 million, Michael Egan, that said he wanted to put in and convince him that we were maybe worth more than what he thought. And Todd and I had a, there was a precedent set for this, right?

There were companies like Excite that were worth, you know, $100 plus million at the time. And we'd seen Yahoo, I think they were all, yeah, they were already public and, you know, they were worth a few hundred million dollars. A lot of these companies that had gone public back then. Right. By 97, yeah, yeah, yeah. Well, a lot of them had gone public, but a lot of them had seen their stock prices fall to their IPO levels or below. There was no internet mania yet. It wasn't a sure thing betting on a tech stock.

I mean, maybe half a dozen dot coms had gone public, and they were lackluster. And they were all in the under $1 billion valuation level, as far as I remember. But there was enough buzz in Silicon Valley and enough 20, 30, 40, 50, $100 million companies raising tens of millions of dollars that I felt bullsey enough to tell Mike Egan at one point off the cuff, you know, Mike that I'd have. you know, felt, I feel that you're, you're low-balling us and that we're worth more than that. And I had this moment where I remember Todd was silent and he knew I was going to try to negotiate. And I mean, I'm the one who typically would push, push the envelope a little harder. I think Todd, by nature, likes to play things a little more conservatively, a little safer.

But I knew that this was it. Like, once we bring this guy in, once a number gets locked in his head, that's it. There's no moving it. So I sort of, reached as deep as I could to find some courage and in real time tried to figure out what was the highest number I could come up with. That wasn't completely outlandish. And remember blurting out that I think, you know, are companies worth, I think either I said 20 million or 40, but you know, 20 million pre-money and that if Michael wanted therefore to own 50% of the company, which is what he'd said, he would have to put up 20 million. And that was it.

I put it out there. And then Mike had, he had a pause. And I just remember thinking, oh, fuck, did I just blow this whole thing? And then, and Todd looked at me like, he had that look as well. Like, if it's a yes, Steph, I love you. And if the guy walks away and thinks for a couple of lunatics, I'm never going to, I would never hear the end of this. So, Mike left the room.

And went and spoke with his team, Ed Cestepares, Rosalie Arthur, his entourage. And five, ten, fifteen, twenty minutes later came back in the room and basically said, look, you know, this is a very high number. I have never really made an investment that big before into a company that's, you know, so small still in terms of revenues. I don't remember what his exact words were, but his sentiment was that his, there has been a precedent set for this before. Ed Sespides was basically telling him that, Mike, there is a precedent for this. This could be the biggest thing you end up ever doing in your career. And Mike then told us that he's in. And Todd and I, I think, you know, we just lost our shit.

You know, we kept our on the inside. On the inside. I remember thinking all sorts of crazy things. And as soon as we left the room, I think Todd and I were just like giddy little schoolgirls or something. I don't know. All right. So let's let's do two things. Let's do, well, first, let's start with New York in 1997.

As we've said, like, it's not really till 98 that the dot-comania really gets really frothy and gets to the full madness. So just give me any sort of color, whatever you want, however you want to describe it, any stories about the tech scene in New York in 97, 98 into 99. Well, there was definitely a buzz about the internet and startups. And I mean, this is pre-Michael Egan putting his 20 million in. So we hadn't hit the front of the New York Times yet. And what there was was a little bit of an artie scene or what felt to me. or what I interpreted as an already scene, which are people who are cool and edgy and artistic, working with computers, dialing into the internet, trying to find what their angle was,

people on laptops sitting in cafes, trying to dream up a little bit of what the internet might be. It felt, I mean, compared to Silicon Valley, it felt like a total side show. And people were more of imitators than real entrepreneurs. And again, it wasn't that huge. There was certainly no notion yet of making millions or billions of dollars with this. So it was just sort of viewed as cool to be working with computers and trying some net stuff. But I think Todd and I found it to be very fake. There were a lot of fakers and posers.

And when we went to parties where it was there were internet people or tech people, I think we felt uncomfortable. I certainly felt uncomfortable still. Like I didn't want to spend my life associated to other just pure nerds. I felt like a nerd already. I wanted to actually try and see if I could mingle with non-nerds. But when I went to these events, I felt uncomfortable and I felt that there were a lot of fakers who were pitching stuff

that just didn't seem plausible. This was still back in the age, by the way, of CD-ROMs, interactive CD-ROMs. So there were a lot of, just as many people who were building CD-ROM stuff, very artistic, interactive stuff for your TV or for your computer. And it was like, well, we're doing more of this net stuff. There's no CD-ROM necessary. There's no disks necessary.

You don't download software. You go and live online. So with the stuff we were talking about was probably somewhat weird to a lot of these people, too, in all fairness. But that was the scene. Like, whenever Todd and I went to Silicon Valley, though, it felt like people there were 10 years ahead, right? Much bigger dollar amounts. Embracing the Internet and all its capabilities to a much higher degree. But of course, you know, when you're not just a little, you know, an artist with a computer,

but you're rather a team of entrepreneurs with 20 million in the bank, of course you can go build way more and be way more serious. But back then it was compounded by the fact that all the people who made money in tech were very geographically focused in terms of where they put their money, right? So the serious computer manufacturers, the silicon graphics type of people, National Semiconductor, the Intel folks, Apple, Microsoft. Like, when they made their money out there, they then reinvested it in other companies near there. And usually they were reinvesting it in companies that figured out how to sell software.

Right. So even on the internet, things like Netscape selling software in a box was not too far afield from what they'd always been investing in. Investing in anyone that made software downloadable. So 3D, there was a 3D chat company. I remember that Vinod Koshla told me about at Kleiner. And they put in, they were part of a $23 million round in this chat company. And again, that type of thing would require software. They would get downloaded and need to be on high bandwidth servers.

They needed to be high bandwidth connections to be able to have this 3D real-time chatting. It wasn't really a dial-up online chat concept. So again, it was how will they get the software made? How will the software get distributed? What are the distribution channels? How are they going to compete with Microsoft? It was more, again, parallel to the existing software sales. It's still a transactional paradigm where there's a point of sale.

The point of sale, you get it in a box, you install it. Yes, you use the net, but usually that's just for passing some data back and forth and really the hard work's being done on your local CPU and on your disk. And so we, with our little internet concept, still, we weren't really fitting in culturally there either. The things, the things, the services out there that were the most similar in terms of being pure internet plays were the portals, right? The search engines. There was no downloadable software for that. You just, you went on to excite and you searched around and you found stuff and you could translate things. And maybe they also had, they started adding some chat rooms eventually and adding things that were similar to us. So that was very online. But at least the culturally, the tech scene out there was serious, right? There were only serious players compared to what, felt a little bit more arty, farty, rinky dink in New York City. Well, I want to, but I want to.

I mean, once the globe and, and, and, uh, double click, uh, and a few other companies runs, you know, Barnes and Noble.com included, that made New York way more real at that point. I want to, I, you, you, you touch on something that I think is worth underlining is that, um, the, the concept that that you're describing is what we would now call social, but whatever, that what is your business? Your business is whatever your users are doing. And that existed at the time with AOL, but AOL had subscriptions, and you could also categorize AOL as an ISP.

So it sort of got fudged a little bit. But you guys were like pure play. Our only value is what our users are doing on our platform. Yeah, and that was actually out of necessity. Todd and I had, we didn't have any resources to publish original content, which is what Wired did, right? They created hotwired and they published all their content online. We didn't have any resources.

We couldn't go create software and sell software. So all we could do out of necessity, in the most economical thing possible, connect people to each other and let each other be the content, right? Let their conversation be the content. and the reason for them to be. So everything we were doing was because of a complete lack of financial resources. It forced us to invent a new type of content.

And so, yeah, of course, it's now social, but back then it was just like, can we build enough chat rooms to keep all these people busy in private chat rooms? And can we create basically thousands of chat rooms organized in some way. And then, by the way, that evolved eventually into homepage hosting,

homepage building. Let's let these people have a profile, right? Because when they show up in chat rooms, besides your name and your icon, you don't have a method of really keeping an online presence of who you are. So we built this whole thing called You Publish. And I guess, again, that was a really early incarnation of what Facebook's wall and newsfeed became. We created all these modules so I could have my own Steph, Patrono page on the globe. And there I would customize it with colors and banners. And I could have widgets to show my favorite news and stock quotes and direct links to.

and my favorite chat rooms and photo albums. And it looked like crap. It probably worked even worse. But that's where our traffic then really exploded, right? Chat is what sucked up all people's time. Their homepages is what gave us the reach, right? Because you personally would spend time on your page, but you really meant it so that you would tell your friends and family and they would visit your page.

After that, you would engage with an in a chat room or in an email club or whatever else we added. Well, so that was, I was going to say that was going to be my next question because there's, as I said, AOL built its business on chat and then, you know, AOL gives people identities online and usernames. But then there's also, at the same time, I think Tripod did a lot of that homepage stuff. There's GeoCity. So just a little, a little bit briefly about the competition. Yeah, so at the time, so definitely at the time, I remember we discovered, tripod and GeoCities and they were semi-competitive, competitive in the sense that they were doing homepage hosting too. What they weren't doing was making it, they weren't going into the chat side, the real-time person-to-person engagement, but they were crushing it on the homepage

hosting side. So that is by far where we had our hottest competition and we were playing catch-up to them in terms of their reach. I think tripod had, I think GeoCities had the biggest reach of all, then tripod, as far as home page hosting, then us. But what we had going for us was people were used to the fact that Slate, the globe is where you go in and you engage with other users. And we had millions of hours of active users engagement time on our site. So we were able to make a lot of advertising revenue by just keeping people there on the site chatting. What we didn't have is this crazy reach, which ended up becoming the big metric people talked about, right? Everyone was using media metrics to measure their reach and it was all about how many

uniques a month you're getting it was way less about how many minutes a month are they spending on average right if you looked at our average numbers they were astronomical you know nowadays it's you know Facebook claims all those hours of usage well the the term that would be used today is engagement you know like actual engagement yeah yeah I mean back then it was it was well just how many how many minutes a month are your users on your site. That's what we were right that was the metric we excelled at but we were lower on a reach metric so we made it eventually you know

when as I think I mentioned you know to close to 20 million users a month which was about 10% of the internet users so we were ranked somewhere like in the top 30 websites in the world but we always felt a little jaded because everyone else was getting higher reach but those users were bouncing and bouncing off their site after a few minutes our users were staying for hours but we We weren't getting credit for that. So in the news, I always felt like, oh, goddammit, guys, you need to pay attention to the engagement time. Because our users are spending ridiculous amounts of time on our site, and nobody seems to care.

Anyway, that was my own issue. And, of course, nowadays, I think engagement time is what people care about more than, well, engagement and reach. They go handed. Right. Well, so I know I'm skipping ahead a bit, but probably we should. Is that maybe part of the motivation for you guys doing an IPO? At some point, obviously, everybody's doing IPOs. But didn't like GeoCities and other people IPO first or were you guys before them?

So I believe Netscape had gone first. Right, 95. Then had gone Yahoo. Then it was either excite or Lycos. And what really got us was simply how much money they were raising. I remember them raising tens of millions or a hundred plus million dollar rounds. I mean, again, a joke compared to today's standards, but back then it was huge. And so part of the reason, you know, we were very excited when we got Michael Egan's investment is like, you know, 20 million.

That was actually like a small IPO right there. So we already felt like we were going to play the game of catch up and build our brand as fast as we could. And so when Michael Egan put in his 20 million, we spent eight of it. on advertising. Some of it to just build our audience. Basically, we created all these TV ads and print ads and build original sides of buses. You guys were very early at doing TV ads when there were no web companies advertising on TV.

Right. So that was a radical thing. And it was because we found an agency that basically said, look, it's a greenfield. You're trying to capture people offline so that their first online experiences with you guys, as opposed to trying to advertise to them when they're already on a competitor's site. So it was about trying to advertise and teach people about the Internet and start with the globe. So that's why everything was offline and we saturated the airwaves. And our target audience, our sweet spot audience, really seemed to be the MTV generation.

It was all the young kids. But then we also did a little bit of strategic advertising where we decided to put our ads, some billboards right in front of all of the major investment banks and the other ad agencies. because we knew that the agencies, if they saw our billboards everywhere, would start to think about the globe as a place that they should put their other clients, add dollars on. So Madison Avenue is all about knowing, like, well, where should we put our brands dollars? Like, where is the new 18 to 34 year old demographic going? So those two things helped us attract more advertisers and start getting excitement from the banks. And we knew that our 20 million was great, but it was not enough compared to the big boys.

So at some point, we knew we were going to have to go public. And again, there was no IPO mania, and all those IPO stocks weren't trading particularly well. But we still knew, okay, well, we're going to have to go there to raise more, advertise, and try to win this game. And of course, when we came close to wanting to go public in summer of 98 is when the market collapsed. You know, NASDAQ collapsed and everything just went totally sideways. I think I've said this before. There was like an Asian flu or Russian flu. People think of the dot com.

It was all up. But there were like some serious deep corrections in the middle of that. Yeah, one of the most famous hedge funds, apparently long-term capital management. That one, yes. which then caused a run on the ruble and something in Asia. And again, I don't remember this stuff. I don't think I really talked about it in my book much either. But it led to this crazy collapse right at the moment when we were trying to go public.

And Geocities had just gone public a few months earlier in the spring. And they were, again, one of our competitors. And we felt like, okay, we have to be able to compete with GeoCities. I think they had just raised 60, 70, 80 million. We've got to catch up to them. And then I think eBay went public right when we were filing to go public. And we weren't competing with them, but they had a 3X run up in their stock. And so there was a little bit of buzz.

Some of these dot coms are doing well. But then again, the market collapsed. Everything went to hell. And we felt like, that's it. We missed our window. Those half dozen companies that are public, they're public. They're fine. They're generating more ad revenue. They're climbing, you know, climbing up. They got big war chests and we just ran out. We ran, we're going to run out of money and we're not going to make it public.

And Todd and I were just despondent. And we got to a point where we actually thought we were going to have to start firing people because we had grown our staff to, I think 60 plus people at that point, you know, burning at least a million dollars a month. and if we weren't going to go through with the IPO, our ad campaign had burnt through 40% of our funds. This was just not playing out as we needed, and we were going to have to not necessarily shut down, but certainly fire people. And what's amazing then is that the market started to turn. I mean, I don't know how much detail you want to go into the IPO process or not.

Well, you know, keep going because let me, let me, Let me frame it again. Because for better or worse, this is something that you guys will always be remembered for. You go out at $9. It reaches $97 on the day of the IPO. I think it settles at like 63 or something like that. So at the time, it's the biggest pop. The New York Post headline is geeks make $97 million or something like that.

So, yeah, feel free to tell me whatever you want to tell me about the actual process. the actual day and like what you're feeling and and all that stuff. Yeah. Okay. So we run an emotional roller coaster in part because markets collapsed. We had just commenced our roadshow, which by the way, you only want to do once in your lifetime because it's so grueling. You're going to do 60 meetings.

You're pitching institutions, you know, two, three, four, five, six institutions a day. You're going to at least two cities a day. So you're flying, flying, flying, meeting, meeting, meeting. you just lose track of everything. You never want to do it again. And while we're on this roadshow, the market's collapsing and all these institutions we're meeting with are, you know, one foot planted in the excitement camp. Like, wow, the globe, pretty cool what you guys are doing.

But then the other foot is like, the market's dead. What are you guys doing on your roadshow? Everybody else is canceling. And so we have to basically pull our IPO because of the markets. And at one point, you know, we tried lowering the price of our IPO. We were supposed to go out at $11 to $13 a share, which would have helped us raise close to $40 million more dollars. We would have been a $130 million company, which seemed pretty good to us. And we had lowered the price at the end of our roadshow.

We're like, well, anyone interested in taking this at $9? Sorry, at $11? No interest. Okay, $10? No interest. $9? No interest. And finally, we had to come to Jesus' moment with...

with the head of Bear Stearns and our board, and we were all gathered at Michael Egan's apartment in the now unfortunate Trump Tower in New York City. And these guys were discussing, what do we do? Do we yank our S-1 and take it off from being registered? We just basically canceled the whole IPO. And Bear Stearns at one point, the chairman of Bear Stearns, who I thought was maybe being a little greedy,

He said, well, you know, if you guys lower your price to six bucks, Bear Stearns will buy the globe. And we were like, what? You know, why would we want to sell a six bucks and be owned by Bear Stearns? I'm sorry, but no. And thank God Michael Egan, who's friends with Ace Greenberg, was also saying no. And, you know, Todd and I went back to the office thinking, okay, well, it's game over for us.

We're going to have to, you know, fucking fire people soon. And in the 48, and Michael Egan insisted on just let's let, let's let the S-1 statement and stay out there registered at the SEC. Let's see if the markets turn around. And I don't remember exactly when it all happened, if this was the week before the IPO or after, but basically within a very short period of time, the market started to turn.

And suddenly we saw Fox go public, and their IPO went up 5%. It looked like the market was holding. And then another dot com called EarthWeb, a few days later went public. And they popped. like they popped 100% and it was like

oh something's happening here and then within a 48 hour period I guess this was November 11th Bear Stearns called us back November 11th 98 Bear Stearns calls us up all of our bankers to say hey guys you're never going to believe this but all the people you met with on the road show

are interested in buying in in fact we have the guy would call us back and forth a few times to give us updates but basically told us that there was 45 million shares of demand for our 3 million share offering. And Todd and I were shocked. We couldn't believe it. And they basically said, look, the IPO's back on. If we want to do it, let's do it. And Todd and I thought about it. And we realized that by the Monday of the following week, the official 90 days from when you first registered with the SEC would have

expired. And so your S1 is stale, which then means you're supposed to re-register with the SEC. There's another 30-day waiting period. And we were thinking, oh, my God, what if the market craps out again? Let's just, let's do this. But there was only one hang-up, which was that Bear Stearns had basically priced this thing at the $9 a share where we had left it after the roadshow. And we told Bear Stearns, well, sorry, this was, I'm getting lost a little. It was actually priced at $8. And we then told Bear Stearns, whoa, whoa, whoa, whoa, at eight bucks, we're raising a fraction of what we were supposed to raise, you know, at 13 bucks or higher. And so we insisted on them pushing the price up.

Michael Egan got on the phone and insisted and they moved it from eight bucks to nine bucks. And then we were still thinking, guys, this is ridiculous. How is one dollar going to make a big difference? And they insisted that all that demand was because the price was so attractive. And I know this is my first IPO. I don't know any better. I'm a freaking kid. Michael Egan isn't really saying

this is totally wrong and we shouldn't do it. So we decide to just go with it at nine bucks a share. If they're telling us they can't move it higher, all right, I guess we'll take Bear Stearn's word for it. And of course, I'd like to say the rest is history, but I'm about to walk you through this whole thing.

The next morning, we have to call everyone all of our friends and family and let them know the IPO's back on now. So do you still want shares in our IPO? People are in Europe. They're sleeping. I have to call them in the morning. So it was one confusing mess.

But by the next morning, I'm up. I barely slept the night before. Checking the news. I'm checking to see if there's any bad news. That's going to cause the markets to get disrupted. At the time, there was a lot of news about Clinton wanting to fire missiles into Iraq for one reason or another. And it looked like war might break out again. And I was crossing my fingers and hoping it wouldn't happen that day, at least.

And so Todd and I that morning grabbed a cab headed up to Bear Surin's offices They take us upstairs Sit in Ace Greenberg's office And the bankers start coming in And giving us updates that morning

And telling us like Great news guys It looks like this is going to open up In an hour or two And it looks like it's going to price Actually closer to 20 bucks a share Maybe 20 to 30 bucks a share And of course, I was confused by that because a day or two before, it was at eight bucks.

They barely could budget to nine. But now they're telling me it's going to be opening at 20 to 30. So the demand is really high. And it's, you know, that's what it was. And I guess I was excited this IPO was going to happen and the globe wasn't going to go bankrupt. But I'm still confused by this whole pricing process. And then while we're hanging out there, Bear Sterner, is doing card tricks. He's trying to like, you know, take the edge off. And I guess Ace has gotten

his name because he's famous for doing magic tricks. And he was doing them for us. And it was actually quite impressive. And a little while later, banker comes back in and says, oh, it's not going to be pricing at 20 to 30 bucks. And that's when I realized like, oh, okay, so that was a mistake. It was actually going to price like a 10 or 11 or 12 dollars a share or whatever, closer to 9. And the guy says, no, no, no, it's going to be pricing at $50 to $60 a share. And that's when I lost my shit. I'm like, what the fuck? What do you mean 50 to 60? How did we, uh, you know, I was more excited than frustrated, but I just, there was something rotten going on in the back of my mind and I was just trying to let it go and don't be a party pooper. This is

good news. Because it's all the money being left on the table. Yeah, we didn't know that at the time. This is what we learned 2020 hindsight, right? All we know is is there's excitement, this thing's building up. It's positive. It's all good news. And then, eventually, I think shortly before 11 a.m., they took us out from Ace's office. They took us to the middle of their trading floor where there was like a pit with a like a console that I described as the the cockpit of the Millennium Falcon with all these computers and screens and people standing around. And then as we came close to 11 o'clock, there was a countdown. And they counted down 10, 9, 8, 7, down to 1. And one of main traders yelled out 87 and I comically yelled out to everyone 87 what 87 pesos because like again like this doesn't make

sense how can this be dollars and they confirmed it was dollars and a minute later they yell out 97 and everyone in the trading floor just stood up and we're all looking at us and there was like just pandemonium. People yelling and screaming. I guess everyone's on their phones taking and selling trades. And then my phone starts ringing and I'm getting phone calls from people in Europe. I'm getting phone calls from people in New York and from California who are basically saying, hey, you guys are all over the news. I'm like, what do you mean? And they're like, yeah, they're talking about the globe.com stock that you guys have set some sort of world record, you know, some sort of world record with your stock. Highest opening IPO ever. And I'm talking on the phone. I'm talking to the people

next to me. It's chaos. I'm losing my voice. I'm excited as hell. This is all sort of going over my head a little bit. And the rest of it is a bit of a blur. But I know we were on the news and I know everyone was yelling and screaming. And I, you know, I know the stock was trading a lot. and then within an hour so I think we were taken by limo down to the NASDAQ center where Todd and I were asked to stand in front of a couple of the NASDAQ wall,

which I think now is relocated to Times Square. Yeah. And there's these giant screens showing all these stock tickers and up comes the globe and it's like plus, I don't know, plus 80, plus 80 dollars, up in 97 and it's fluctuating up and down and up and down.

And then there were cameras that were brought in to record us. I think that's the famous image that went on CNN or CNBC or wherever. And Todd and I clinking champagne glasses, just to give an idea here about our depth we were. I mean, Todd and I were dressed in our slubby clothing with jeans and ratty sweaters and leather jackets. We weren't in any business suits. We didn't know what to expect. It was a surreal day. And we didn't know until the next week, once this was out in the news everywhere, that something like 15 or 16, million shares had traded hands that day, which means every share traded hands five times over. And it turns out that all the institutions who'd bought in, normally institutions are brought

in at a discount to the market, usually a five to 10, maximum 15% discount to market as an incentive for them to come into a stock. And institutions usually hold the stock for a long time, right? They're getting in a discount. They believe in the company. They want to see how high it'll go over the next few years, they're your base. And when you go public, they open up, they sell a few more shares to retail. And so a small, small percentage of your stock is usually retail. But it means with institutional holders, there's not much volatility to your stock, at least not at all in the short run, because they're not interested in, you know,

dumping their shares that day. But in our case, the institutions had seen their holdings go up 1,000% in one day. It was too good to be true. You know, Christmas bonuses had come early for them. And they said they dumped everything. They dumped everything and then put it all into the hands of 20,000 of the smallest mom-and-pop day trader investors who were buying in at 97 because this was the most exciting, you know, thing in the market. It was the future. It was the internet.

It was social networking. It was, you know, virtual community. the whole thing and it was and it was run by two 24 year old kids or the youngest CEOs ever and blah blah blah to run a billion dollar company right run a billion dollar company right and that was the other thing it's like Todd and I were solely running a billion dollar company not a hundred and thirty million dollar company so the whole thing was like well okay wait wait whoa we got because we got to do that I think I think by ninety nine you have

120 employees on this day you're 24 it's a billion dollar company by market value I think I think I know the answer, which is you have no idea what you're feeling, but what are you feeling? No, it was, it was, it was, everything was surreal. It was a combination of absolute terror and magic. Like, it's, it's what I imagine, it feels like when an Oscar goes up to, sorry, when an actor goes up to win an Oscar for Best Actor, you're giddy. You can't believe your whole life has led to this moment. It's enthralling. Except here. you know, we're not just, we're not just going to land another job in a new movie. Here it's like,

good luck, boys, you now run this billion dollar company and you're going to have 20,000 shareholders yelling and screaming that they want and need something from you. And, you know, I've only, I've barely ever heard quarterly reports, and they're usually given by large corporations with thousands of shareholders and seasoned CEOs, you know, who are in their 50s. And when I've heard these things, they're very dry and, and by the numbers and very detailed and very methodical. And all I could think about is, oh, my God, I have no idea how to do that. So we were terrified.

I think that first weekend, it was all surreal. We couldn't believe we're each, Todd and our each worth like $100 million. Wow. We have a billion dollar company. What does that mean? What are we supposed to do? I think by Monday, Tuesday, you know, the feelings are still happening to us. And the stock suddenly dropped from 63 to 20,

and then bounce back up to 40 and then bounce down to 20. I think we realized very quickly that our net worths were completely volatile. It wasn't real. It was exciting conceptually, but at the same time, we're like, we've grabbed a dragon by the tail here. We're going to have to hold on for dear life and we're going to have to figure out how to ride this dragon ASAP. So, you know, for that first quarter that we were going to have to be able to

have to report, Todd and I started listening to Yahoo's quarterly results and everyone's quarterly results to see how they did it. And we would copy them and imitate them and plug in all of our numbers. You're not getting any guidance from anybody? Well, well, so the guidance we had was that right before the IPO, our bankers told us, you need to immediately hire a CFO who can help you run the business. And a CFO is mandatory. But the CO is going to be helpful. And we brought in two very seasoned executives, Dean Daniels who had been running CBS News, Frank Joyce, who'd been running, he was the CFO of Reed Elsevier, so he was used to dealing with a business that had a billion dollar bottom line. Brought these guys in instantly, they helped update our model, and once we went public, they helped us.

But, you know, being head of CBS News still doesn't mean you've run a public company, and it doesn't mean you've ever dealt with quarterly reports. And running, and being the CFO of Reed Alcevier may mean the same thing. because I don't believe Redd-Severe was a public company. Maybe I'm wrong. But even they were trying to learn what the exact mechanics would be. So I guess everybody's first quarter is a little rough, right? Because most people aren't repeat CEOs of public companies. So there was a little bit of forgiveness probably by the analysts who were dialing in

and maybe the shareholders as long as the stock was up. But then the pressure, the real pressure was going to be growth. Okay, we've been growing fast. users, I think we were at five or six million users a month by the time we went public, will they keep growing? Will they keep increasing, you know, 20% month over a month or not? Our revenues before we went public, I think we had done a million dollars in revenue in 97 and I think we were on track for doing maybe $5 million in 98 or three to five million.

I don't remember the numbers anymore. You want to hear, this is from my notes, three quarters of a million in sales in 97. to 18.6 million in 1999. Yeah, so we grew like crazy. And all I knew is we had to always beat our numbers and right out of the gate, that first quarter of, I guess the four, we would have to beat our Q4 of 98. And I don't know what the quarterly numbers were,

but I'm sure it was north of a million dollars at that point. And what was really terrifying was that right after we went public and we're counting on all this traffic growth, we got hit with a massive denial of service attack, which I documented in detail in my book because I'd heard of these. They sounded cool, right? Where hackers, commandeer thousands of sleeper computers around the world and send false internet requests. And there'd been a DDS attack.

Is it DDS or DDoS? I don't know, sure, but denial of service attack. It's the CIA website. So I was like, wow, they could take down the CIA website. amazing. There'd been one against Yahoo. And in our case, we had one and it was just knocking off all of our homepage servers off the air, which is where all of our reach was coming from. And I think we were far into the quarter and we were on track to beating our numbers, but then this denial of service attacks occurs and our CTO and all of our engineers are trying to figure out what's going on. And our server room set up was terrible at the time.

We had spent millions on equipment, but it was all running from our office. Back then, there was no such thing as Amazon AWS service. There was no Google Cloud. There was no rack space. You had to build it yourself. And we were planning on moving off-site to an actual server facility. Hey, can I interrupt real quick? We skipped over one of my favorite stories.

This is going back to when you moved to New York from Ithaca. Yep. You literally, the site was down for six hours because you had to drive with the servers in a car. and then plug them back in when you got to New York City. You want to know it was really crazy? Not only did that happen, but I forgot about it until I saw Valley of the Boom, and I've only seen the first two episodes, but suddenly there was this sequence where there's the van filled with the programmers,

and they're moving from Ithaca down to New York City at high speed in this van with all the servers. And when I saw that, I was like, oh, my God, that's right. We did that. And I think I put it, and then I looked back at my book and realized I had mentioned that in my book, that back then we didn't have duplicate servers. There was no way to fail over. We couldn't afford it. You had the server under a desk somewhere in the side of your, whatever your office.

We had a lot of big servers sitting in Ithaca, big computers, probably half a dozen of them. And all we could do was put up a sign on one server, that said, site down for maintenance, quickly unplug all the other servers, quickly put them in a truck, probably a U-Haul, and brought them down to Ithaca. brought them back in New York City, quickly went back up into the office, plugged everything back in, rebooted the whole thing up, it's working, turn off that one remaining server in Ithaca. That was it.

That's how you moved. And of course, if you had crashed, there was no backup to anything. I doubt we had backups of our data. It was probably just too expensive. So, yeah, that was it. That's how we moved. And then to bring it back to what you were saying, so then your first quarter you get hit with this DDoS,

and all of a sudden it's not so great. Yeah, so every, it's, we're screwed, right? Our servers are down. Our traffic is down. Our CTO is trying to diagnose it. Our server infrastructure is terrible. So it just, it created a multiplier effect of problems for us with this DDoS attack. And it took a few weeks.

We even hired a private investigation firm to see if we could try to track down disgruntled ex-employees to see if some of those, you know, like a former tech Maybe had done something and it was all to no avail. We talked to the FBI. The FBI did not have a cyber division back then, but they had had investigators and they were like, well, we don't know how to figure this out for you guys. You're going to have to figure it out on your own. And it was like, okay. And then at some point, our CTO vanished. Like, he completely snapped and disappeared. We didn't know where he'd gone. And then one of our other lead technicians disappeared. These guys were working 24-7 trying to diagnose what was going on. You know, what happens if we unplug this wire instead? to get in over here. What if we tweak our load balancers? Is it, is it something internal that's causing this to be worse? Or is it just, there's nothing we can do? And then after a week or two weeks of this going on, or three weeks, I don't even remember anymore, it stopped. And I, and our, well, our tech, sorry, before it stopped, our CTO came back and the technicians came back and they had in effect burnt out and taken a few days off and then came back. And shortly after they

came back. I don't know if it's something that they tinkered with that helped reduce the problem or the denial of service attack to stop completely. But everything got better. Home page servers were back up. Traffic started rocketing again. And we ended up beating that quarter's numbers by 10%, which was a miracle because we thought we were going to miss it by a country mile. And we actually ended up beating it. But that was our first quarter as a public company. Oh my God. Jesus. I'm going to align over a few things. You use the IPO money to make acquisitions. And there's all these various fads from the dot-com era that I remember.

Like, you know, do you guys make commerce acquisitions when commerce is the latest fad? And, you know, like, let me. You want to just get into IPO mania, right? I mean, basically this is. Yeah, at the height. Okay. Tell me, tell me this. tell me what it was like at the height and then tell me when or if and what if you knew all right the music stopping

well so i can really zoom in on just one year 1990 right right because 1999 is where we're exploding in growth internet mania has kicked in because everyone who saw what happened to our stock who up a thousand percent said i want the same thing And fuck it. If two kids can be doing this, then anyone can do this. So everyone was finally to go public. I think at that point, because of this story having gone all over the world, and all of, you know, NASDAQ was climbing, Yahoo, Netscape, all those guys, their stocks now went way north of their IPO prices.

So now there was this palpable feeling that not only is this internet thing real, right? There's millions of users using it, but you can make real much. money if you get into a dot com early or if you rename your business something.com. So 1999 was really sort of the irrational exuberance peak of everything, right? Everyone is going public and the news was always now looking for the new new thing. Right. So yeah, the globe virtual community, that's amazing. And then shortly after us, zoom.com, that's amazing. And Lycos acquired tripod and Yahoo then went and bought GeoCities. So everyone bought their communities and everyone was in the community business.

But then people started getting more excited about Amazon. And Henry Blodgett famously said, Amazon and e-commerce is losing billions of dollars a year, but they're climbing so fast and grabbing market share. So e-commerce is the real future. And he called out Amazon saying he predicted it would be at $400 a share in a year. It was actually in six weeks, but go on. Oh, well, in six weeks. Jesus, okay, so that's, the point is, is that there are these little micromanias now occurring.

Like, what's the new, new thing? Okay, ecommerce became it. And when ecommerce became it, Michael Egan came calling and saying, guys, ecommerce is the future now. We need to go and acquire an ecommerce company. Now, Todd and I had no experience acquiring anything, but one of Egan's, one of Mike's right-hand people, Ed Cespides, who was a JP Morgan guy who helped him sell Alamo rent a car to auto nation, was an MNA expert. and was there to help us figure out acquisitions. So we ended up buying one company in Seattle called Azaz, which was a mini Amazon. And they were just starting out. They were selling some products, not a huge amount,

but we thought if we could buy them for a few percent of our company's stock and integrate it into the globe and sell them, have their own little mini Amazon-like store at the globe, that that might be smart. So we bought them. And that added on, I don't know how many more employees, dozens more employees. And we capitalized a little bit on the e-commerce mania.

And we started generating some sales. It was a little bit harder than we expected. But eventually it picked up a bit. But back then, by the way, Amazon was always willing to lose money. And so what we discovered very quickly is, if you just try to create another little mini Amazon and they have somehow the organization set up and optimized it in a way where they're getting better, economies scale than you and they're able to lose money on every sale, what are we going to do? So all we could really do is we could generate revenue but at a loss.

And so all that meant was that shit, we'd have to raise more money. If we want to really grow commerce and want to do anything competitive to Amazon, we're going to have to be willing to lose money as for as long as it takes. And then other manias were kicking in. Oh my God, there were so many. B to B and you have all sorts of B and and and and and. specialized communities. And so we thought, oh, okay, well, there's a specialized community, the gamer. Gaming, yeah, yeah. Gaming was such a big thing. And Todd and I had been gamers. Oh, my God, we'd played

sessions of marathon and Doom and, uh, just so many games that we were super excited to, to get involved in games. And just so happens, Lycos was selling, or was contemplating buying the attitude network or they were selling the attitude network. I don't remember anymore. And the attitude network was a, It was a network of gaming properties. Happy Puppie, which was the leading games download site. Games domain, the other leading games download site in the UK. Kids domain, which was for kids. And there was another part, I think, but it was all part of one.

We bought them. We integrated them with all of our community tools, which was a no-brainer, right? All the gamers like to download games and then talk about games with friends. So that was a no-brainer and that worked out quite well. And we were able to sell lots of ads against that. and that became actually a profitable acquisition for us, whereas the e-commerce play was unprofitable. And then that added another, God knows, another 50 people to the company.

And then we bought another couple companies. Well, one of them was another homepage hosting site that was just growing and had crazy reach. We bought that. That was all just tech. We got rid of all the people that were working there. And then we bought Chips and Bits Strategy Plus, which was one of the leading games magazines and had an e-commerce component. there. So we're like, oh, we'll use their games e-commerce, plug that into our games community.

So there was a sense to some of this madness. But it was also that the market, the analysts, the shareholders, the media, were always chasing after the new, new thing and rewarding anyone that was showing that they were constantly evolving. So in a desperate bid to stay and keep their attention, we kept making these moves. And of course, 20 years later, I would look back and say, that was our biggest mistake, right? We should have been focused like a laser on making our core service better and better, as opposed to always chasing after the next thing and trying to become a portal like Yahoo.

But that's what everyone was trying to do that. Everyone was trying to do that way. That's what bankrupted everybody. Right. And if you weren't doing that, no one was interested in you anymore. Your stock would just slide, slide, slide, slide, slide. It's like, okay, well, so what was, you know, we grew from, I think, 60 employees at the IPO to like 120 employees post IPO to eventually 300 people with all these acquisitions. And what did keep growing, thanks to our pretty amazing sales team, was that our ad sales kept growing, right?

That's what went from, you know, 1 million to 5 million to nearly 20 million in the span of just a couple of years. but it was having to now cover for all the losses we're generating from our e-commerce side. And again, in a bid to stay competitive with every new company that was going public. And by the way, every one of these companies that went public after us were now raising two times, three times, five times, ten times more money than us. So we were in this no-win situation that if we want to, if we need our stock to keep moving up, not only do we have to, perform well as a business and with revenues, we need to be showing that we're evolving our mark, we're evolving our community to becoming more like a portal. And to do that, we also have to be willing to spend far more money not only on acquisitions, but on headcount and on ad campaigns.

So that led us to then do a secondary offering during 99, where we this time successfully raised another $140 million. Right. So at this point, we've raised close to $200 million. And you could see still at that point, that's still not enough, right? Everyone's raising now more. Others are doing secondaries. But wait. They're still growing. Hold on.

Hold on. You're seeing that it's still not enough. Now, what you're saying is you're seeing that everyone else has more. And so if you can't keep up with the Joneses, you're falling behind. Or are you saying it's still not enough because your burn rate? What is the main concern? the burn rate or the keeping up with the Joneses? Well, it's keeping up with the competitors

who've raised more money or giving away their product at a greater loss, therefore winning over the customers or they're giving away everything for free, right? We long ago got rid of our subscription model. At this point, it's just all advertising. But our users as they sign onto the internet have to decide where to go and what to use, right?

And they could either go to Yahoo that had everything for free and had more of it. and was better known, or they could go to the globe. That was a little less better known, had less of it. Maybe didn't sell things at quite the same discount. So where do you think those users were going to go? They're going to go to Yahoo.

So how do you compete? Well, you acquire other properties that have audiences, captive audiences, to grow your audience. We launched a $20-plus million ad campaign to try to get to the consumer before they get to the internet, right, to win them over before. Yahoo could or any of our competitors. And you're also needing to show the market, right, because you growing your business, normally the rules are the rules we were told by our board. And these are traditional, very experienced businessman is, don't worry about the stock price. Just take care of the business. And the stock price will take care of itself. Right. So if you, if you keep showing quarterly revenue growth and eventually profits and it's all steady, eventually the stock will

trend towards that performance. But that could not have been more different from what was happening to us. Do you think that they believe that? Which part? The rule of thumb? Yeah. Are they just telling you that to keep you in line or do you think that they believe? No, no, no, no.

But this is business 101, right? Okay, okay. I know this to be true. As long as you have a great product and a great service, your customers will love it. And your revenues will eventually come. And as long as you just take care of business properly, the perceived value of your company will fall in line with that. But there was a temporary time where the laws of physics had gotten reversed, right?

It was more about perception of who was capturing the future the best. Right, right. If it was capturing the future the best had the highest valuation. And the only metric people really used back at the time were unique user counts and page views. If you had crazy unique user counts and page views and they were growing, you were going to the moon. If you were Amazon, right, and remember Amazon was famously losing a billion dollars a year, but they were capturing market share like crazy, they were going to the moon. If you were small and growing steadily and profitable, but you were growing at a slow pace,

no one was interested in you. So it was like, get big fast, right? That became the motto coined by somebody at Netscape by the CEO. get big fast. You need to show that you're capturing the future faster than everyone else, and your stock price will then move. And so, of course, our stock price moved like crazy at the day of the IPO. Then we tried to quickly get the business to fill that perception.

But as we were filling it, and you've seen the charts showing our revenues climbing quarter by quarter by quarter by quarter by quarter by quarter. our stock was trying to right size itself by shrinking and shrinking and shrinking and shrinking and shrinking. And at some point I thought, okay, well, at some point it's going to sort of hit a valley and start growing in tandem with our revenue. But it didn't. Instead, when GeoCities got bought by Yahoo, our stock price swung all the way back up again. And then after people stopped being excited about virtual communities, our stock price swung back down. And as we kept hitting or beating our quarters, our stock price just had a life. of its own. It didn't go up. It just sort of went sideways and gradually down and down and down.

And it was this, it was incredibly frustrating. So that's what that's the part where we're like, okay, we kept acquiring, kept growing our user count, kept growing our revenue count, and the stock kept dropping. Like, okay, so what else are we supposed to do? And it was this incredible cognitive dissonance that was going on between what you'd been taught is how it works and what was really happening with us. And again, this was a unique, you know, naked singularity. And, in business, just this year or two where everyone rewarded conceptual growth over just hard reality and numbers, which of course is not, which of course is not a surprise why the bubble burst and everything played out the way it did.