Or suppose Paul was trying to get himself and Brenda inside a sold-out concert for which he had no tickets. If he let himself look anxious, the guy at the door would stop him, whereas if he walked up portraying authority in his face and step, the door guy would assume that Paul was too powerful to challenge.
Paul called these sorts of tactics “confident technique.” Being large in size and bank account didn’t hurt, but bullying was anathema, especially if the other party was a woman. Paul once bought a used car for his daughter. He talked the seller down to a price well below the Blue Book value but then he realized, “This woman’s really hard up!” And he ended up giving her a thousand dollars more than she’d asked for in the first place. In the end, negotiating with housewives and cops and parking attendants wasn’t very satisfying. Paul sometimes visited a car dealership just to practice haggling with salesmen. They were pros in their own right. But they were amateurs compared to the best VCs.
In the event, however, Paul didn’t meet a lot of opposition, except from Greylock. One of its senior partners later remarked, “Paul is in the top echelon of people we would finance.” But the math didn’t work for Greylock. To be the kind of hit they looked for, Blade, with its high valuation, would have to make about $1.6 billion in the next ten years. Greylock offered Paul less than half of what he was asking: $4 million for 15 percent of Blade.
In the meantime, Paul had turned to Accel. Without question, it was a tier one, an early investor in a bunch of “unicorns,” including Facebook. In Kayak’s early days, Paul had gone to the firm’s London office looking for a VC who would help Kayak expand into the European market. He’d met an Accel partner there, a courtly Dutchman named Harry Nelis, and had talked Harry and his partners into investing in Kayak’s second round of fundraising, its Series B. Accel had put up $8 million and got back about $200 million. Now Paul flew again to London. He presented Blade to Harry and a group of other Accel partners. He was asked some tough questions, which was fun, a chance to boast about Billo and Schwenk. He also spent five hours touring the vast city on foot. Aching legs gave him a new idea: Smooth Walking, a sensor connected to a smartphone app that would help the user make perambulation gentler on the body. A few days later, Harry agreed in principle to Paul’s terms, with some modifications. Accel London would put up $5 million and Accel U.S. another $5 million to buy 15 percent of Blade. Paul emailed the news to Billo and Schwenk.
“Good news!” Schwenk replied.
“Holy shit!” wrote Billo.
But Billo wondered: If Accel was on board, why not try for another tier one? Why not pitch Blade to Sequoia, too? Paul had a pleasant history at Sequoia. Years ago, he and Steve Hafner had gone there looking for a Series B investment, the Sequoia partners had turned them down, Paul had flown to Boston, and then, on the very next day, Paul had flown back, alone and uninvited, and the firm, to its profit, had decided to invest after all. Clearly, Paul wasn’t afraid of being turned down if he pitched Blade to Sequoia. He was afraid that if they came on board, there might not be a place for General Catalyst.
Paul often said that a good VC could be very helpful in showing companies the way to profitability, and GC had been more than helpful in getting Kayak built. But being financed by VCs carried liabilities. For one thing, they might pressure you to sell out when you didn’t want to, or before you thought it wise. There had been good reasons for GC’s wanting to get Kayak sold: to certify that GC was a unicorn creator and to protect its gains against untimely events that might have lowered Kayak’s value. As time went on, senior members of the firm got more and more nervous, and Paul gave them some cause for worry. One time, for instance, a bad interaction between alcohol and a new drug he was trying had sent him to the hospital, and by the time the story got back to GC, it had become terrible news: Kayak’s CTO had suffered a stroke. In truth, Paul hadn’t felt entirely opposed to the sale, but he had felt sad about it. And he blamed GC in part for his sadness. He thought they had pressured him unduly to put Kayak on the market.
Grudges didn’t usually stick with Paul. He seemed to be keeping this one alive for the sake of negotiations. Although he sometimes said hard things about GC in private, he didn’t like to hear others criticize the firm. One time, Paul and Billo met with a lawyer who repeated an old charge—that GC’s managing director, Joel Cutler, had in effect stolen the idea for Kayak. Billo explained why the accusation made no sense from an engineering standpoint, while Paul just stared at the lawyer, inwardly annoyed. Whatever their differences, GC was like family to Paul.
There would have been no Kayak without General Catalyst. Steve Hafner was Joel Cutler’s old friend, and it was mainly the two of them who had cooked up the idea. To cut GC out of Blade would be a cruelty. The world of VCs was competitive. Schadenfreude was not unknown. What would people say if Paul English, Kayak’s co-founder, chose not to partner with GC again? And what if Blade produced another big hit like Kayak, and GC had no role in it? In the end, Paul simply had to face the fact: “I can’t fuck over Joel.”
This didn’t mean he couldn’t use the weapons he’d assembled. Joel was a worthy adversary, “a powerful snake charmer,” Paul once told Billo and Schwenk. When Paul sent Joel his conditions for investing in Blade, he wrote, “We have a top-tier investor ready to sign the attached term sheet, where they will put in $10m of the total $20m that we will raise.” He didn’t name Accel. He didn’t think that GC and Accel would collude in trying to lower the price for a piece of Blade, but why not just eliminate that possibility?
Joel emailed to ask if he might offer a few suggestions about modifying the deal.
Paul replied: “Yes let me know your thoughts. I would prefer we do this quickly, as I have a couple other high quality investors breathing down my neck and I want to tell them to go away.”
7
Maybe because the offices of venture capitalists are all theaters of risk, they tend to be well appointed and to feel sedate. GC had a front reception desk staffed by well-dressed women, lots of gleaming hardwood, a visible hierarchy that put young associates and female secretaries in cubicles on the interior and partners—all male—on the perimeters, in offices with doors and windows. In the main conference room, one rested one’s elbows on the polished wood of a Thanksgiving-size table, a lot like the tables in all the VC conference rooms Paul had visited in the past few months. And there were cushioned chairs that swiveled and a giant video monitor for teleconferencing and for showing PowerPoint decks, and a wall of windows opening on the bare branches of Cambridge in December.
Middle-aged GC partners and young subordinates filled the seats—all male and most of them dressed sans neckties and jackets, in the mode of trying-to-look-casual-in-business-clothes casual. Billo was the fellow who looked as though he wished he weren’t there. Schwenk had a routine doctor’s appointment and hadn’t come, to Paul’s consternation. But really the show belonged to Paul and Joel Cutler.
That it was to be a show was clear enough already. A few days before, the amigos had stiffened their terms. No members of the VC firms would be allowed to sit on Blade’s board. Earlier that morning, Paul and Billo had been sitting in a small private room at General Catalyst and Joel had stuck his head in the door and asked Paul, “Could you do me a favor? To make this less inflammatory? If you could not mention that there won’t be any VCs on the board?” And Paul had said, “Sure.”
There was nothing for Paul to worry about today. And yet once inside the conference room, he felt, as he still sometimes did in spite of Saphris, that he had “the fire thing going.” If you knew him in that mode, you could tell that he was trying to look perfectly at ease, sitting sideways in his chair, an arm slung over the back of it. He looked sidelong at the wires running across the tabletop to speakerphones, and announced to no one in particular, using the present tense instead of the future, “At Blade we drill holes in our tables and the wires go underneath.” He was hoping for a fight, or at least a little pushback.
Joel sat at the
head of the table, a small, bald man wearing a little wry smile. Joel was a quipster, a witty man and a fast talker. But no one spoke as fast as Paul today. “It’s all yours,” Joel said to Paul.
The sum total of Paul’s presentation, indeed of Blade’s business plan, was contained in ten slides. Slide one: a montage of photos of the three amigos and a few sentences about his two lieutenants. “So if there’s something fucked up in the organization, he fixes it,” Paul said of Schwenk. “He’s the anti-me. He’s the one who fixed what I did wrong at Kayak.” He turned to Billo: “Billo is the best I’ve ever known at building a team of youngsters and people with graying hair. I think when people visit Kayak, they think it’s pretty special. Billo’s mobile team was even more special.”
Slide two was “the Blade Bench,” a listing of people and firms they would hire for jobs such as marketing. “I will hire a full-time recruiter,” said Paul. “That person will sit next to me. I’m known a bit as a recruiter.” Slide three was “Why Boston?” The answer, mainly, was MIT. “There are twenty-five thousand existing start-ups that were started by MIT people,” Paul said. “Three million people in the United States today are employed by start-ups started by people at MIT. They produce two trillion in revenue. MIT dominates, it’s much bigger than Stanford, than Harvard. The fact that I’m on the faculty at MIT will be very useful to us.”
By the time he hit slide four, “Blade Approach,” Paul was talking so fast he was slurring his words. “We will be co-founders in ten companies, e-commerce, all big-bet companies, no restaurant menus, we’ll do companies that take on Fidelity.”
“Slow down here,” said Joel. “Take a breath.” And Paul obeyed, but soon went on just as rapidly, until he came to the subject of what would happen when a Blade company got off to a promising start and the VCs crowded around, vying to make the Series A investment. “Pause,” said Joel to Paul, and then, turning to the table, Joel told his troops: “Ask Paul now, because this is the main issue. How do we get enough of the hatched companies’ Series A to make it worth our while?”
A short silence followed, which Paul filled: “There are things I’ll promise you and Larry over a beer that I can’t put in a contract.” He had turned his chair and was facing Joel. “I can’t put in a contract that you have the first right of refusal. It would hurt my ability to bring in the best CEOs.”
“Talk to them,” said Joel, gesturing toward the rest of the table.
Paul obeyed, turning again in his chair and looking around. “In general, I expect and hope that GC will have an intimate relationship with all the Blade companies.”
Then Paul carried on with his pitch, dropping names now and then. Everyone in the room would know that “Michael” was Michael Moritz, a famous partner at Sequoia, also that “my friend Reid” was Reid Hoffman of that other tier one, Greylock. Paul told the table he had been an entrepreneur in residence at Greylock. This was purposeful name-dropping. In his mind he was telling the audience: Guys, if you want to ride on this train, you better pay in cash.
Joel got the message. He smiled. “Greylock’s great,” he said. “But if Larry hadn’t brought you over here that day, you’d still be doing some middleware company.” This was a private joke. It summoned up a bit of Kayak history, reminding Paul that he had been working on a dull project at Greylock before the fateful day when Larry Bohn had asked him to come to GC and Paul had met Steve Hafner. In other words, Joel was saying: “You owe us, Paul.” Several of the senior people at the table chuckled.
Paul smiled.
Joel said, “Give us an idea of the kinds of firms you’re talking to. Our cousins in this.”
“Sure.” Paul said he’d met with a “superangel” (a wealthy individual investor) and eight VC firms. He didn’t offer any names. He wasn’t going to tell them yet that Accel was all but signed up, and he was never going to say that Greylock had balked at his terms. Paul wasn’t actually lying. He really had talked to principals at eight firms and to a lieutenant of a superangel. His last claim bent the truth a little, though. One investor had mused about what kind of terms his company could get if they put up the whole $20 million. A hypothetical proposition at best, which Paul converted to: “There was one firm that offered to do all of the funding.”
Larry Bohn cried out. “And at a higher valuation? Gimme a handkerchief! I’m going to have a nosebleed!”
Paul was still smiling, happily now. “Joel says it’s a ridiculous valuation. I’ve said all along that we don’t want stupid money.” Stupid money came from passive investors with no expertise in creating companies. “But looked at another way, stupid money’s not so bad.”
Then one of the young associates piped up. Paul had explained that he would find rock star founders for Blade companies and Blade would own 50 percent of the equity in each of them. The young man said, “We work really hard to find great founders. Can you find ones who are willing to give up fifty percent? Because we don’t.”
Joel stepped in quickly: “Don’t forget. He’s hatching them.” In this case, “hatching” meant that Blade would be investing a lot of intellectual capital as well as money, and even providing teams to help founders start their companies.
But the young man’s question was something very like pushback, at last an occasion Paul could rise to. Paul’s smile brightened. Great founders, he said, could be persuaded to part with most of their equity in order to build a great company. He touched his breastbone: “I’m very happy that I ended up owning only six percent of Kayak.”
One usually thinks of money as the source of things other than humor, but this remark set the table on a roar. Everyone was laughing, and Paul was grinning, his face reddening.
The talk grew increasingly desultory. Finally, Joel said, “If any of you disagree with what Paul’s saying, tell Paul. Because he loves a fight.” But no one broke the silence that followed, and Joel adjourned the meeting.
Outside, Joel said, “This is so unconventional. I doubt there are three people in the world we’d do this with. But Silicon Valley would leap at it. To have Paul English covering the Boston market for them?”
One wonders how Paul’s proposition would have been received elsewhere, perhaps by a man on the street outside. What does Blade do? asks the man. Paul says, We’re going to create e-commerce companies that make things, but we’re not sure exactly what they’ll make. Well, asks the man, who are the people who are going to make those things? We’re not sure about that either, Paul replies. But they’ll be really good at making them, whoever they are. And then Paul asks the man if he’d like to invest $20 million to buy 30 percent of this enterprise.
It seemed as though the two VC firms were agreeing to something like that. They would give Paul and Billo and Schwenk $20 million, and for collateral they would receive little more than air and résumé. And yet somehow Paul had made them, or at least General Catalyst, feel that he was doing them a favor. There weren’t a lot of other places in the world where a transaction like this could happen. It could make sense only within a system in which money was so abundant and unequally distributed that the people who owned most of it could afford to chase the possibility of their money becoming not just a little more money, but a great deal more.
You occupy an odd position as a VC. You must pick your bets carefully to succeed. At the same time, you diversify your bets so that no single bad one ruins you. Twenty million was a fortune in the common world, the world of salaried human beings, but it was just a small fraction of the average venture fund. If Blade failed, Paul and Billo and Schwenk would lose some money but they’d hardly be bankrupted, nor would GC.
In this system, the cascade of risk was limited, the hopes unbounded. It was a system of insubstantialities. When the basic deal was struck, GC and Accel didn’t know anything about Blade’s investments because, for the moment, neither did Paul or Billo or Schwenk. All the hopes of astonishing rewards rested on Paul and his lieutenants. There was nothing else for them to rest on, and this was probably just
as well, for Blade at least. At this stage of their enterprise, Paul would likely have had a harder time raising $20 million for a specific plan than for an intangibility. For now, VCs were bound to find him most attractive when he talked about big bets without getting into details. And Paul knew it—hence his talk about creating companies that were bound to kill all sorts of corporations in the Fortune 500.
Months ago, conferring with Billo and Schwenk, Paul had said they’d raise money on their “pixie dust.” Betting on Paul was partly a matter of betting on his past, of course. But he also had qualities in the present that were unusual, and for Internet companies, instrumental. He was a bridge between the business world and the mysterious world of software engineering, where things were made that had become essential to almost everything that people used, to stoves and cars as well as rocket ships. Paul was a figure in Boston’s start-up scene. (“A legend,” one young acolyte had said, causing Schwenk to cry out in soprano glee, “A legend?”) Young entrepreneurs called Paul all the time asking for advice, and he was generous with it. And he wasn’t only teaching at MIT. The head of electrical engineering there was asking him for advice on how to make the department more “entrepreneurial”—and also evidently angling for a donation. When Paul gave a pizza party at MIT one evening that winter, more than 350 students showed up to chat with him. Paul didn’t exactly own MIT, as he liked to say when pitching Blade, but he had great access to the kinds of smart young engineers that every corporation coveted. A senior partner at Greylock called Paul “a great recruiter, a Pied Piper for young engineers,” and added—this seemed significant—“He’s very young at heart.” The Greylock partner said, “We would have loved to invest in this new thing of Paul’s.”