There goes my chance to be a TV star. In fairness, I would have made the same call. Things can get out of hand if you give lawyers a chance to run off at the mouth in a high profile case. I still want to let her think that I’m morally offended. It might lead to a decision going our way down the road, “Your Honor,” I say, “if I might take a moment to reiterate our concerns.”
“Denied.”
It hasn’t been a morning of resounding victories for our side.
Judge McDaniel she says, “I want to see any motions by noon on Wednesday.” She bangs her gavel and heads to her chambers.
The gallery empties and Rosie gives me a realistic take this morning’s proceedings. “The circus just came to town,” she says.
*****
Chapter 24
Lawrence Chamberlain
“Silicon Valley is the epicenter of America’s last great frontier. Its boundaries are neither geographical nor political and are limited only by our imaginations.”
— Lawrence Chamberlain. San Francisco Chronicle.
The clock starts ticking as soon as we step outside Judge McDaniel’s courtroom. Leon’s preliminary hearing begins in three days and the race is on.
Rosie and I are accosted in the hallway by the usual barrage of reporters and we engage in the customary exercise of offering implausible platitudes about the strength of our case. Judge McDaniel’s decision on the gag order means that we can do so with impunity. We disengage from the media mob and catch up with Jerry Edwards at the corner of Sixth and Minna, where we introduce him to Willie Kidd, who is reasonably coherent as he provides the names of a couple of cops who allegedly tried to intimidate witnesses. Edwards reacts with a healthy dose of skepticism, but takes detailed notes and promises to follow up. If he finds anything, the SFPD may be in for some significant grief. If he doesn’t, the same could be said for us.
Rosie and I drive forty miles south on the 280 to Sand Hill Road, a tree-lined thoroughfare in Menlo Park, just north of Stanford. A century ago, it was a country road that ran through cattle grazing land. In the early nineteen hundreds, the area was planted with orchards. During the last four decades of the twentieth century, it was transformed into the financial center of the modern Silicon Valley.
By the outward appearance of the nondescript business parks, you’d never guess that the office rents on Sand Hill exceeded those of the stylish towers in midtown Manhattan in the late nineties. It seems like ancient history. The drab two- and three-story buildings are a glass and concrete metaphor of the Valley’s mind set. Unlike the financial centers in New York, Los Angeles, Chicago and San Francisco, the Valley has never been about crowning architectural monuments. The venture capitalists, investment bankers, software developers, lawyers and other masters of the universe prefer to ply their respective trades in boxy structures on campus-like settings where success isn’t measured by the size of your office, but by the value of your vested stock options and the features of the SUV in your reserved space in the uncovered parking lots.
I’m told there are venture capital firms with opulent offices, but Paradigm Partners isn’t one of them. The headquarters of Tower Grayson’s empire is in a three-office suite in a business park at 3000 Sand Hill, not far from the 280 on-ramp and next door to the Sharon Heights Country Club. A pretty young woman greets us in a reception area that’s furnished with Office Depot chairs. She says her name is Tracy and that she’s the company’s part-time bookkeeper, secretary and receptionist. She offers us coffee, which we accept, then she returns to her computer. The Starbucks blend is only slightly better than the Maxwell House at our firm. The lights are off in Grayson’s office, which overlooks the golf course. Chamberlain is sitting next door and is talking on the phone. The third office houses a small conference table, a computer and a TV tuned to CNBC.
Rosie and I sit down in the prefab chairs. She turns to me and whispers, “I was expecting something a little more elegant.”
So was I. Chamberlain’s door is open and he’s speaking on the phone in an almost jovial tone while Tracy is typing away at her computer. There are no flowers or any expressions of condolences. Except for the fact that the lights are out in Grayson’s office, it’s business as usual.
Chamberlain takes another call and barks orders about preferred returns, term sheets, hedges, arbitrages and offshore straddles. He lives in the rarified financial air where mere mortals and criminal defense attorneys dare not tread. He lets us cool our heels for fifteen minutes, then he pokes his head out the door, gives us a quick smile, extends a thin hand with a top-of-the-line Rolex on his wrist, and says, “Thanks for driving down here.”
Anything we can do to help. No need to apologize for making us wait.
He’s a slight, sandy-haired young man whose crystal blue eyes and unwrinkled features suggest he’s at least ten years younger than thirty-eight. His khaki pants and maroon polo shirt complement a perfect tan. He leads us into an office with standard-issue oak furniture that’s a cut above the thrift store desks at Fernandez, Daley and O’Malley, but several notches below the stuff you find at big law firms. He takes a seat in his ergonomically correct chair and Rosie and I sit on the gray sofa that looks as if it came from a closeout sale at IKEA. There are no family photos and the only art is a poster for a consumer electronics trade show in Vegas. A high-end desktop with a flat screen sits on his credenza, along with a dozen Lucite cubes that encase miniature copies of securities offering documents. They’re the standard trophies handed out by grateful law firms and investment banks to clients who have paid them exorbitant fees to take their companies public.
I try to set a civil tone. “Thank you for seeing us, Mr. Chamberlain.”
“You’re welcome.” He eyes me cautiously. “Feel free to call me Lawrence.”
Our lovefest is getting off to a good start and I invite him to call me by my first name. He brushes the hair out of his eyes and offers us more coffee, which we decline. I take it as a positive sign that he has manners.
Rosie and I agreed that she’d take the lead and her tone is appropriately respectful when she says, “We’re sorry about your partner. This must be very difficult.”
“It is.” He adds, “It’s also a great loss for the venture capital community.”
They don’t get a lot of fog down in the Valley, but it’s already starting to roll in.
He looks at his Rolex and says, “I have a conference call in twenty minutes. I hope you don’t mind if I ask you to get to the point.”
No problem. Rosie stays on message. “We were hoping you’d tell us what happened Thursday night and Friday morning.”
His isn’t fazed. “Tower and I had a meeting with the fund’s attorney. Then we had dinner at Boulevard and Tower gave me a ride home. His son called me the next morning and told me what had happened.”
Short and sweet. He’s savvy enough to know that if a lawyer asks you a question, you’re better off responding without elaboration.
Rosie asks him what time he finished dinner.
“A few minutes after one.” He says Grayson took him straight home to his Russian Hill condo, a ten minute ride from the restaurant. He says he was there for the rest of the night.
Rosie chooses her words carefully. “Lawrence,” she says, “I don’t want to suggest that I doubt anything that you’ve told us, but it’s our job to check out your story.”
“Of course.” He eyes her cautiously, but doesn’t elaborate.
She adds, “Is there anybody who can confirm that you got home when you said you did?”
In other words, you may be a sweetheart of a guy with spectacular baby blues, but we’d feel a lot better if somebody could corroborate your alibi.
If he’s offended, he isn’t showing it. “I live by myself,” he says. He leaves it there. He correctly surmises that sparring with Rosie is a losing proposition.
She gives him a sympathetic smile and says, “Mind if we chat with your neighbors?”
“Be my guest.” He gi
ves her a couple of names.
Rosie darts a glance my way. Time for a fresh voice.
I start with something innocuous. “Lawrence,” I say, “are you a native San Franciscan?”
“Fifth generation.”
I’ve never been impressed by people who think they’re special just because their ancestors happened to have been born within the city limits of my hometown.
He adds, “My great grandfather started one of the most successful mining businesses on the West Coast. My father followed in his footsteps and now runs the company.”
My great-grandfather was also in mining, but he spent his time below ground in Ireland and died of black lung disease at forty-two.
Chamberlain is still trying to impress us by reciting highlights from his resume. “I went to college at Dartmouth and I have an MBA from Stanford.”
La-di-da. I wonder if he’s ever had a job. I ask, “Did you go to work for one of the investment banks?”
His expression turns to one of open disdain. “No,” he says. “I’ve been managing my portfolio and giving investment advice to my friends since I got out of school.”
He’s been living off his trust fund. I ask him how he hooked up with Grayson.
He says they met at the Churchill Club, a Valley networking group. “I was interested in investing and Tower had contacts in the Valley. We raised twenty million.” He radiates false modesty when he adds, “Compared to the bigger venture players, it isn’t a lot of money.”
Sounds like a lot to me.
He says the fund has invested twelve million in start-ups. “The rest is still available.”
I wonder if he might be interested in funding a start-up law firm, although the likelihood that Fernandez, Daley and O’Malley will go public anytime soon is pretty remote. I ask, “How much did you put up?”
He turns some cards up. “I’m the biggest investor. I’ve put in ten million and I’ve committed another five by the end of the year.”
I ask him what happens if he doesn’t make the additional contribution.
“I always fulfill my financial commitments.”
“And Tower Grayson?”
“He put in a million and committed to another half.”
Sounds like Grayson didn’t put a lot of his own money where his mouth was. I ask, “What about Grayson’s son?”
He gives me a dismissive wave and says, “He put up fifty grand and promised another twenty-five. We let him in as a favor to his father.”
I see. “Were you and Tower friends?”
“Yes.”
I try again. “Did you socialize much?”
“We had dinner from time to time with our investors, but we didn’t hang out with the same crowds. He lived in Atherton and was married. I live in the city and I’m single.”
He still hasn’t answered my question. “Did you guys get along reasonably well?”
He nods with exaggerated authority. “Absolutely.”
I’m not so sure. I strive for an even tone when I ask, “Was the fund doing well?”
“Reasonably.”
“Were you happy with the investment selections and the returns?”
“Reasonably.”
Now I know his standard answer when he doesn’t want to say anything. When I ask him about the Chroniclepiece, he insists that his comments were taken out of context by an overzealous reporter. I press him, but he doesn’t elaborate. I ask him what they were meeting about on Thursday night.
“I’m afraid that’s confidential.”
Rosie injects a softer tone. “We’d never ask you to reveal any secrets,” she says. “We were wondering whether you were talking about an investment or internal management issues.”
He pauses to consider his options. If he says nothing, he’ll appear evasive and we’re more likely to come back. If he starts talking, he might reveal confidential information. Either way, he loses. He opts to try to appear forthcoming. “We talked about our investments for awhile,” he says, “then we discussed the management of the fund.”
Rosie tries to get him to elaborate, but he won’t. Then she attacks from another angle. “Can you tell me about the venture business?” she asks.
I’ve seen her do this a million times. If he’s smart, he won’t say another word. Twenty bucks says he’ll be telling her his deepest, darkest secrets in five minutes. Ten minutes from now, she’ll have him spinning a beach ball on his nose.
His eyes light up. There is nothing more flattering to a young man of limited experience and inherited wealth than to have an older person ask for his sage advice.
Rosie sounds like a second grade teacher when she says, “Suppose I came to you with a business plan and said I needed five million dollars. How would you decide whether to give it to me?”
His voice fills with self-importance as he says, “The first question is whether the management is trustworthy and of good moral character. That’s also the second and third question.” He chuckles at his little joke. “Next we look at the business plan, the revenue and expense projections and the management’s track record. A few years ago, you could have written a fundable business plan on the back of a napkin if you had the words dot and com in your name, but not anymore. You must have a viable product and be profitable. We expect our investments to generate an internal rate of return of at least fifty percent.”
Rosie was a business major, so I’m pretty sure that she knows what he’s talking about. We give him our best authoritative nods and hope that he keeps talking.
He does. “We give a lot of thought to our exit strategy. We try to liquidate our interests within two to five years. The best-case scenario is usually an IPO or the sale of the company.”
Rosie gives him an inquisitive look and asks, “And if things don’t go well?”
“We acquire a preferred interest that’s convertible into a majority of the common stock if the company doesn’t hit certain financial milestones. If things go south, we take over.”
They also fire everybody in sight.
“We don’t like to do it,” he continues, “because it isn’t the best use of our time. We’d rather invest in companies than operate them.”
Not to mention the fact that it might require him to do some real work. I’ll bet he never even managed a lemonade stand when he was a kid. Promoters like Grayson have an even sweeter deal. In addition to his percentage interest in the fund’s investments, he was collecting an annual management fee of two and a half percent of the fund’s twenty million dollars of assets. I’m not great at math, but that’s a half a million bucks a year. Not bad for reviewing business plans and investing other people’s money. That’s why venture capitalists make more money than lawyers.
Rosie is still trolling. “How many companies hit it big?” she asks.
“If you’re lucky, one out of ten.” He says that another two or three of ten might break even. “The rest crater. It’s a risky business.”
Rosie strokes her chin. I’ve been waiting for this moment. Her hook is in the water and it’s time to see if he’ll go for the bait. “So,” she says, “were you and Mr. Grayson talking about raising money for another fund when you were meeting with your lawyer the other night?”
He bites. “Actually,” he says, “we were discussing a down round.”
“What’s that?”
“We put two million dollars into a start-up that developed state-of-the art software that transmits graphics at high speed over the Net.”
I’ve never heard anyone ever refer to software that is anything less than state-of-the-art.
His eyes light up when he adds, “It will change the way information is transmitted over the Web, and it’s really cool stuff.”
I wonder if William Hewlett and David Packard ever referred to their products as “really cool stuff.”
“In any event,” he continues, “the market softened and the company hit the skids. We were approached by a British conglomerate that offered to make a substantial investment.
”
“Sounds pretty good,” Rosie says.
“Except it would have diluted our investment down to the point where we would have ended up with a non-controlling interest and no say in management.”
“That’s why it’s called it a down round.”
“Exactly.” He lectures us on the basics of venture financings, liberally peppering his story with such esoteric and unintelligible terms such as “anti-dilution protections,” “full-ratchets,” “weighted averages,” and “pay-to-play provisions.”
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