by Rob Reid
Of course, it was unanimous. Then, after ensuring Uh Tyler had recorded the results, Jepson summoned his head of finance and instructed him to wire the funds out to the departing investors pronto. That last step was a minor surprise, as these things usually unfold over several days. But Jepson wanted that $15 million irretrievably gone before the meeting got more interesting.
Our twins turned four this summer, and a grown woman selected this hydrant-class spray toy for her daughter to gift to my son. I like to believe Amanda’s mother knows nothing about our home décor (nor of my son’s volcanic side); otherwise, I might suspect that my first wife coaxed her into sabotaging our once-lavish interior’s few remaining valuables—which, while not water-soluble, were anything but water-resistant.
The Storm 3000 Tsunami Force 5 spews its destructive payload about twenty feet, cleverly illuminating it with a “photon beam” (translation: a ray of light), allowing the proud homeowner one final glimpse of his cherished antiques in mint condition. And your little brownshirt needn’t limit his ordnance to water. Young Charles’s field tests showed that Gatorade, soy sauce, and Diet Dr Pepper all erupt from this ingenious device’s muzzle at full velocity. Hybrid payloads of Perrier mixed with “Obsession” fragrance discharge more diffusely, enabling efficiency-minded vandals to saturate entire racks of dresses with a single round. Indeed, just such a volley provoked the instant & unexpected conversion of Charles’s mother into a gun-control zealot. She had previously been more co-conspirator than chaperone in the proceedings, on account of her Latina joie de vivre and youthful exuberance (at twenty-six she’s marginally closer to our son’s age than to mine, and it does show in instances like this). Happily, little Amanda’s own birthday was by then on the horizon, and we repaid her mother’s kindness with a First Act Discovery Drum Set, which is also available in this store.
Jepson continued his board presentation with a chart depicting the NASDAQ index’s ongoing swan dive. “Let’s start with a few words about the market environment I’m fighting in. Simply stated? It’s brutal out there.” Out there. Jepson said this like a valiant knight describing an orc battle to some timid monks who never left the scriptorium. He figured this should offend his investors rather deeply. After all, they were the ones losing their shirts in the dot.com apocalypse, while he hunkered down in this Gucci fallout shelter that they were paying for.
His next slide depicted five tombstones bearing the logos of Pets.com, iPets, PetMania, PetsALot, and SeeSpotRun.com. “Unlike ePetStore, none of our sickly competitors were tough enough to make it.” This was crafted to sound maximally repulsive and self-congratulatory. ePetStore plainly wasn’t “tough” by any definition. It just had the astounding fortune to raise sixty million dollars nine fucking minutes before the NASDAQ began its epoch-defining, thirty-three-month march from 5,408 down to 1,114. Its competitors all had their own capital reserves. But enough to make it through a rainy day or three—not nuclear winter. “Some people whine about our environment. But I love it! It’s a world these fellas would recognize,” Jepson said, pulling up a sepia-toned image of a white-bearded gent captioned DARWIN. Beside him, a triumphant Muhammad Ali loomed over a battered opponent who sprouted a dialogue bubble reading, “I been schooled! Only the STRONG Survive!”
As hoped, Kielholz couldn’t let this go by. “Well, it’s not exactly like you personally drove them out of business.” He said this levelly, and with that poker face intact, but Jepson could swear that trace amounts of steam were emanating from his ears. Excellent!
Jepson affected a look of mock confusion. “Really?”
“Well, sure,” Kielholz enunciated carefully. An alumnus of Princeton, Andover before that, then later three years on Wall Street, he had only the barest trace of a German accent. But it bubbled up when he was agitated, and he was now clearly trying to control it. “For instance, PetMania willingly returned its capital to investors.”
Jepson quietly delighted in this Orwellian slur. In truth, PetMania’s CEO lost control of his board to panicking outsiders like Kielholz. They voted to shutter the company and distribute its remaining cash among themselves. The CEO and his team were about as “willing” in this exercise as the Donner Party members who ended up in the meatloaf. Outwardly, Jepson just nodded solemnly. “Yes, I was disappointed with that outcome.”
“Disappointed? And why is that?”
“Well, I really had ’em against the ropes there. It woulda been nice to finish ’em off myself!” Jepson mimed a cartoonish uppercut. Figuring nothing could get under a German’s skin quite like a Nazi allusion, he added, “It was a bit like Göring taking the cyanide to avoid the gallows, wouldn’t you say?”
Kielholz paused to collect himself before responding, and Jepson savored every nanosecond. “In fact,” he finally began, “we were recently discussing the PetMania situation. And we were concluding that it had in fact gone rather vell.” Kielholz’s grammar was fraying, and he just swapped a v for a w for the first time ever in Jepson’s hearing. Excellent!!
“By ‘we,’ I assume you mean you and your…limiteds?” Real venture capitalists are backed by investors known as Limited Partners (aka “limiteds”) and this was the perfect time to taunt Kielholz about his own limiteds being limited to Daddy.
“Yes. Vell. Kapital is kapital undt a limited is a limited,” Kielholz sputtered hunnishly.
“Ja, ja,” Jepson agreed, back in his cartoon Kaiser voice. “So tell me vat it is that you undt your limited investink partners are vanting it?”
After a second, far longer pause, Kielholz’s cold, level Princetonian English returned. “The shutdown of the company.”
Jepson paused, looking stunned, then almost whispered, “Sh-shutdown?”
“Yes. The immediate shutdown of the company.”
“Im…mediate?”
Intoxicated by Jepson’s apparent devastation, Kielholz twisted the blade. “Yes. And the immediate return of the company’s capital to investors. Every nickel. Every dime.”
It was all Jepson could do to stifle a triumphant GOTCHA!
Not that this was a dumb idea. Indeed, just minutes before, a full payout became the sole rational thing for Kielholz to want. The late-stage investors were gone, the company’s obligations to them were retired, and ePetStore had just enough cash left to return the full $18 million that it had raised from the investors still at the table while covering severance for employees. This could let Kielholz recoup all of his disastrous investment. Yes, one hundred percent. A dollar on the dollar! With the NASDAQ down almost 70 percent!! eCommerce stocks down 90 percent!!! Kielholz could look like the smartest lad in the oompa garden—which, Jepson figured, was all the penis-envying progeny of dusty European lords really yearned for. So of course this was vat Kielholz undt his partners were vanting! It’s just that sometimes, you should keep certain things to yourself. And boy, was this ever one of them.
Jepson rapped on the Polycom triangle. “Nathan, are you getting all this?”
“It’s, uh…Tyler,” said the dweebish voice. “Nathan couldn’t make it this time.”
“Oh, right. Uh, please note for the record that Damien Kielholz has proposed the company’s dissolution and the allocation of substantially all of its assets to its investors.” At this, a foreboding look darkened Conrad’s brow. Noting it, Jepson (barely) suppressed a grin.
He then rose and gazed at the blanked-out window that separated them from the main office. “Boy, this sure brings us to an interesting juncture.” He fell silent, slowly shaking his head. Then, “There’s been a motion to liquidate…all of this.” He flung his arms toward the pane like Moses parting the Red Sea, while clicking his remote. His realm and subjects snapped briefly into view. “And hand the proceeds over to…” He turned to face Kielholz and Conrad. “Well, to the two of you, basically.” He clicked again. ePetStore’s head count vanished back into the magic window’s off-white nullity. Gazing theatrically at the re-opaqued rectangle, Jepson idly wondered for the umpteenth time how the fucker worked. H
e let the pause go from dramatic, to awkward, to downright weird, then whirled and faced his board. “And you know what? I think you guys deserve that. If that’s what you really want! But while we’re having this conversation, I suggest that we consider the interests of…all shareholders.”
All shareholders. Throughout Silicon Valley, startup founders and board members invoke this abstraction like a deity. And like an invoked deity, the interests of all shareholders can be contorted to justify almost any measure. It’s a lot of people, after all. In addition to investors and founders, all employees, from senior VPs down to receptionists, are usually shareholders via stock options. Outsiders like a startup’s lawyers, its advisors, sometimes its PR firm, and perhaps even its landlord are shareholders, too. When times are good, all of these parties are united behind the obvious goal of continuing to kick ass. It’s when things go badly (or even just so-so) that the fault lines appear. They might spring up between investors and management, between holders of different series of stock, between executives and more junior employees, or between one vice president and another. They might separate founders from nonfounders, founders from one another, venture capitalists from the early “angel” investors, and so on. Savvy combatants then sanctimoniously cite their burning concern for all shareholders before floating even the most one-sided, parochial, and self-serving proposal. It’s like politicians who ritually invoke The American People before flagrantly paying off some special interest.
“Now don’t get me wrong,” Jepson continued. “I care deeply about my investors. But I also need to think about my noninvestor shareholders. People like…Juan Ramirez.” He smiled and nodded, as if recalling one of many fine moments with that striving, fun-lovin’ imp, Juan. “Y’know, Juan flunked out of school. But then he taught himself some JavaScript! And he leveraged that into a job here, in the very cradle of the digital revolution.” Jepson was cribbing the tired presidential trick of peppering State of the Union speeches with shout-outs to up-from-nothin’ minority attendees. Were he a prime time president, the screen would now fill with a close-up of Juan, in that cheap and only suit of his, nodding stoically. “When we granted Juan an option on a thousand shares of ePetStore.com stock, he said to me, ‘You know somethin’ vato? I ain’t never felt more…American than I feel right now!’ ” Jepson’s stab at a Hispanic lilt sounded like a midfifties Tonto on a black-and-white screen. And like Tonto, Juan Ramirez was pure fiction. Jepson didn’t feel great about making the guy up. But there wasn’t a single Hispanic name on the company roster—and his sole black employee went by Winston Honeywell, which just didn’t sound very urban.
Jepson stole a quick glance at Kielholz. He showed no sign of realizing what he’d stepped in. So just like some clueless, wealthy tourist—which is all that Kielholz was in a tech startup boardroom, after all—the guy had unwittingly shattered a local taboo. And this was no minor faux pas, like lifting a fork with the wrong hand, say. This was more like spray-painting tits and genitals onto the local dictator’s portrait in the main square. Because it’s not merely polite to serve the interests of all shareholders. For board members, it’s a dead-serious legal obligation—transgressions of which have launched countless lawsuits. This doesn’t mean that factions of directors can’t possibly subvert a company’s interests to serve their own (because they can, and they do, with depressing regularity). But it does mean that board members must exercise extreme discretion in discussing things like dissolving a company and carving up its assets among themselves.
“I wish we could bring Juan and every one of our other shareholders in here, to have a frank and open discussion about Kielholz’s proposal,” Jepson continued. “But y’know what? They couldn’t all fit in here! So it’s up to us. The board of directors. To settle things as their completely impartial representatives. Kind of like Congress choosing between tax cuts for the super-rich…and letting the needy starve.” He turned to his chairman. “Conrad. Where do you come out on this?”
Conrad was literally squirming, rolling his bulk from one side of his chair to the other. Of course, he wanted exactly what Kielholz wanted—a dollar on the dollar and death to ePetStore! But Kielholz had let the rogue elephant of director liability into the room. And having trumpeted raucously and shat in the corner, it was now fixin’ to trample somebody. “Well,” Conrad ventured. “Given we just done us a major recapitalization, I reckon it’s a tad…premature to talk about shutterin the company.”
Jepson saw Kielholz redden visibly. Excellent! With no notion of what he’d just set off, the idiot Kraut must be thinking Conrad was some kind of crypto-traitor against his class. He turned to J-Dog. “And what do you think? Should we shut ePetStore down and distribute—how’d you put it, Kielholz? ‘Every nickel, and every dime’—to our investors?”
“Not a chance,” J-Dog answered, obediently.
Jepson turned back to Kielholz. “Well, it looks like your proposal’s a bit shy of a majority. But if you want to call a vote, I’m sure the Venture Law Group boys can make it official.” He rapped heavily on Uh’s speakerphone.
Kielholz said nothing and seethed, and Jepson congratulated himself on a brilliant piece of social engineering. By staying calm and being less clumsy, Kielholz could’ve gotten exactly what he wanted. All startup investors reserve the right to recoup their capital before assets are distributed to noninvestors—particularly if the company’s dying. So this scenario can be discussed in boardrooms—provided that it’s broached diplomatically. For instance, Kielholz could have argued that ePetStore’s business was so broken that burning its remaining cash in a doomed pursuit of profits would serve no shareholder’s interests. Had he done that in appropriately somber tones, and—far more importantly—had he quietly lined up Conrad in advance, Jepson would’ve been powerless to stop him. Something like that indeed happened when PetMania’s board had shut it down a few months before.
However, shuttering the company and cashing out fully only became possible when XrossHatch and Hanwha sold out at the astonishingly low rate of twenty-five cents on the dollar. And because Jepson had carefully kept that all-important deal term top secret until a few minutes ago, his investors had not yet been able to meet in a smoky back room to scheme. But Jepson wasn’t out of the woods yet. Conrad would no doubt explain things to Kielholz as soon as they adjourned. As they controlled three of the board’s five seats between them, that would surely lead to the company’s decapitation. Perhaps as soon as tomorrow! Unless Jepson could get Kielholz to sell before the meeting ended.
Jepson stayed on his feet. “Given that ePetStore will be allowed to fight on, let’s talk a bit more about our warpath!” He clicked the projector’s remote, bringing up an image of a gaming table piled high with aces and chips. “With our competitors conquered, and ePetStore running the table, it’s now time…to double down!” The next slide depicted a revenue chart with eensy midget bars on the left growing exponentially into towering bars on the right.
“Wait, wait, wait,” Kielholz said. “You think you’re going to grow faster—right after the market has killed off all of your competitors?”
He said this way more calmly than expected. Dammit. Jepson needed to yank the fucker offsides again! There was that nuclear option connected to Mrs. Kielholz (she sometimes tagged along for these California trips, and while her husband swanned around with local VCs, she and Jepson got up to things that no CEO should do to, with, or athwart any investor’s wife). But he wanted to hold that one in reserve. So instead, he insisted, “No, no, we killed our competitors,” in a sort of petulant whine, while miming that oafish uppercut again.
“No, no, ze market killed them because there is no way to make monies doing what it is that you are doing. Ze market, it has shown that this is impossible!” Though Kielholz remained outwardly calm, Colonel Klink was re-infiltrating his diction.
“Oh, sure. Impossible. You know who else they said that to? Albert Einstein. Bill Gates.” Jepson paused and narrowed his eyes. “General Patton.”
He advanced the slide, revealing the mock-up of a lavish two-page magazine ad for the company. “And I’m sure people will say our new print advertising campaign is impossible, too.” He clicked his remote again, and the logos of Cosmopolitan, Wired, People, and ten other flashy magazines surrounded the layout. “We’re in the process of purchasing a massive advertising run with—”
“Vait. Print?” Kielholz snapped. “You are do-ink zee print??” Of all the harebrained things bubble-era Web companies bled money on, none had gone out of fashion more rapidly (or appropriately) than print advertising.
“Well, if you’d rather talk about our broadcast campaign…” Jepson said, summoning a slide that featured a mocked-up TV screen displaying the ePetStore logo.
“What? Startink zee TV-advertisink?! You cannot! You burn over two millions per month already! You have less than ten months of kapital remaining until you are bankrupt!”
Jepson shook his head. “Five months with the new plan, Kielholz! Which means we need to raise money again. Fast! And lots of it. Now, I know, most people would timidly tap the brakes right now. But we’re gonna floor it! Because it’s time to suck all the oxygen out of the ecosystem for any would-be competitors.”
“Oh, no. NO!” Kielholz said. “I—am out!”
“Define…out?” Jepson said, fighting the sudden, giddy vertigo of a jailbird on the cusp of an impossible escape.
“You now have all of zee monies zat all of your remainink investors put in! Vee vill take ours!”
“I’m pretty sure we’ve been through that. Remember that…three-to-one-vote thing?”
“Fine! Vee take half! While zere are still cashes in the bank!”
An awkward silence began. Lengthened. Grew agonizing. Then, “Kielholz,” Jepson said. “I’m not sure if you understand. It’s not like ePetStore is some kind of…passbook savings account you can just withdraw from on demand.”