No Better Time

  By late summer, Akamai had reached the one hundred sales in one hundred days goal set by Earl Galleher with new customers including Bluefly, CBS, eBags, GO Network, Martha Stewart Living, and Monster.com. But August—typically a quiet month—brought even better news.

  Akamai was featured in a flattering article in WIRED magazine under the headline “The New Cool.” Journalist Paul Spinard began the story with the lines “Paul Sagan said that Danny could leave the company to finish his PhD and publish his thesis, but then they’d have to kill him. Everyone else at Akamai is encouraged to complete their academic work, a slew of them at MIT, but Danny—they’d have to off him. He knows too much.” Spinard went on to liken Akamai’s technology to great historic shifts like the invention of Arabic numerals or the development of seafaring. Spinard wrote, “Tom and Danny knew with total certainty that, given their descriptions of the hot spot problem and the workings of the Net, the larger the network grew, the better their solution would perform. They not only had a solution, they had a solution that was literally—demonstrably—unbeatable.” Spinard then outlined Akamai’s competition, most notably Sandpiper, and ended the piece on the following note: “Either way you look at it, the stakes are high. The winner, if there is one, will have its hand in the major revenue-generating sites on the Web. More than any other company in the medium’s short history, the winner will own the Net—or at least the parts of it that pay.”{53}

  Akamai made headlines again when it entered into a strategic partnership with Cisco Systems, a worldwide leader in Internet networks, to optimize its content delivery service. Weeks later, Microsoft invested approximately $15 million in Akamai and partnered with the company to integrate its new software technologies into Akamai’s network. It had been less than a year since Lewin visited the Seattle headquarters of Microsoft to try to secure a meeting with an executive there. He was turned away, and when he refused to leave the building, he had to be physically escorted out. The next day, undeterred, Lewin returned. “Some people did try to say no to Danny,” recalled Leighton. “It just never lasted very long.”

  On August 20, Marco Greenberg sent an e-mail to Lewin: “Let me congratulate you on a most significant and exciting week in Akamai’s history. The announcement of deals with Cisco and Microsoft are incredible, and you deserve an enormous amount of credit in making it all happen.”

  Boosted by Akamai’s recent string of victories, Earl Galleher set a new, bolder sales goal: two hundred new customers by December 31. Galleher was fired up, but Paul Sagan was doubtful that the company could continue to grow its customer base at such a frenzied rate. “Sagan said to me, ‘No way,’” Galleher recalled. “So I told him, ‘I’ll prove it to you, and if I make it, then you will have to get up and dance in a hula outfit before the management team.’” Sagan shook on it.

  Chapter 9

  Overnight Zillionaires

  “The way to become rich is to put all your eggs in one basket and then watch that basket.”

  — ANDREW CARNEGIE

  IN JUNE 1999, after six months in business, Akamai had no profitability and a deficit of $10.8 million. It did have revenues of around $400,000, but 89 percent of it came from just two customers, Apple and Yahoo (75 percent from Apple, and 14 percent from Yahoo).{54} But at the time, no one really cared—the markets were in the grips of irrational exuberance. “The valuations have never been this outlandish, the participation quite this democratic, or the market quite so resistant to what always used to work,” wrote financial reporter Pete Barlas for Investor’s Business Daily.{55} In 1998, Internet IPOs raised $1.3 billion. By the end of 1999, that number had risen to a record $16.9 billion from 214 Internet companies, more or less at the rate of one IPO a day.{56}

  By the summer of 1999, despite the fact that Akamai had only been in existence for less than a year, market watchers were busy predicting the timing of its IPO. Rumors abounded that the company had filed a registration statement with the Securities and Exchange Commission (SEC). The message boards of The Motley Fool featured lengthy discussion threads under the heading: “Akamai IPO?”

  Even a year earlier, no one would have been talking about taking a tiny, largely unproven Internet infrastructure company like Akamai public so soon after its inception. Against the backdrop of a market that was experiencing frequent gains of more than 100 percent from IPO investing, however, the time frame from when a company got its first venture-capital financing to when it launched an IPO dramatically decreased.{57} Bankers were racing to sell deals as soon as they could pull them together, and the pace would continue as long as the market allowed. The shrinking timetable made some investors, and some of the executives at Akamai, slightly anxious. To push toward an IPO with no profits seemed almost reckless, but Akamai had a story to sell; a compelling one. “It’s true that the company had very little revenue,” said Todd Dagres of Battery. “But they convinced Wall Street that they were a unique company, a leader in a new category, and that they had the potential for huge growth. It was a sexy story.”

  That summer, the big banks started to court Akamai. In a series of back-to-back, hour-long meetings commonly referred to in the industry as the “bake off” or “beauty contest,” Akamai met with teams from twenty investment banks, each vying to lead the IPO. One in particular stood out, largely because of its leader. Chris Pasko, a thirty-four-year-old Harvard MBA, had moved to Boston in 1996 to open a new office for Morgan Stanley Dean Witter (now just Morgan Stanley) to target the region’s tech boom. Pasko said he didn’t love the technology per se, but he loved entrepreneurs. Likening his job to a pro football coach scouting college players for the NFL, Pasko said he met with several hundred up-and-comers every year—one after another promising big ideas and big gains. Of them, he had an eye for the best; he’d worked at Morgan Stanley early in the decade and saw the potential in companies like AOL when it had just 100,000 subscribers. Pasko had been flirting with Akamai since the start of the year, when he first met with Lewin and Leighton. After that, he spent as much time as possible with the two of them in an effort to understand how Akamai worked. “It was the most complex technology I had ever seen,” said Pasko. Of all the companies he scouted that year, Pasko and his team would take approximately five public, and they were determined to make Akamai one of them. The Akamai “bake off” took place over two days in July. By the time Pasko and his team made their pitch, Akamai’s executives had sat through about twenty hours of pitches from twenty prominent banks including Goldman Sachs and Credit Suisse. Pasko knew he needed to do something to stand out. “No matter how good you are, there’s always the chance that you’ll get lost in the shuffle,” Pasko said. The day of the meeting, he made a snap choice that could have backfired in a room full of techies and businessmen; Pasko went out and bought Hawaiian shirts for his team members, instructing all eight of them to wear them instead of suits. Pasko said he knew the shirts were a hit the minute he walked into the conference room and saw everyone grinning. “They were a loud, larger-than-life group, and they loved the shirts,” Pasko said. They also loved the presentation, which reflected a profound understanding not only of Akamai’s technology, but also of its market potential. It was a winning combination of quirkiness and intelligence; Akamai chose Pasko and his team at Morgan Stanley Dean Witter to lead the IPO, which was co-managed by Donaldson, Lufkin & Jenrette (now defunct), Solomon Smith Barney (now part of Morgan Stanley), and Thomas Weisel Partners LLC.

  The next step in the IPO process is one of the most tedious—the drafting of the prospectus, a document mandated by the SEC that contains all the facts necessary for prospective investors. The drafting took days, a job Pasko said is usually left to the bankers and company financial officers. Much to Pasko’s surprise, Lewin and Leighton wanted to be a part of the process, even though they’d never read a prospectus and had no idea how to write one. “Danny obsessed over that document,” said Pasko. “He read dozens of prospectuses and became an expert; I’ve never seen a company founder get so in
volved.”

  With the prospectus complete, Pasko’s team took Akamai on what’s called the “road show,” two weeks of traveling around the country and abroad to pitch the company’s stock to financial institutions before its public offering. Again, Lewin took Pasko by surprise by insisting that he join the road show. “You don’t typically see a scientist without an MBA or business experience out on the road show, but Danny was out there with us, giving the pitch,” Pasko said. “It was unique, and incredibly powerful.”

  Like most road shows, Akamai’s tour was grueling—involving full days of meetings in more than a dozen cities. But it was also a smashing success. After meeting with more than 200 financial institutions, Akamai had an order book, or a record of investors’ demands for available shares, that was at least thirty times oversubscribed. In addition, every one of the sixty accounts the group met with in person put in an order for shares, making what’s called the “one-on-one hit rate” 100 percent, which is exceptional. “It happens, but even then it was exceedingly rare,” said Pasko.

  In the weeks leading up to the IPO, Pasko and his team worked with Lewin, Leighton, and the rest of Akamai’s executives to price the stock for an initial offering of ten million shares. Pricing an IPO is as much art as it is science. The basic elements are supply and demand. And in normal times, when the markets are steady, banks usually factor in a discount to protect the company of about ten to twelve percent. But these were not normal times, and even to sharp bankers like Pasko, none of the regular rules made sense. His goal, shared by Akamai, was to have the stock trade upwards, sending the message that it was hot. Pasko led Akamai through what he still considers the script for a successful IPO process, always careful to remind everyone involved that the script didn’t guarantee a high-flying IPO. “Very few companies that did this back then made it long-term,” Pasko said. “They all got big pops in price, but they didn’t have viable business plans, and in the long haul, many of them died.”

  During the discussions over pricing, Leighton and Lewin asked countless questions. As mathematicians, they were frustrated by what they perceived as a lack of logic. If all the large banks were in for ten percent, couldn’t they use basic math to price the stock? Pasko reminded them of the risk of flipping: if everyone flips their shares, he told them, then the stock can tumble as much as eighty percent. (In 2012, this fate befell Facebook, which suffered a catastrophic IPO when Morgan Stanley priced its shares too high and sold too many.) “There’s really no math in it,” stated Pasko.

  On the eve of the IPO, the Akamai team traveled to New York to set the final price of the stock, which had the Street buzzing with anticipation. That week, Forbes magazine speculated that Akamai would make history, calling it “poised to become one of this year’s [1999] most explosive startups.” By 5:00 p.m. the night before the IPO, they finished, settling on an opening price of $26 a share. In keeping with tradition, Pasko extended an invitation to everyone from Akamai to stay overnight and stand on the trading floor to ring the opening bell on the exchange and watch the first orders for Akamai’s stock trade. Pasko was surprised when they declined, instead deciding to return to Cambridge and “get back to work.” So Pasko traveled with them and helped arrange for a live satellite hookup in Akamai’s conference room where they could watch the trades. It was the first time in Pasko’s career that a company had opted not to be at Morgan Stanley or the NASDAQ to celebrate the first trade of their shares.

  On the morning of Friday, October 29, 1999, more than one hundred employees gathered in Akamai’s conference room to watch company history unfold. Anne Lewin and Bonnie Berger joined the crowd. At Lewin’s urging, Pasko stood on a chair to talk everyone through the process as it happened. This was also a first for Pasko, who couldn’t help but think that, at a time when most people would be focused on just how much they would soon be worth, Lewin mainly wanted to know exactly how the IPO worked. “I kept thinking, ‘You’re going to be really rich in about ten minutes,’ but Danny saw it as another teaching moment,” said Pasko.

  Around 12:00 p.m., Akamai’s stock (NASDAQ: AKAM) opened at $26 a share. The first trade was over $100 a share. From there, it continued to explode. Over $1 million shares were traded that day.

  Cheers erupted, and glasses of champagne clinked. Lewin leapt around with excitement, while Leighton sat completely stunned, jaw agape as he watched the price continue to rise. “He was utterly shocked,” said Berger.

  On its first day of trading, Akamai’s shares closed at $145.1875, up $119.1875, or 458 percent. That valued the company at $13.12 billion, based on the 90.4 million shares outstanding. It was the fourth-biggest percentage gain ever for an IPO.

  The aftershocks of the astronomical IPO were felt far and wide. At the grillroom of the Four Season’s Hotel in New York, angel investors Art Bilger, Jan Wenner, and Peter Morton had lunch to celebrate the IPO. When they got word of the first few trades, Wenner was so thrilled that he let out a yelp.

  In Jerusalem, Lewin’s family watched the stock trade online. They gave thanks to Danny, who had generously given them all family shares that would make them wealthy, too.

  In California, Eric Lehman, Lewin’s friend and classmate at MIT, saw the news of Akamai’s IPO and remembered an official “friends of the company” letter he’d received months earlier from Lewin granting him some shares. He hadn’t thought much of it and stuffed it in a dresser drawer. That day, he dug it up and quickly ran the math. His shares were worth over $1 million.

  Akamai’s public offering didn’t just make history for its astronomical gains; it also created one of the most eclectic groups of overnight millionaires ever known up to that point.{58} A professor of theoretical computer science and MIT students, both full-time and part-time at Akamai, were suddenly worth more on paper than executives of blue chip companies. MIT itself reaped the rewards. Having agreed to license the technology Leighton and Lewin created at the university in exchange for 494,000 shares of Akamai, MIT held a stake worth over $90 million.{59}

  The biggest beneficiaries of it all, of course, were the co-founders: Professor Leighton and his former student, Danny Lewin. On paper, Leighton, 42, and Lewin, 29, were each worth more than $1.8 billion.{60}

  Marco Greenberg, who traveled to Cambridge for the day, easily recalled the euphoria of that moment—for him, Lewin, and everyone at Akamai. “Danny knew they had fired one shot and it hit the mark—boom, like a rifle,” he said. “It was a magical time. We were right there at the heart of the Internet revolution.” And they were rich—crazy rich.

  Lewin didn’t spend much time reveling in it. Almost as soon as the crowd filtered out of the conference room, he was busy telling people to get back to work. Greenberg remembered stopping in Lewin’s office before returning to New York. Lewin was already back at his desk but paused to share one of the congratulatory e-mails he’d just received. It was from Randall Kaplan, who applauded Lewin and noted that he had worked hard. Greenberg said Lewin, still angry with Kaplan for cashing out of Akamai so early, couldn’t resist sending back the following: “You’re right. I worked hard.”

  Then, in true fashion, he attended to business. A few days later, though, Lewin expressed a hint of regret for not taking more time to revel in the IPO. In an e-mail to Greenberg, Lewin wrote, “What a day Friday was … Thanks for coming to Akamai, and I’m sorry that I didn’t have more time.”

  In the two months after the IPO, Akamai’s fortunes just kept on rising. By Thanksgiving, the stock had climbed to $201 a share. Akamai doubled its customer base for FreeFlow to two hundred companies, including Bloomberg.com, CNET, Jobs.com, and Williams-Sonoma.com.{61} Greenberg was being inundated with press requests for interviews with Lewin, who declined in the IPO’s aftermath. An article in the December 3, 1999, edition of the Israeli newspaper Haaretz called Lewin “one of the richest Israelis in the world.” The paper also printed a comment issued by Lewin for the country’s media outlets, stating, “I wouldn’t hesitate to describe myself as a proud I
sraeli, who is on an extended shlichut (mission) abroad. So while I am convinced I will return to Israel one day, currently I am devoting my time and energy to building Akamai Technologies into a global high-tech power that we hope will have a big impact on the Internet.”

  Lewin also hinted at a future for Akamai in Israel, noting: “I would not be surprised if one day the company considers opening an R&D facility in Israel to take advantage of the country’s brainpower.”{62}

  At the end of the year, making good on his bet with Galleher over the sales challenge, Sagan stood up in front of the company’s management team at a meeting held at the Residence Inn in Cambridge and danced in a hula outfit (grass skirt, coconut top), which he changed in and out of in the men’s room. Akamai closed out 1999 with a New Year’s Day stock price of $327. It made no sense, even to Pasko. It was wealth beyond anyone’s wildest imagination.

  With the perspective that comes with the turn of a new year, and in this case, the turn of a century, most people involved with Akamai took what little time they had over the holidays to look back on 1999 and wonder exactly what had happened. In less than one year, a tiny startup out of MIT had grown to a company with a market valuation greater than that of General Motors. What’s more, it looked to most industry experts like Akamai had staying power at a time when the majority of dot-coms were already starting to report losses.