The so-called godfather of Silicon Valley, Ron Conway, toast of the town in 1999 after investing in scores of hot dot-coms, has produced one of the most humbling results for venture capital firms in history.
Conway, who threw lavish cocktail parties at his Atherton home, at one time was the social epicenter of Silicon Valley's Internet revolution. Through contacts he made over three decades as a marketing executive, including stints at National Semiconductor and Altos Computer Systems, he networked his way into the most outrageous -- and at the time high-flying -- dot-com deals.
They looked brilliant at the time -- Web sites focused on veterinarian supplies, weight loss, maternity, even a search engine that sought to figure out a buyer's mood.
Through his outfit, called Angel Investors, Conway invested millions of his own money, but also put money to work for people like Shaquille O'Neal, Arnold Schwarzenegger, Tiger Woods and Henry Kissinger. Tech heavyweights, too, like Bill Joy and Esther Dyson, entrusted their money to Conway.
Things aren't looking so great anymore. Last month, Conway reported his firm's latest results to his investors. One, Gary Kremen, owner of Sex.com and former owner of Match.com, was so infuriated that he shipped the Mercury News a copy of Conway's report. Kremen followed it up with loud, angry phone commentary.
To start with, Kremen lost $250,000 on Conway.
“There should be a court-ordered examination of someone who would invest in e-rugs,” Kremen declared.
In his report, Conway said he has invested the entirety of his first fund ($25 million) and second fund ($125 million), and that these have returned only 31 cents on the dollar, and 6 cents on the dollar, respectively.
Conway said his report was confidential, and that his policy wasn't to comment on confidential information.
To be sure, there's another $3.5 million and $20 million left in Conway's portfolio, which is the paper worth of his remaining stakes. They include portions of struggling companies like Burlingame's Flesher, and Wine.com and 12 Entrepreneuring, of San Francisco.
Even the most promising scraps aren't that impressive. For example, he invested in Google, one of the most dashing private companies around, and one likely to have a huge initial public offering within the next two years.
But Conway invested late, in September 2000 during Google's third round of financing -- when the company was already successful. That meant Conway paid a higher price for his stake. He has 94,429 Google shares, valued at $884,800. Even if Google does return him double-digit millions in a phenomenal IPO it won't be enough for Conway's investors.
The story underscores the hubris that was Silicon Valley in 1998-2000. Conway didn't have a clue about how to invest when he began in 1998, and judging from his report, committed every sin in the venture capitalist's book of commandments:
Thou shalt not invest good money after bad.
When companies funded by Conway's first fund -- Angel I -- ran into trouble, he dipped into Angel II to save them, and in many instances, they ended up dying anyway. People like Kremen, who were investors only in Angel II, saw most of his money going into floundering companies.
Thou shalt not sell shares obtained from IPOs, but return them to investors.
Usually, when venture capitalists put investors' money in a company that later distributes shares in an IPO, the VCs return their IPO shares to investors and let them decide when to sell. But Conway sold shares in PayPal after its IPO. And in a case of surprisingly bad timing, he did it before PayPal was acquired by eBay for a hefty premium, Kremen says, meaning investors were again short-changed. Selling shares also makes it a taxable item for investors.
Thou shalt know something about what you're investing in.
Conway knew next to nothing about technology. An assistant would print out an e-mail message so he could then read it and hand scribble a reply that she would then keypunch in, according to Industry Standard writer Gary Rivlin, whose 2001 book about Conway was titled ``Godfather of Silicon Valley.''
In the early days, Conway boasted to Rivlin that he'd earn a return of 1,000 percent on his investments. But by the time Rivlin finished writing his book, Conway confessed he'd be lucky just to get back his money, Rivlin says. Rivlin says he'd be surprised if Conway got half of it back.
Not that Conway was alone. He had two partners with him, Casey McGlynn and Bob Bozeman, neither of them experienced in venture capital.
Kremen also criticized McGlynn, saying he neglected to nurse the firm's investments, and instead returned to the safety offered by work -- and a $500,000 check -- at high-powered law firm Wilson Sonsini Goodrich & Rosati.
Neither McGlynn nor Wilson Sonsini could be reached for comment.
Kremen bemoaned the lack of justice in the valley. True, he conceded, failure is part of Bay Area culture, and Kremen said he failed on his first venture. But that's OK, Kremen said, if you try your very best to succeed.
“This is an example of where the ‘old boys’ culture should have taken a hit, and it didn't,'' Kremen said. “That's sad.”