Good Is Good: The Need for Speed
Friday, April 06, 2012
I huddled in an upstairs hallway, the phone receiver pinned to my sweaty ear as I listened to music, on hold for a conference call. I was on a retreat in Vermont, staying at a bed and breakfast with just one phone line. My right leg jumped uncontrollably, causing the old wooden chair supporting my 6’3” frame—now shrunk down into a two hundred pound fetal ball—to creak noisily. I had started my own venture capital firm and named it Megunticook Management, after a lake in Maine with magical waters where my grandfather had bought a plot of land in the 1940s. I’d assembled a team of top Business School graduates to help me invest millions of dollars that I had raised from individuals and institutions. My team had assembled in this little Vermont town to plot strategy and bond on long mountain hikes, healthy dinners, and scary rental movies. But none of that matters right now. They were downstairs meeting without me. I was upstairs facing my destiny alone.
When a start-up company goes public, the owners of the business cannot cash out right away. A price is established for the company’s shares but the value to the owners of the business is purely on paper. The buyers of the stock in the initial public offering demand that the owners of the business hold their stock for a “lock-up” period of at least six months, and sometimes longer. They don’t want to buy stock in a company that then gets swamped by a wave of insiders selling their newfound wealth. The only exception to this rule is when the stock of an IPO trades so well that the company can go back to the capital markets in a “secondary” offering which raises more money for the company but also allows insiders to sell a fraction of their shares in an organized fashion.
I had organized a life-saving investment in a Boston-based technology company, Art Technology Group, the week before Thanksgiving 1997. The company had gone public June of 1999 and now, as I waited for the conference call to start, I realized that it was two years to the day since I had lead the investment in ATG. I scribbled on a little pad of paper the number of shares that I had been allowed to selling in the deal, less than ten percent of my overall holdings. I wrote the number down a second and then a third time, as if I was going to forget. Then I wrote the number down with a multiplication sign followed by a question mark and an equals sign. This was not calculus. All I needed was a share price to figure out the size of the wire coming into my account when the trade settled three business days later.
Finally, I heard a series of clicks as the CEO and CTO of ATG, the board of directors, and various advisors joined the call. I covered the mouthpiece with my hand, forcing oxygen in and out of my lungs in gasps waiting for the number. I heard words and more words. I didn’t say a thing. I couldn’t. Finally, it came. “$54 per share.”
All the twitching and huffing stopped. I had paid fifty-two cents a piece for my shares. And I owned a boatload of them.
I sat alone in my new apartment as Thanksgiving approached in 1997. I looked pensively out at the world below as I contemplated the need to take action to get my life back on track. I had finally gotten sober. But not drinking for eleven months didn’t help me figure out what to do with day after empty day. I had made some foolish investments in everything from bug-zapping machines to snowboards as a way to pass the time, but a college friend had introduced me to an internet firm started by a couple of software wizards. When I met the founder and front man, we chatted casually about technology I knew nothing about. His shoulder length hair was pulled back in a ponytail and he wore a satin shirt, unbuttoned a bit too low.
They say in AA: sobriety, family, work. Take life in that order and you will be okay. I had put my sobriety first and was trying to redeem myself as a father. But the question remained: what should I do about the business career that consumed me? While I made a chunk of capital as Chief Financial Officer at The Providence Journal, my financial responsibilities meant the money was not going to last forever. I took time off to get myself straight, but in the end I knew I had to go back to work while trying not to get sucked into the vortex that was part of my downfall. I wanted to be involved in a new venture, the complete opposite of the 176 year-old newspaper Company, in the hope that something fresh might replace the sinking feeling that lingers from the day the fall of 1996 when we announced that yes indeed we had sold the community trust, to a bunch of Texans no less. The public outcry in Rhode Island had been an exclamation point at the end of a hard fought battle that I had won on the outside but lost miserably in my soul.
I gave up the idea of taking another Chief Financial Officer job that I had been fantasizing about. I needed to stay close to my kids and my sober friends. I began playing around with the money I made in the Journal buyout, taking much larger risks than I should. It was better than drinking, but not by much. I invested in a snowboard company and lost all my money. I backed a guy with some revolutionary bug-zapping technology and eventually got my money back. I invested in an ill-defined educational software company. They were all risks for risk sake, playing slots because I was bored and even though the odds made it a sucker’s bet. But when I got to the offices of ATG, 101 Huntington buried in the Prudential Mall where I liked to take the kids on Saturday mornings, I had the gut sense that this one would require me to go all-in. An Internet design shop founded by a couple of Massachusetts Institute of Technology fraternity brothers, one of Indian descent and the other of Korean, ATG had blue-chip customers like American Airlines and BMG music who built their entire websites on ATG software. But something was missing.
I sometimes think that my research in Silicon Valley collecting job offers I would never take, just after getting sober, led me to Art Technology Group. It didn’t hurt to have some context to frame what these guys were up to. But I also needed something to do between AA meetings and my appointed sessions with the kids at the playground. When I walked into their offices for the first time, I felt at home. ATG was very much in line with the new attitude I was striving for, new and cool rather than old and tired. I was not the only one sporting Clark Kent glasses.
Despite well-known customers, ATG was running out of money, left for dead by the existing investors and passed over as radioactive by the financial community in town. As Thanksgiving approached, I started calling my Journal friends to put together a financing round to keep ATG alive. I called my old boss and his financial advisor, my largest potential investor. I walked over to the bay window in my apartment to look out at the bright red sunset reflected on the Boston skyline as I talked. My pitch was the anti-pitch. I didn’t consciously understand what I was doing or why. Something unknowable pushed me forward, some sense that this was a thing I had to do no matter how risky. I stuck to the facts, as I knew them, and made clear that the choice was his alone. Once I had secured the lead investor, I quickly went about nailing down commitments from the rest of my group.
Hat-in-hand, I approached my soon-to-be ex-wife and asked to be permitted to invest. She agrees to a modest amount, less than I asked for, as long the dollars came out of my side of the ledger in the final divorce settlement. The company was a breath away from certain death. Payroll had been repeatedly delayed. Employees had grown weary of broken promises. But my gut told me this might be a good gamble. Besides, I still felt I had so little to lose it didn’t really matter if it worked out. My life couldn’t get worse.
ATG came up in conversation with Bradley, my crazy rowing buddy and New York roommate. He asked me whether he could participate. Out of his loyalty, I told Brad he could invest, even if the amount was much smaller than anyone else in the syndicate. The night before the deal was to close Brad’s wife Patti, a bright attorney at a top NYC law firm, called to grill me. She was highly skeptical about ATG. I told her I didn’t disagree. It was totally up to them. I didn’t really care either way. She hung up saying they would pass. Somehow overnight Brad was able to prevail on his wife and the next day they became the last member of the group of angels collectively making an investment of well over $1 million in Art Technology Group.
The company’s offices were just around the corner from my apartment, so I often stopped by to catch up with the founders. I knew precious little about their products. But I had always found solid financial analysis a key ingredient of success. Things that are measured—revenue, bookings, expense, cash, productivity—have an uncanny tendency to improve. My role in life had been to count the beans. I pounded the table when the numbers were moving in the wrong direction, getting louder and more violent, until something changed or people were lying glassy-eyed in pools of their own blood.
With my new company stabilized, I had a cash flow problem of my own. I had made two million dollars in the sale of the Journal. But I had plowed a big chunk of that back into illiquid investments. My ex-wife was forcing me to take those investments in the divorce, leaving her all the remaining cash. With alimony, child support, and rent to pay I was in quite a bind. I could always get a job. But I wanted more time to make sure I could stay sober. In the final negotiation, she agreed to take one third of my investments and give me one third of the cash.
By Thanksgiving 1998, the first anniversary of our investment, our company was on a roll. We were attracting new customers in waves. On Wall Street the Internet gold rush had begun as every Amazon doubter had been promptly run over by Internet stock prices stampeding for the moon. Everything you could attach a “.com” to was headed for an IPO. So we planned our Initial Public Offering.
The company went on the customary “road show” to meet with institutional investors across the country and throughout Europe. In July, after their very last meeting, Jeet Singh and Joe Chung phoned in from a limo parked along from Sand Hill Road in Silicon Valley, the technological capital of the world. The rest of us huddled in Boston for the call on which the bankers would offer the board of directors a price for our company’s newly issued stock. We would accept it, whether we liked the number or not. An IPO pricing call is one of those moments in life that is supposed to be negotiable, but in reality it is not. By that point, every company is as pregnant as a woman whose water has just broken. The bankers take advantage by forcing a “discount” upon the issuer for the benefit of their most important clients, to whom the bankers allocate most of the offering. They say a ten percent discount is important to insure the stock gains momentum on the first days of trading. During the Internet bubble, the discount was a heck of a lot more than that. But I didn’t care. Even at the artificially low IPO price, our shares were valued at twenty-five times what I had paid for my shares.
After moving back to Boston, I find myself drawn to the waterways of my childhood. I find the quiet stillness of these places a source of serenity like no other, putting my human frailties into perspective and filling me with some peace of mind no matter how desperate my day-to-day struggle on dry land.
While we lived in Amherst, where I grew up, the boys in the family would regularly set out for Boston to go to one of the museums. One winter morning, we planned a trip to the aquarium with my brother Will and our two cousins Tim and Peter in tow. My father decided it was important for us to stop at Walden Pond to show us where Thoreau had written his famous book. It was snowing as he drove our blue Volvo part way down the long driveway to the pond’s edge. There was not a hell of a lot to look at. One frozen pond in a blizzard is pretty much like another was our thought. But he tried to explain why this spot was so important and may have even forced us to sit through a little reading on civil disobedience. We were not pleased but met the whole enterprise with humor and gentle cynicism. Finally we were ready to leave for the aquarium.
The Volvo quickly got stuck trying to get up the steep pitch of the driveway. The kids piled out. As dad hit the gas, we pushed as hard as we could to free the back tires from the increasingly large snowy sink hole. Dad was upset but dutifully got out of the car and told us to wait while he walked out to get help. A tow truck eventually came and attempted to pull us out. That tow truck also got stuck. The driver of the first truck called a second tow truck. As the sun went down the second tow truck, chained to a tree, pulled out the first truck which was still chained to the Volvo.
After moving into my Commonwealth Avenue single dad bachelor pad in 1997 I found myself driving West on Route 2 from my apartment in the Back Bay, headed for Walden Pond on a regular basis to walk the perimeter, swim, and sit in meditation. I try to summon up the sense of purpose that Thoreau had written about and my father had tried to pass along in my childhood.
But the night after ATG goes public I go to Walden Pond for a swim to thank the spirit of Henry David Thoreau. By getting sober I felt I had finally lived up to Thoreau’s aspiration to, “live deep and suck out all the marrow of life.” I knew the meanness of the world Thoreau wrote about intimately, but I want to taste the sublime. This was a step in that direction. I had saved a company from certain death and played a pivotal role in its success. I dove in headfirst to celebrate.
In the weeks that followed the wire I had received exactly three days after the phone call in Vermont, my life changed forever. I owned a paper fortune and became obsessed with turning paper into gold. I wanted desperately to take my ATG shares and trade them for Treasury Bonds, but I had to wait and agonize over my fate.
The market capitalization of my little turn around project had continued to increase, but was restricted from selling by the IPO “lock-up.” In February my remaining shares would become freely tradable. Many a hedge fund trader had made a killing by shorting a high-flying stock like ours, whose value was many times what could be justified by any fundamental financial analysis and who’s stock price had to be impacted negatively when large insider holders of shares, like me, finally were able to sell their positions. I was sure that our stock would take a massive hit the day I finally became liquid, it was just a matter of how massive.
I was in New York City for New Years Eve at the turn of the millennium, going to parties with sophisticated people who drink and pair off while I stand around awkwardly by myself. On the last day of trading in 1999, New Year’s Eve, ATG crests at $100 per share for the first time. Brad and I go for a long run in Central Park to celebrate. I am still nervous lock-up. But on the run the gently falling snow calms my nerves and there’s a whisper in the back of my mind that maybe, just maybe, this time there is no second shoe about to drop. Perhaps I have finally done something good, with no dark underbelly.
On a cold winter morning, icy and raw, I got to work early to shut myself in my office to find out the fate of my stock. I wanted to face my destiny alone. I tried to tell myself that the money already in the bank was life-changing as I sat and stared at my computer screen in silence. After an agonizing twenty-minute delay, I saw first trade of the day clear. I couldn’t believe my eyes. The volume was enormous, but the stock had traded up! Arms over head, I shouted with the animalistic sounds of redemption.
In the next six months I methodically liquidated my position. Soon ATG, like all technology companies, fell back to earth in the aftermath of 9/11. The stock peaked at 500 times my cost basis just after I was done selling everything. This one time my intuition could not have been more perfect.
Wealth is not all roses, but it sure doesn’t suck either. I bought a farm in Topsfield for the kids to run around. I bought the Porsche, like an idiot. Then I realized that who I was, the important stuff that made me of value and the stuff in my life that drove me crazy, really hadn’t changed.
My day-to-day needs got a lot easier. But the basic question that had always plagued me, the feeling of isolation in a foreign world, was made more difficult by the money. I had to find a way to live in my new life and be myself and find ways to connect with people. I found that wealth has a way of warping people’s perspective sometimes, not necessary that of the people with the money but the people who don’t and who are staring at the people who do.
In the end, I realized the ATG jackpot didn’t really matter. And if I went into every situation with that attitude the people around me would follow suit. Like my alcoholism I did nothing to hide it, but I also didn’t flaunt it either. Many of my friends in AA were amazed to realize well after the fact that the kid riding around on the push scooter was actually filthy rich. That’s why the Porsche became such a thorn in my side. It’s just that every time I thought of selling it I would take it for a midnight ride out Route 2, by Walden Pond, by Concord Prison, to those wide open stretches of road where you can go 150 mile per hour without anyone knowing it. It wasn’t being seen in the car that I cared about—it actually pained me greatly—it was the feeling of speed that I couldn’t give up.
For more of Tom's works, as well as other pieces on related topics, go to The Good Men Project Magazine online, here.
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