More Awesome Than Money (20 page)

He apologized repeatedly.

“I've got the car anyway,” I said. “I'll drive you down. We can chat along the way.”

He crossed the street to deliver the invitation. All four piled into the car. Hardly a word was uttered on the forty-five-minute
drive.

Yo, This Is Our
Internet

A
round a sleek conference table, jotting notes on legal pads and nodding, four partners from the venture capital firm listened to the pitch. The four Diaspora dudes had worn blazers and ties with their jeans for the occasion, which initially prompted a bit of ribbing from the ever-casual capitalists. Among them was one of their earliest and most persistent boosters, Randy Komisar. Not only was he not bothered by their lack of polish, it was part of what made them endearing. It was their first pitch meeting, and they were in the offices of Kleiner Perkins Caufield Byers, the JPMorgan Chase of Silicon Valley. Diaspora wasn't passing the hat for ramen money anymore. After the teasing had eased, they got down to business, running a slide show about the project and what they believed it needed to keep going. It was not until the seventeenth slide that they reached “the ask”—the amount of investment they were seeking from venture capitalists.

Kleiner Perkins was poised to hurl money at them. A few weeks earlier, Komisar had e-mailed Max, telling him, “Get in here,” Max reported. They made a date for the afternoon of March 8. They were turning a corner. The project—fueled by pizza, the buzz of being awake at two
A.M.,
the giddy plans to eat ramen and code for an entire summer in Max's family's basement, the thrill of building something disruptive—was over. Everything promised to their Kickstarter backers had been delivered.

For weeks, Max, who had assumed responsibility for getting their
pitch together, just as he had organized their Kickstarter campaign, struggled to figure out how much funding they should seek. He immersed himself in the vocabulary of start-up speak, the meaning of the various levels of funding, what a seed round meant as opposed to a Series A, and how each dollar of financing would shave another layer from the stakes of the founders. Given what they had pulled off with a little money and four guys who had no significant experience, Max believed, they had shown that Diaspora was for real. But he also felt sure the four guys had gone about as far as they could on their own, even with open-source contributions coming in at a robust rate. They needed to hire experienced engineers who could improve the code and make it run smoothly behind the scenes, and also bring sparkle to the features that the users saw. That took money.

He was sure they were in a ripe moment. The early, exuberant responses to Diaspora—even the idea of it—were like the flood of affection for Firefox when it emerged in 2004. He had a gift for reading history and seeing its reincarnational possibilities. From the folkloric history of Netscape, which the marketplace viewed as a colossal financial failure, the gaseous product of a twentieth-century tulipmania, he drew a more enduring lesson, of how a mythic, Internet-changing company liberated the web from the control of Microsoft, even though it was destroyed in the process. With huge venture capital investments, it had hired every available software engineer and designed iterations of iterations. Netscape did not just throw money at problems; it bombarded them.

“I don't necessarily know if we're Netscape yet, but we could be that place,” Max had mused a week before the pitches. “It has just captured my imagination recently. How do we promote sharing in a way that doesn't totally screw you and makes the Internet a better place? How do I build a place where I can bring these insanely smart people to come and love Diaspora? That's what it's all about. Finding people who are as passionate as we are, and building a whole organization of people who want to help us build the next version of the social web. We need to get this little hump of pitches out of the way.” During the planning, he called Yosem. For Max's purposes, Yosem had the highly practical credentials of working in consumer products at Procter & Gamble, and building online political organizing tools during the 2004 presidential campaign. Plus he coached people on how to make pitches.

Yosem had worked as the teaching assistant at Stanford with Randy Komisar, in a course that taught entrepreneurs the nuts and bolts of making pitches. They spoke about basic elements, like identifying a need or hole in the market, and how Diaspora would solve it.

“What do you think we should ask for?” Max asked.

“You should leave it open-ended,” Yosem said.

Max disagreed, saying that the group believed that an ask price was needed for the pitch, or else they risked looking like they did not know what they were doing. That did not make sense to Yosem. After all, they didn't know what they were doing.

“You can't pretend if everyone, especially investors, knows you have no prior experience in that area,” Yosem said.

Even so, Max insisted, they couldn't present themselves as naïve kids with some kind of summer project. So Yosem called a friend at another venture capital firm, and ultimately decided that the capital market for consumer web applications would support an initial investment between $2 million and $3 million.

The night before the pitch, they stayed at the Sofaer home in Palo Alto. The group was not happy with Max's first draft, and set out to revise the deck of slides. The opening sentence took six hours: “Diaspora is an open-source social-networking ecosystem that gives users control of their data and social graph.”

It wasn't poetry, but having it out of the way allowed them to move on to the rest of their presentation—including statistics about dissatisfaction with Facebook's privacy settings, and the traction that Diaspora had gained among developers, 4,000 of them following the project on GitHub, more than 100 of whom had contributed code changes. It had been translated into 32 languages. There were 350,000 e-mail addresses waiting for invites, a number that was growing. Some 48,000 people had liked them on Facebook, and 65,000 were following the project on Twitter. Just on their own pod, JoinDiaspora, they had 43,000 registered accounts, and of those, about 5,000 were active—meaning that they used it at least once a week.

“All we did was write a few blog posts (no marketing whatsoever),” one slide read.

“We work fast, have people's attention, and an exploding community—all on less than $200K.”

Yosem stayed with them for much of the night. With some dismay, he realized the presentation was a mess and had to be redone from scratch. It was like a homework assignment at NYU that was due the next morning with a $2 million grade potential. Still, he brought a center of gravity to the proceedings, his presence helping to dampen intramural squabbles over single words. He had volunteered to accompany them to the pitch meeting and help translate the VC-speak, but Max had said that only the original team members would be going.

There was one other area where Yosem's advice was sought but not heeded. On the slide for the ask, Max had written $10 million.

Yosem was flabbergasted. It was outlandish. His own counsel had been not to put any number in, but this number was five times what investors had suggested would be feasible.

“How did you come up with ten million dollars?” Yosem asked.

Max said that in preparing for the pitch, he had been consulting with Mitch Kapor. The figure made no sense to Yosem.

“It seems outlandish, especially since the team does not have any business experience,” Yosem said.

As the evening grew later, and the pitch began to take final shape, Yosem tried one more time to get them to be vague about the amount of money they were looking for.

“Take out the ask,” he said. “Leave it open-ended.”

“If we don't have it in, we're going to look very inexperienced,” Max said.

Moreover, one of the start-up gurus, Paul Graham, the subject of Max's never-completed senior thesis, had written that fledgling businesses should make their pitches assuming that they would never be able to raise money again. “It's the opportunity of now,” Max said later. “People are already screaming bubble.”

He'd thought about the coverage of their funding if their pitch succeeded, and the outrage over the extravagance of paying Diaspora. Soon, he was sure, there would be articles about the tech bubble, and how investing in Diaspora was an example of the lack of discipline.

“We will be one of the five points that show we are in a bubble,” Max said.

—

They all were up early on the day of the Kleiner Perkins meeting. Borrowing a car from Rafi's parents, they headed for Sand Hill Road in Menlo Park, an affluent ghetto of tasteful office buildings set back from the road, nestled in semitropical landscaping tousled into the illusion of wildness. Billions of dollars were invested from these minicampuses every year.

For ten months, Randy Komisar, a partner at Kleiner Perkins, had been their leading cheerleader. He was, in truth, a guilty pleasure. That he had dropped into their lives was so unexpected—and so discordant with the themes of their Kickstarter campaign—they had simply kept their mouths shut about him to the outside world. They just didn't know where it was going to take them, or what it would mean.

Six months later, at the beginning of March, they would find out. They expected, as Max said, that it would simply be a matter of picking among suitors. And in truth, Diaspora got past the gatekeepers at venture capital firms with the ease of cat burglars, able to schedule meetings with a single phone call, accomplishing in a moment what most start-up firms spent months hoping to wrangle.

There was particularly good reason for optimism at Kleiner Perkins. The partner dealing directly with Diaspora, Komisar, loved the team's endearing mix: Rafi's crystal-clear-headedness, Ilya's evangelical idealism, Dan's desultory eye for style, Max's ninety-mile-per-hour enthusiasm. It was Komisar who had suggested that Bill Joy go to speak with them. And it was Komisar who had offered them the use of the incubator space at Kleiner Perkins, an opportunity that had floored them. Practically every week, either Komisar or his associate Ellen Pao spoke with the Diaspora team to get updates. There seemed to be little doubt that he was favorably inclined. During the summer, he had told them that if they ran out of money, he would pitch in to keep them going. And later, he also told Yosem that he thought Kleiner Perkins would put money into the project. He told me that he expected them to. The only question was how much.

—

At the formal pitch meeting, Max opened with bullet points on the desire of consumers to control their identity, and the vulnerability of Facebook in this area, as measured in dissatisfaction expressed in surveys.
Diaspora was providing an answer. There was great public enthusiasm. The genesis story showed that. It was a friendly audience; while a few questions had a skeptical tone, most of them seemed to have the purpose of prodding them to think harder and deeper. How long were people staying on the Diaspora website? How much dissatisfaction could there be with Facebook if thousands of people were joining even as they sat in the conference room? Why hadn't they taken more of the people on their waiting list?

Dan and Ilya ran through a demonstration of the site, showing a home page of a user, and a page built around President Obama. All of this was familiar to Randy and Ellen, who had been tracking the project for months. Moving to the finale, Max turned to money, a topic that had never been discussed in any depth during the chats with Randy and Ellen. His mouth felt dry as he spoke.

What were their business opportunities? They could become a trusted holder of identities, so that people surfing the web were not picked apart in the free-for-all of online tracking bugs. Diaspora did not intend to block its users from sharing with commercial operators if they chose to do so. Diaspora was set up for individuals to make better connections and have more control. They would be the “PayPal of personal data,” Max said. How that would work was not defined with any precision.

He also then described a role for Diaspora as a platform for people who had created apps to sell their wares, much like the stores on Apple and Android products.

Before that happened, though, over the next year, they foresaw major growth in the number of users.

“To get there, we need more hands on deck,” Max said, displaying a color-coded chart that showed about three dozen jobs that would be added.

Finally, he got to the slide.

DIASPORA*

Putting users in control of their data

Seeking:

Two year, $10 million Series A

“We have a rocket ship waiting to take off. There needs to be a few more operators,” Max said.

There were no further questions. Handshakes, thanks for coming in, take care. Ellen Pao walked them to the door.

“We will call you,” Pao said. “You're going to be seeing other firms?”

They were, Max said, reeling off a few names.

She wished them luck.

—

Afterward, they met Yosem for lunch at a restaurant in the Town & Country Village mall in Palo Alto. He was eager to hear about the session, though he was certain there was no chance at all that they had left with $10 million. The only question in his mind was how much damage they had done.

“So,” he asked. “How did it go?”

“Their eyeballs did not pop out of their heads,” Max said.

Dan did not agree. In fact, he felt like an idiot. The number was obscene. He saw the faces of the VCs change expression when the last slide, the one with the number, went on the screen. Until then, it seemed to him, they had been open, interested in the project and the concepts.

“I immediately saw their faces change from ‘Okay, cool, I suppose' to ‘That's cute; we're done here,'” Dan would say later. “There wasn't that much talk after our last slide, and we were escorted out only by Ellen.” Rafi's assessment was the same. Ilya, who'd thought they were golden, was surprised by the others' reactions.

All was not lost, Yosem said.

“You should call Ellen and ask her for another chance,” he advised. “Tell her, ‘We are young and inexperienced, and we didn't know what we were doing.' Tell her you were just throwing a number out there because you had to, but you just want to work with Kleiner and will be happy to do so for whatever amount Kleiner thinks is reasonable.”