The Dinner Club: How the Masters of the Internet Universe Rode the Rise and Fall of the Greatest Boom in History by Shannon Henry, Paperback

Product Details

ISBN-13:	9780743222167
Publisher:	Free Press
Publication date:	07/27/2007
Pages:	304
Product dimensions:	5.50(w) x 8.50(h) x 0.80(d)

About the Author

Shannon Henry is a journalist who has contributed to The Post, TechCapital, and Washington Technology, and American Banker over the course of her career. She earned her BA from Boston University and a master’s in journalism and public policy from American University.

Read an Excerpt

Introduction

A few members of the club are gathered at a hotel bar on a warm fall evening, drinking wine and telling stories. With furtive glances of the kind usually reserved for watching stock prices as they scroll across the bottom of the screen, they look up at a television to check on their candidate.

They have weathered much together over the past decade, in business and friendship. Few are billionaires anymore, but most have emerged from the Internet boom and bust with many millions of dollars and an insatiable desire to chase the next challenge.

Tonight, on election eve, they are at the Richmond Marriott to support Mark Warner's quest to become governor of Virginia. Several of the Capital Investors, whom Warner calls "the boys," have swooped in on private planes to watch the first of their own compete for such an office. The news of victory comes first by a cell phone, seconds before the television anchors had word. They rush out from the bar, leaving tables of food and drink, hurry into the elevator, and travel up to the friends, family, and big-donor suite to clink champagne glasses with the winner and new governor-elect, Mark Warner.

This is a great moment. But along the way, it was not all parades and acceptance speeches.

On the verge of the Internet boom, this group of friends, the Capital Investors, began meeting once a month for dinner. They would listen to investing pitches, enjoy fine food, and use their relationships to make the most of the unusual opportunity at hand.

I saw them as a microcosm of the best and the worst of this time, and after writing about the group for The Washington Post, I asked to cover their dinners for a year on-the-record. The group had become known as the "Super Angels," because they were angel investors, a term used for wealthy individuals who fund companies, and they were the richest and most powerful of these private investors.

It was never easy with these guys. In fact, so many things were going so badly at one point during my reporting for this book that the group booted me out. The market was crashing, the members' investments were faltering, and even some of their own companies were teetering on bankruptcy. There was no good news and simply no reason to let a pesky reporter see them at their worst.

The group had agreed to let me in to a certain number of dinners, but then wanted to reassess my continued on-therecord access. The vote to kick me out came on a rainy night after a particularly delicious dinner at Restaurant Nora.

I was waiting in the main room of the restaurant with an entrepreneur who had presented his business plan to the group that evening. Toward the end of each dinner, start-up founders looking for money are brought in to pitch company ideas to the group. The Capital Investors then decide, that evening, whether to invest, or not.After dessert was served,we were shuttled out of the private room so the investors could make a decision about us.

The members finally walked out, averting their eyes from me, except one who sheepishly whispered, "Call me tomorrow. I'll explain." A couple of them went over to the entrepreneur and patted their hands on his back in congratulations for scoring the funding.

As I searched for a taxi in what had changed from a drizzle to a downpour, I started to panic. The book I wanted to write, had promised to my publisher, and had taken time off to do, was not one that could depend merely on an outsider's view of this dinner club and their activities. This was to be a book where the reader heard the language of the characters and felt as if he were at the table with the members.

It was an agonizing month for me, but thankfully, a wonderful mixture of vanity, trust, and worry got the better of the members and they promptly voted me back in at the next meeting. I'd seen their mercurial temperaments at work while discussing investments and ideas, so I wasn't particularly surprised about the sudden change of heart, although I was much relieved.

I started working on this book a few months after the famed Internet "crash" in the spring of 2000. I'd been covering technology since 1995, first as the Internet and telecommunications reporter for Washington Technology, then as the founding editor of TechCapital magazine, and since 1998 as a columnist and staff writer for The Washington Post.

As a former banking reporter, I was interested in how technology companies were funded and how money fueled concepts that possibly could lead to life-changing technology. But I was also fascinated with the minds and personalities at the top level of these companies. They created a culture that seeped down throughout their ranks, from planning company cruises to handling layoffs. They had wacky visions and enormous egos. But as crazy as these men can be, they think big.

I decided to write this book because an unusual era was ending, and though it is often difficult to see things clearly while they are happening, I felt that if too much time went by, recollections of what occurred would fade away. And I wanted to show that this technology boom and bust did not occur only in the confines of Silicon Valley.

I briefly considered doing a modern history of the Internet. But, like most reporters, I wanted a story no one else could tell. The Capital Investors would be the story because they were the ultimate inner circle of technology power.

Having come up with an idea for the book, I now had several challenges. First, I had to convince the Capital Investors to let me into their dinners on-the-record. There would be no agreements about off-limits subjects or promises to read the manuscript before publication. In addition, I also requested that they not let any other reporters into the dinners for the time that I was working on the book. Second, I needed the support of the Post, and third, of course, a publisher.

Why exactly the Capital Investors allowed me into their world begs the question of why anyone bothers talking to a reporter in the first place. People, in general, are pleased when asked their opinion. It involves pride. But I think many in the group have been so busy living this time that they liked the idea of someone stepping back to analyze and preserve the moment. They are too dizzy now, even, to make sense of what happened.

At the dinners, I sat at the table with the members of the club, ate the same meals, and watched entrepreneurs present their plans in hope of recognition. I briefly considered not sitting at the table, but that would have been more distracting. I like to think my presence didn't alter the dinners in any way, but that is impossible to know. Members say they acted no differently when I was there, and they did seem to forget about me once the evening began.

Outside of the dinners, I interviewed the members, their families, competitors, and numerous acquaintances. Some individual members I interviewed many times. Many were unfailingly cooperative, offering insight and thoughts in person by phone and email. Others begrudgingly went along, wondering what would come of it and what exactly would end up in print.

Like the individual members, these dinners took on moods of their own. At one particular meeting, it was clear from the beginning that the night was not meant to have the festive, freewheeling atmosphere of so many other evenings. Two founders of companies in which the group had invested stood before them explaining how they'd burned through all of their investment and needed more to survive. It looked like some of the smartest men in business had bet on a bunch of losers.

But not only were the Capital Investors' investments dying, some of the members' own businesses were struggling to survive and every day their stock prices were sinking lower. Bad news was pelting them like little stones as they sipped their wine and shook their heads. It looked bleak. Was it over?

But really, much of the weeping consisted of crocodile tears. Most of the group, fueled by a mixture of ego and newfound fear that they were not invincible after all, began to plan their new ventures. But it was now obvious that none of them was immune from losing everything.

In the mid-1990s, many of those with the clearest opportunistic vision focused on the Internet as a way to explore new ideas and create personal wealth. In another time, these same people would have targeted a different challenge. In Washington, D.C., a couple dozen multimillionaires, including the founders of America Online, the vice chairman of Nasdaq, and the vice chairman of WorldCom, decided to strengthen their chances by forming a dinner club.

Some things were certain: Meetings would be held monthly in a posh restaurant, where they would gather to consider startup investments. Other things were less sure. How would the members help one another and what would they learn from one another? Would they change the next generation through their investments and advice?

All-male, the Capital Investors became a new boys' network. They angered some people because they didn't have women members and because their investments at times seemed haphazard. They were often condescending to entrepreneurs who endured the carnival atmosphere of presenting to the group. "It's like a Friday-night frat house," says Russ Ramsey, chairman of the group.

But it was also a rare place where men with unusual new ideas could challenge one another, with the assumption that they understood a common language. It gave them a refuge from the savage business world. At the dinners, they were among friends and let their guard down to relax.How long this self-selected network will endure is unknown. They will continue to meet as long as the dinners are useful and entertaining, which could be forever, or until tomorrow. As the economy faltered and glory days faded, they relied on one another more than ever — for money, favors, votes, and guidance. They were already reinventing themselves.

Ramsey, reacted to the tech crash by creating a combination of a hedge fund and a private equity fund to invest in ailing companies, often called a "vulture fund."

AOL executive Ted Leonsis and web design company founder Raul Fernandez had become fledgling sports moguls and convinced Michael Jordan to come out of retirement to play for the Washington Wizards. Mario Morino began a "venture" philanthropy fund — designed to treat charity like business — that was praised by the corporate-minded but drew questions from traditional philanthropists. AOL co-founders Steve Case and Jim Kimsey moved beyond the technology arena: Case as an international media executive and Kimsey as a self-styled diplomat, occasionally traveling to Colombia to try to broker peace between the rebels and the government.

But alongside the successes there were failures and bitter disappointments, too, and like any group of people, some individuals would do better than others. Several members struggled to keep their companies afloat.Michael Saylor was shaken after settling a lawsuit filed by the U.S. Securities and Exchange Commission and watching his MicroStrategy stock price drop from $333 a share to merely $1. Saylor called the SEC investigation a "witch hunt."Others saw it as the highest-profile Internet fraud accusation of the era and a pivotal moment in the technology market collapse. The way some of the Capital Investors tried to help Saylor rebuild trust while others left him to fight on his own demonstrated the dynamics of the complex relationships among the members.

John Sidgmore staked his considerable reputation on trying to revive the struggling but still No. 2 telecom company, WorldCom, moving from vice chairman to chief executive officer in spring 2002. But shortly after, the company was felled by a massive accounting scandal. Soon after, WorldCom filed for the largest bankruptcy in U.S. history. The WorldCom saga became a symbol of corporate greed and misdeeds.

In the summer of 2002, the three AOLers of the group, Case, Kimsey, and Leonsis, saw their stock pummeled and a general declaration that the two-and-a-half-year-old merger of AOL and Time Warner, once hailed as genius, was a failure. Former executives of the combined company blamed the problems on the company's Internet arrogance, saying AOL had marched into the deal thinking it had a superior "DNA"to traditional media companies.

"An infectious greed seemed to grip much of our business community," said Federal Reserve Board Chairman Alan Greenspan in July of 2002, attempting to explain the excesses of the late 1990s.

As the members were having these adventures, a new ideology was formed during the late 1990s and early 2000s. It was a different way of thinking represented by people who were richer, younger, and more idealistic than those who amassed wealth in the 1980s. They don't just want to leave their money to heirs, but instead they crave the instant gratification of seeing it spent in ways that might change something, now. These people are important to know because their cash and power will be felt well beyond their own children and the beneficiaries of their foundations.

There is friction, however, between the tech elite and those who dislike them because they're rich and accustomed to getting their way. As they move into new realms, the Capital Investors are challenged by people who say that although they may know technology and finance, they have little grounding in media, sports, philanthropy, and politics. And they do have to live down some of the craziness.

But those who flourished in this Internet age of course lapped up the attention and reveled in over-the-top performances. The front of one invitation in September of 1998 read Celebrate the Great Gatsby!

"It was an age of miracles, it was an age of art, it was an age of excess, it was an age of satire," it declared. It was also the sixtieth birthday party of AOL co-founder Jim Kimsey, a man flush with Internet cash. The Roaring Twenties seemed back again, if only for a moment.

The party was held at F. Scott's, a bar in Georgetown, and the AOL-ers and other guests wore boas and flapper dresses, zoot suits and wide-brimmed fedoras. Kimsey introduced himself as Gatsby that evening and his financial adviser and girlfriend at the time, Holidae Hayes, as Daisy. It was pretend, but strangely real. Actually, Kimsey probably has more money than Gatsby could ever imagine.

A penchant for the '20's era was common among other Internet millionaires and the members of the club who naturally related to Gatsby's brief but intense sunny moment. Software entrepreneur and philanthropist Mario Morino held his 2000 annual Christmas party for 200 friends with the theme of '20's gangsters and rumrunners. But by then it was the end of an era,with some of the members' companies filing for bankruptcy and others moving on to loftier ambitions.

Some of them recognized the ridiculousness of it all and didn't hesitate to mock themselves and their time. Surely, if Gatsby had existed in the late 1990s, he would have been an angel investor or venture capitalist.

As individuals, the Capital Investors are twenty-six very different people. Several have enough greed for the whole table; others are confident but modest. "Each of us has our own drummer we listen to," says Bill Gorog, the oldest member of the group, who was one of the inventors of the LexisNexis system. But there are several things most of them have in common. They are not trust-fund wealthy, and many of them grew up poor and are self-made. Many of them were told at some point that they couldn't accomplish a particular goal, and they have a passion to prove that naysayer wrong. They had an interest in technology before most people saw its true promise. They want to change the world in some way,which, depending on how you look at it, is admirable or frightening. Another common trait is a restless idealism that sends them perpetually in search of something, especially after they have achieved the last mission. This impatience, especially for the younger members of the group, is physical. It manifests itself in tapping feet, the tendency to rearrange silverware, the simple inability to sit still. Group member and venture capitalist Art Marks calls it "achievement disease." "If you're not achieving, you're not breathing," he says. "No one in the group can rest."

The Capital Investors can be bratty and unpredictable in these meetings. At one dinner, Steve Case asked a presenter whether his technology made it easier to telemarket during supper time. When the answer was yes, Case threw a roll at the entrepreneur. But the members can also quickly understand an entrepreneur's technology, give sage advice, and when the mood strikes them, genuine encouragement. Many of them do seem to remember that it was not so long ago they were in that newcomer's place.

"One on one they are fairly benevolent," says Esther Smith, who co-founded business newspaper Washington Technology and has been friends with several of the members for years. "But as a group they can be destructive. I've advised companies not to go to them." Smith, who now advises start-up companies, says that's because if the entrepreneur is turned down, his reputation could be marred by the rejection.

What turned out to be the real downfall, of course, was that many of the companies created during the Internet frenzy simply didn't have profits or customers. Much of it turned out to be a lonely and dreary fairy tale. The story wasn't true. "They were Hollywood façades," says Washington venture capitalist Jack Biddle about some of the biggest-buzz technology companies.

Not all of them were fakes, however. New ways of communicating and doing business evolved during the era. And the members of the Capital Investors were bigger players than the tiny dot-coms.

There is something oddly familiar about the rise and fall of technology in Washington, a city where people's fortunes and reputations are often decimated by a single act or a prevailing vote. "Everything in this town is a trend, whether it's the fouryear term or health care," says Raul Fernandez, a former Capitol Hill staffer who founded and sold a Web design company, watched his wealth go from $1.1 billion to $211 million, and became partners with Michael Jordan.

"It was a once-in-a-lifetime convergence of events," he says.

It was also an age of entitlement, where not only the Capital Investors, but start-up entrepreneurs and everyday investors thought if they didn't become rich during this time, something was wrong with them.

Many of the members of the Capital Investors are what anthropologist Michael Maccoby calls "productive narcissists," creatures of an economic boom and the fast-paced technological innovation that came along with those times. "They've always done things that others say can't be done," says Maccoby. "The fact that this country produces people like that has pros and cons. You could get into trouble or you could do great things. There's something both wonderful and incredibly naïve about these people."

Great opportunities at unsual moments in time draw obsessive, driven people like these who rose and fell in the first generation of the Internet era. Marc Andreessen looks at it this way: Better they are capitalists than dictators. "They could be out raising armies and starting religions" instead, he says. "You don't want these people loose on the streets. Building a company allows you to optimize your personal gain and affect social good. It's the only place they are socially useful. "

Now, this new club is changing the economy and culture in a way that they hope will leave a legacy bigger than a monumental bank account. In fact, merely making more money has lost appeal.

Raj Singh, an immigrant from India who grew up without running water or a telephone, has a net worth that has fallen from billionaire level to that of a mere multimillionaire — from $4 billion to about $500 million, by his estimate. He feels he has helped transform the American economy.

"You make $100 million and you feel very excited about it. But then you make the next $200 million and it's nothing," says Singh. "It makes you want to do something else. "

Only certain types of people are willing to risk everything. These tycoons, at once brilliant and boorish, shaped this era as much as it molded them. They developed an addiction to the speed and impact of technological change. And now, they are not content to stand still. They are armed with the money and influence of a time that for this generation may not come again.

	Cast of Characters	XI
	Introduction	1
Chapter 1	Ritz-Carlton Hotel, Washington, D.C.	15
Chapter 2	The Beginning	26
Chapter 3	Morton's, Tysons Corner, Virginia	44
Chapter 4	The Heyday	54
Chapter 5	Restaurant Nora, Washington, D.C.	91
Chapter 6	The Crash	100
Chapter 7	The Georgetown Club, Washington, D.C.	136
Chapter 8	MicroTragedy	151
Chapter 9	The Greenfields' House, Potomac, Maryland	183
Chapter 10	Exit Strategies	189
Chapter 11	Citronelle, Washington, D.C.	218
Chapter 12	The Portfolio	228
Chapter 13	Teatro Goldoni, Washington, D.C.	240
Chapter 14	The Election	247
	Acknowledgments	271
	List of Investments	275
	Index	277

Interviews

Speaking with Shannon Henry

Q. How did you get the idea for this book?

A. I wanted to write a book about the movers of the business world for this generation -- the Vanderbilts and Fords of our time. These are usually complicated figures full of bravado and other qualities -- good and bad -- that help to define an age. When I heard about the dinner, I knew I had to get in -- and I did. It was a rocky road -- they wanted me there and they didn’t. Ultimately, their egos won out and I was allowed to stay, after being banished for a while. This story is about a group of men who thought that they were different. That the bad stuff wouldn’t happen to them. They even said that. But it did, and this book is the only way to read what they thought and how this all happened.

Q. How is this book different from other books about the rise and fall of the dot-com economy?

A. For the simple reason that this is not a book about the dot-com economy: It is about the people behind American business and culture today. My exclusive access to high-rollers such as John Sidgmore of WorldCom, Ted Leonsis of AOL, and Virginia governor Mark Warner has given me a unique perspective on them, bringing readers up close to those who make the important decisions, to understand their multifaceted motivations -- from greed to creativity. For the most part, these moguls are not gods or monsters, but real people somewhere in between.

Q. Why did the group kick you out of their dinners?

A. Technology companies were being particularly battered in the markets, and it seemed silly and somewhat dangerous to have a reporter around chronicling the devastation, so they voted to kick me out. (Thankfully, a mixture of vanity, trust, and worry got the better of the members, and they promptly voted me back in at the next meeting.) The group disagrees on many issues, and indeed I heard that my book project caused one of their greatest rifts. Those who didn’t want me to be there actually understood early on how public perception of technology entrepreneurs and financiers would turn from rock-star status to charlatan. I’d seen their mercurial temperaments at work while discussing investments and ideas, so I wasn’t particularly surprised about the sudden change of heart.

Q. How will our perceptions of CEOs change after reading The Dinner Club? What does this story tell us about the larger picture of business today?

A. This book will help people understand what’s happening in business today by letting them hear how CEOs like Steve Case and John Sidgmore talk to each other, the language they use in private, and how they make their own choices. The Dinner Club shows how even the mightiest can fall -- that the people who are up one minute will be down the next. Witness the rise and fall of MicroStrategy’s Michael Saylor, one of the clearest examples of Internet hubris. It shows that personal relationships matter: From the beginning, the networking aspect of the club has been as important as the investments made. These are carefully chosen friendships for people who don’t have time for friends. It shows that true technological innovation -- think about how often you use the Internet -- can change our lives. It shows that even CEOs should diversify financial holdings. Saylor, for example, lost $6 billion of paper wealth in one particularly bad day. Former Teligent chairman and CEO Alex Mandl never sold a single share of Teligent stock, worth nothing today.

Q. With this summer’s [2002] news of accounting scandals and troubled mergers, how is this story even more relevant?

A. It gives perspective. The story of these 26 men is the story of how American business got to where it is today. It shows what can happen when things go wrong -- from placing bets on an unfortunate horse to bookkeeping scandals. And it shows what can happen when the right ingredients align -- when people with an uncanny sense of timing and luck place themselves in the path of an unusual opportunity, like the current governor of Virginia, Mark Warner, who made his fortune from telecom investments. Also, although many of the members of the club have been transformed from billionaires to mere multimillionaires, they still have tremendous influence and cash: Ted Leonsis is running a sports empire; Jim Kimsey is trying to broker peace between the Colombian rebels and government. How they will use their resources now will affect us all.

Q. Has the direction of the club changed since the fall of the economy? What have the members done since the crash, and what lessons can we learn from them?

A. Some of them saw the crash coming and had already begun to reinvent themselves. Raul Fernandez sold his company and became a hockey team owner; Mario Morino developed a “venture” philanthropy fund; Jeong Kim became an engineering professor at the University of Maryland. Several others, including Russ Ramsey and Jack McDonnell, saw the crash as a new financial opportunity and traded on that knowledge. The ones who fell hardest didn’t take other peoples’ advice, didn’t look up to see how the world was changing. It’s often difficult to understand what’s happening while you’re in the middle of it, and they got stuck. They also didn’t understand some of the accountability issues that come with being the top person at a company. And, bolstered by their early success, many of them had a sense that they would be immune from business troubles, that enough money can do anything, and that they didn’t have to play by the traditional rules. It’s become much more of a support group. You can feel the mood of the economy at that moment when you are at dinner with the club. It used to be clinking glasses and celebrations, then somberness, and now it’s crisis mode. The group is a barometer of their time.

Introduction