For me, getting involved with James Tauber as a co-founder of Eldarion didn't require a whole lot of thought. While I was never much of a web programmer, I understood enough about what he was proposing to recognise the potential in his vision. In fact, my brief involvement as an investor in a company built around what was arguably one of the first open source web application frameworks had me extremely interested in Eldarion right out of the gate.
This web framework that I speak of was the ArsDigita Community System, or ACS, which is now known simply as OpenACS.
While it may not have been the first open source WAF, it certainly was among the first, and the business that ACS founder Philip Greenspun built up around it in the mid to late 90's was pretty amazing. In less than two years, he managed to grow the company from zero to about 20 million/year in revenue with no funding or support from outside investors.
Philip was nothing short of a pioneer with his work on building web communities and open sourcing a WAF like the ACS. His books and blog posts left quite an impression on me, and while I didn't head down a more web centric path until joining up with James on Eldarion, a lot of that experience and certainly looking back on it now as someone involved in a similar venture is something I find extremely valuable.
The other interesting thing is that it seems like lot of what Eldarion does from the qualification of the types of jobs that we take on, to our approach to open source follows principles very similar to those of AD. I think that James brought a lot of this into play naturally with his own style, but looking back at some of Philips old blog posts the way he ran AD sounds very similar to how Eldarion is run now.
The story of ArsDigita as a bootstrapped startup growing fast and furious with very little outside help is incredible in and of itself, but the whole ArsDigita story is a really interesting and cautionary tale of how involving VC's can alter the path of a company.
My part in the ArsDigita story was small but rather interesting.
After having sold my consulting firm in 1999, I decided to play around in the music business for a bit and was supporting an artist named Bobby Lee Rodgers, who was teaching in the guitar department at Berklee College of Music in Boston. One of Bobby's Boston area fans, Andrew Grumet, who was also a web programmer, offered to build and maintain a web site for Bobby.
I offered to pay Andrew something for his services, but being the great fan and person that he was, he wouldn't take any money for the site. He did, however, let me take him to dinner In Kendall Square as a way of saying thanks for the effort he was putting in. Over dinner, I asked about his day job, which turned out to be web programming at ArsDigita.
After hearing Andrew's stories about the crazy, meteoric success AD was having, I was instantly hooked and had to meet Philip.
We took a walk to AD's Cambridge offices after dinner and even though it was well past 8:00, Philip and a bunch of his programmers were still there working. Philip and I seemed to hit it off instantly. We had a great conversation where he explained the business he'd built around building and hosting sites based on ACS and how he traveled around evangilizing ACS and all the powerful things the open source platform had to offer for building database backed web sites.
When Philip told me that he'd spoken to a number of VC's that didn't seem to get his model of using open source to build and host sites for companies,, I offered to introduce him to some guys I knew at Greylock.
The meeting between AD and Greylock happened shortly thereafter and by all accounts, had gone very well. A month or so after meeting Philip, my contact at Greylock reached out to me to let me know that AD was getting a term sheet for a large equity deal that would include Greylock and General Atlantic.
In return for bringing them the deal, Greylock offered to allow me to invest in the 30+ million series A round.
At this point, I had recently sold my consulting firm, Lexington Software Associates, to a company named Interwoven. The LSA transaction was stock only, no cash, which by the way, I will probably never do again unless it's stock in a publicly traded company :-) Since the LSA sale was just ahead of the Interwoven IPO, I was still under lockup and couldn't sell any of the stock that I was awarded for the sale of LSA for six months after the Interwoven IPO. Apart from the money that I was making consulting, I didn't have much if anything in my savings as I'd drained it to fund LSA. Greylock was very accomodating however, and the deal was worked out such that the shares would be waiting for me once I was free of the lockup period and could sell my Interwoven shares to cover my AD buy.
I couldn't have been more excited to not only be involved with my first series A investment in a very promising company led by an extremely bright founder, but to also have invested along side a VC who was, and to this day continues to be, one of the top VCs in the country if not the world. "How could this possibly miss?" I remember saying to myself as I signed the stock purchase agreements with all their caveats and warnings about loss of capital...
The deal eventually happened, the company famously augered in and became a smoking hole in the desert, and millions in VC money, not to mention the relatively small in comparison, yet tidy sum I had invested, atomized in the ensuing conflagration.
I don't ever pout about the financial loss. I knew what I was getting into. I think I was much more upset to see such a promising business with such an ethical, articulate not to mention visionary founder evaporate so quickly. I didn't spend nearly enough time with Philip and AD as I would have liked. We had a number of very cordial email exchanges following our initial meeting and leading up to the deal, but never really met in person again that I can recall. It probably would have been a lot of fun to work at AD, which is something I should have explored.
Bringing what turned out to be a bad deal to Greylock didn't seem to hurt my standing there. In fact, James and I actually went to Greylock for some advice shortly after founding Eldarion. My contact there has always been pretty reassuring about the fact that they did their homework and knew what they were getting into. Had someone else referred them the deal, they probably would have done it anyway. Watching the whole thing unfold I will admit, has changed the way I view VCs as a financing mechanism. I don't have anything against them at all, and I do believe in using them, but with caution. The key is I think is, and really has always been to have as much leverage as you can going into a deal and use it to ensure the deal is crafted fairly and as much in your favor as possible.
Reading Philip's account of the internal power struggles and legal battles that followed the investment sometimes makes me wonder if my introduction of the VC's into the ArsDigita story was a sort of catalyst that lead to the failure of the company.
I think outcomes like the one AD experienced are extremely difficult to predict, but I think that being able to watch it all unfold from the sidelines as a stakeholder did teach me some very valuable lessons all of which were well worth the price of admission.