Sophie Barth: [music] Hi! This is Sophie and Welcome to another FundingUniverse.com Business and Investing Podcast. Today, we’re proud to have entrepreneur turned investor Rick Gibson back with us for this second episode of a four-part series.
Rick is the co-founder of Knowledge Ventures, Inc., GNP Development Inc., and an early share-holder in Bill Gross's IdeaLab. Rick returns today to share with you some of his best stories and the lessons he’s learned from them including the value of being trained by GAP CEO, Don Fisher, the power of the right acquisitions attorney, bouncing back from our shit-backs and owning your entrepreneurship. Watch for these and other “cowboy stories” which, to borrow the name of Rick’s famed software start-up and to make a really bad pun, you receive a Knowledge Venture in and of itself.
On that painful note, we’ll jump right in to Rick’s timeline from College Grad to angel investor and on the entrepreneurship in between.
Rick Gibson: I’m a born New Yorker -- don’t count that against me -- but, I really had my formative years of a business career in California, specifically Los Angeles and, I think that, probably, the turning point for me was getting done with College and planning to go to Law School, I realized that I have no interest in going to three more years of school on a real serious basis. I popped out and went in to retail. Well, if I’ve got to work somewhere, I might as well, look for something in retail. Believe I or not, I looked through the Yellow Pages -- yes, the Yellow Pages – and it reminded me of a new company that, I believe, they had seven to eight stores. I went for an interview and they thought I was okay and they said, “Hey, you could become a Store Manager, but first, we would put you through our Store Manager Training Program.” I went through and did pretty well, had a great store that was very successful. The name of that company is called the GAP. Today, they don’t have seven stores; they have around three-thousand stores. One of the guys that personally trained me and had to run a retail store was none other than Don Fisher, who was the founder and CEO of the company and actually was, I think, still is chairman of the GAP. So, that was essentially being trained by a legend. I didn’t realize how important that was then. I really was a good salesman but I was a great marketing guy.
I had the chance to really grab at that brass ring was a company started by the famed man who started Atari – the video game company -- and is sometimes called the Father of the Video Game Industry, a guy named Nolan Bushnell. Nolan has a company in Northern California where it was set-up like a classic start-up, a classic venture capital firm. I have stock options in the company it seem like it was going to be my first big accomplishment in getting the up side, as they call it. That was a very great company but we couldn’t make our product and we had a public stock offering which got called off forty-eight hours before the offering went out with Merrill Lynch. Great experience for me, though. It was basically the dream turned to nightmare because we all are a hundred and twenty who got fired in the same week when the public stock offering was cancelled.
By pushing on though, I probably should tell you more about what happened in the software industry. I classically say that I’m so proud to have played mentor to an individual that would later become a legend in the software industry. I joined up in 1984 with a fellow named Bill Gross who really didn’t have the experience working and driving companies like I did. But, he then and is now one of the geniuses of entrepreneuring. Bill started a company called GNP Development which actually stood for Gross National Product – his last name Gross. We had a software product that would work with Lotus 1-2-3. Keeping in mind that this was 1984 – 1985 when Microsoft existed but Lotus was the coolest software company out there. We built up our company and eventually got the attention of Lotus itself and found ourselves in the position of selling our company to Lotus in what was probably the most exciting experience of our time.
I actually have one cowboy story. We were at the negotiating table at Lotus Development in Cambridge, Massachusetts selling our company to them. I think that Lotus did not do the research on our company like we did on them. In the course of the discussion, our attorney said, “Here’s how we would do this kind of deal.” Mitch Kapor, the very respected founder and CEO of Lotus said, “Well when did you guys ever do a deal like this? Talking to our attorneys as if they were two guys we found on the street before we came over to try to sell our company?” And our attorneys turned around and said, “Well, we don’t know if you realized it but we were the ones who did the Multi-Made deal.” The Multi-Made has just been the largest sell of a software product from one company to another. Our attorneys reminded Mitch Kapor, the founder of Lotus that even though Lotus didn’t bother to check on it, these two attorneys were corporate counsel; the attorneys for Ashton-Tate which, in those days, was the second largest company to Lotus in the industry. Unfortunately, Lotus didn’t realize who they were dealing with. So, we were there trying not to show our smiles or our smirks at that point. Mitch Kapor and his senior counsel asked if it would be okay if they would live the room and come back and see us in a few minutes. I think they have to re-group, frankly. So, this was sort of the cowboy story on how sometimes the small company can actually do pretty well in negotiating with a larger company.
With all these companies and at any stage they’re in, they all are as good as the people that are involved with them at that moment and I think it always pays to bring in the strongest possible attorneys with the most relevant experience to take a board of directors that actually is known and has experience in the area because they’ll command respect. Very directly, that goes to the actual value of the company at that point and then you can trade up from there by having those people introduce you to others that bring further value to the company.
I confess, there were some moments in me when I thought one day, I am going to have to get a regular job and work like in a regular corporation. In those days, Ashton-Tate, because it has been around for several years, seems like kind of a mature company. So, I figured that I would cave in and go work for them. Well, my timing wasn’t very good. I mean, I think I had a lot to offer them but I joined Ashton-Tate not knowing that they were about to announce their first loss in a quarterly statement. I was only there about six months. They proceeded to lay-off about twenty percent of the company and my group, which was called Tate Publishing of about twenty people, was terminated. I was hired back literally the next day as a consultant and about twice what I was making. That actually was quite a good thing for me in retrospect. But, that when I declared my independence and I said, from now on I’m involved in building companies and I should realize what I do. I’m a start-up guy and I’m an entrepreneur. I admit it and I won’t apologize for it anymore because that’s what I do. That’s where I’m good at – getting companies from one place to the next and then let the, sort of, everyday guys come in and handle it from thereon in.
Well, Bill today runs IdeaLab which is a collection of investments that were made in about thirty companies. Right now, they operate about fifteen to eighteen companies. Bill and I got along well together. We had worked before and Bill had a very great insight toward what’s going to become multi-media, the CD-ROM business. Bill saw that was going to be an amazing transition in terms of links and the technologies that enable communication. He saw this early on and wanted to start a company that was in the multimedia business which later really refers to what’s really done on CD-ROMs. So, Bill asked me to join him as one of the founders of Knowledge Venture. Knowledge Venture, especially upon reflection, is and was a truly classic technology start-up company. By that, what I mean is we started with three or four of us in a room that was maybe twenty-by-twenty, nothing fancy. Bill had a real vision for what the company should be doing but we had no sales, we did not have a product yet, we really were start-up with basically great ideas. With those great ideas, we managed to convince some excellent angel investors that we were a good bet. The original four-hundred thousand dollars in investment yielded more than three or four million dollars to those original investors after four years. So, we’re certainly worth their while.
But, what happened at Knowledge Venture was we started with a product, sold a bunch of it, raise some more money. In fact we then raised traditional venture capital money and then we added more products. Bill was a demon when it came to creating new products in a fierce way. He was creating products better and better, virtually every month, and that was really his joy. Then I would go out and create new opportunities for selling through new channels, through new kinds of consumer market. We raised again more money and then increased our markets to include licensees in Europe and Asia. This went on and on so much that, collectively, we raised well over twenty-five million dollars in venture capital funds but by the time we took our exit which was in 1996, Knowledge Venture was eventually sold to Cendant for a hundred million dollars and it was a great product. It was something that I still, till this day, get parents that have had children that have used the Jumpstart or the Blaster products that are literally amazed to know that I have something to do with that and I am proud of it.
Multi-venture, really, for Bill Gross, he really wanted to be starting more companies there - the facilities. More board of directors wouldn’t see that happening. So, Bill was a frustrated leader of companies. When Knowledge Venture was sold, it enabled Bill to start IdeaLab and he brought in some of his so called old cronies who he worked for before and he knew could help him create new companies. I have to admit I was one of them. There was a series of us, sort of, the original ten IdeaLab CEOs which ran our own company and at the same time we met regularly and consulted with each other about, sort of, the realities. We have the advantage of our own experience but more importantly, and this goes to people that are starting their own companies – entrepreneurs that are looking to add value, we also have the benefit of other IdeaLab CEOs that virtually set on offices next door to us. We have the ability of going to them and say, “Well, I am thinking of doing this and I know you have a deal in those days.” We would say, “You had a deal with AOL…” or “You had a deal with Yahoo; how did you work that out?” or “You hired this technology force and had them program in ways to detect advertising message; how did you do that?” We could go to, essentially, our partners who really are compatriots and get advice that would always be offered freely and would always be very helpful
One of the companies that Knowledge Venture was known for but was not one of its successes is a company that was called E-Toys. E-Toys was, for a while, the biggest competition to Toys R Us. E-Toys wanted to be online while Toys R Us is in the real world. The company came out from ideaLab with a complete boom. It was going like crazy. They raised tens of millions of dollars and more tens of millions. Ultimately, E-Toys was really competing against Toys R Us. E-Toys went public and its public market capitalization was getting up to seven or eight or nine billion dollars which was at some point the same as even for a short period of time was more than the market capitalization of Toys R Us which was and still is today the largest retailer of toys in the world. I might be accepting Walmart on that and in that portion. We’ll let experts figure that out.
Ultimately, the sad part of this… I will give you some of the good examples on the moment but the sad part of E-Toys was they spent much more quickly that brought in revenue. Even though the company actually had sales of a couple of a hundred million dollars in its last year, they were forecasted for much, much more and basically put all kinds of money in that the investors eventually stopped funding and the company closed down. Alongside that, though, not to paint a picture of IdeaLab like that, IdeaLab has spawned several other multi-billion dollar companies that have survived and are doing quite well. Notably, what’s called TicketMaster these days was part of the creation of what was called City Search. And I understand that another IdeaLab company called Overture sold itself to Yahoo for several billion dollars. Another company called the Picasa, sold itself to Google. NetZero was worth probably – I think it’s now called United Online – it’s probably worth a billion or so. The whole thing about being an entrepreneur, maybe this is the lesson, is there are some things that don’t work and there are fortunately some of the deals, some of the projects that you get involved with that do work and when they do work, they can be huge
After some of the experiences with IdeaLab, I was asked to advise the Board of Directors of a great big magazine company called Peterson Publishing. My job there was help them figure out what to do with their magazines on the internet and that included acquiring companies figure on how they should invest and how their industry capabilities can help them invest in other companies. I really began to take the investor view there. In all of these, so much of what I wanted to do came out and I began to invest, as an angel, a lot of the resource that I had gained from Knowledge Venture. I became much more adventurous and I realized that not everything I was going to do would succeed. But, it was about year 2000 and fortunately I did very little investing before dot-com bust, so to speak. But, I got some experience in choosing companies and then in 2001, 2002, when a lot of the valuations where quite low, it became a very good time for me to start investing in information technology.
Sophie Barth: Thanks for joining us for another FundingUniverse.com Business and Investing Podcast. Special thanks to Rick Gibson for donating his time and his experiences so we can all learn from them.