Microsoft Completes Acquisition of WebTV Networks
Microsoft Corp. and WebTV Networks Inc. today announced the completion of Microsoft’s acquisition of WebTV for approximately $425 million in cash and stock.
Microsoft Press Release - August 1, 1997
The Red Herring
We at The Herring are convinced that highly focused and quietly successful niche companies that fit into the convergence applications model will redefine corporate computing, changing companies’ transaction approaches from task orientation to process orientation . . .
The Red Herring - August 1997
Alexander and JP were players. Builders of buzz. They had been involved in rapidly building the valuations of several local companies — companies vibrating with potential to make it big — companies to be pursued...
Alexander and JP want to meet you. They are well-wired in the venture community and could help us position for additional alternatives to Wally and Shawn . . . though, as you will hear . . . their views will be more tuned towards how you can RAMP very, very quickly . . . with much much more money . . . presumably from the venture community . . . though, of course, they are also connected to private money including from their own group.
He greeted us respectfully, though impersonally. He talked a bit about his partnership with JP. He told us that they only worked with two or, at most, three companies at a time. They were currently deeply embroiled with their latest company, Junglee, which they would sell to Amazon.com a year later for around $180 million, so they weren’t seriously looking for a company to work with. But if the opportunity were good enough, they might consider taking on one more company . . .
“Besides,” he said, “You guys are ten to fifteen years older than the other founders we deal with. Your extra experience means we wouldn’t have to hold your hands as much.”
I suppose I could have accepted this as a compliment, but, for the first time in my life, I felt old. I had usually been much younger than the people I worked around. To these guys, I was nearly over the hill.
He casually dropped the names of influential people, sowing seeds. He made it very clear that they were not angel investors, that they only played in much bigger leagues. He asked “What angels are you working with now?”
We told him about Wally and Shawn. He shrugged off their names, obviously not impressed. Those guys were clearly not players in his league. “We would definitely get you better valuations than they could.”
Then he barraged us with questions.
“How many customers are there in your market? . . . How much money do they spend? . . . Where do they spend the most money? . . . Who are the decision-makers? . . . Does your software scale up easily? . . . How are you going to accelerate your sales?”
We had answers to these questions. We thought they were good, solid, mature answers. “We are going to use our incremental sales growth and a little outside money to improve the website, do some advertising, hire a couple salespeople.”
He seemed to be agonizing in his chair as Jeff and I took turns presenting our careful growth strategy. I could see by his sighs, darting eyes and the shakes of his head that he was frustrated, but trying to be polite.
Jeff and I communicated our concern through well-practiced glances:
He doesn’t understand us. Clearly, we are going over our information too quickly for him.
We started to include more specific details of our plans.
That was it for Alexander. He couldn’t take it anymore. “COME ON, GUYS! THAT’S ALL BULLSHIT. I MEAN, HOW ARE YOU GOING TO MAKE NEOFORMA BIG? VERY BIG! Your plans sound fine, but if that is the road you’re choosing . . . you don’t need me and JP.”
Oh, now we got it. He wasn’t focused on our product at all. As soon as he had at least some superficial understanding of what we were doing, he didn’t want to know more about our product — only about how big our market was and how we were going to dominate it.
Once we calmed him down, he asked us, “What is your exit strategy?”
Jeff and I looked at each other. I said “Um . . . what exactly do you mean . . . exit strategy?”
He was exasperated again, “I mean . . . how you are going to get a return on your investment?”
“Well, first we’ll put Jeff on staff, then increase both our salaries . . .”
That was the last straw. Alexander stood up, emoting distaste for our small thinking. He thanked us for our time, shook hands and raced out the door. “You need to think about these things. I’ll talk to my partner about you guys. Like I said, we are quite busy now.”
Jeff and I were devastated. Here was a guy who could propel us from one world to another and he thought we were too timid to interest him.
We, who were risking everything, were too cautious to see the opportunities in front of us. What kind of world did these guys live in? Well, I guess we wouldn’t find out.
A few days later we heard from Jack. “I talked to Alexander today; he was impressed with both of you and believes that Neoforma is very fundable. He should be able to get a very decent valuation from VCs. But he has some scheduling problems this week and next, so it looks like the next meeting with him and his partner will have to be in a few weeks. I asked him to make some time and give us some dates and he said he would do so.”
What a disquieting feeling!
We thought we had failed completely, yet here he was coming back to us for more. He had teased us with what we could be, then shown us how little we were. It almost seemed like he had planned it that way . . .
Now he managed to make us feel excited that we were still under consideration, but made sure that we had to wait several weeks for the next step. So this is what it meant to be a player.
A few weeks later we did meet JP. Alexander arrived first. When JP arrived, Alexander bantered with him. JP had just been named one of the 20 Most Influential People in Technology by a major business periodical. An article with his picture would be on the cover of The Wall Street Journal the following week. Another article would focus on how he had made twenty million dollars by investing during a single phone call in a deal an acquaintance had put together.
JP was polite, contained, quiet, reserved, and a bit mysterious. Like Jeff and I, it seemed that these two partners had sought balance through their opposite.
“You know that Alexander and I are really tied up now, but he insisted that I should at least meet you two,” JP said. “So. Tell me about your market.”
We were more prepared this time. We had been gathering information about the spending characteristics of hospitals and the demographics of suppliers. We quoted a few numbers, freely tossing around the word billions. “Of course, we are only going for a small percentage of that market.”
But they had heard what they needed to hear. Billions. “Are you sure of those numbers?”
I said, “Well, they are actually low, because they only factor in one segment of the industry. But they were all we could dig up for now.” JP said, “Do you know what kind of opportunity you have here?”
Jeff and I looked at each other. I said, “Well, yeah, of course we know how huge this market is. That’s why we’re doing this. We can save everyone in healthcare huge amounts of money. We figure we can do quite well by taking only a small share of that savings.” We were thinking, Well, duh . . . It’s about time someone believed us!
JP and Alexander glanced at each other. JP switched modes, became serious. “I’m not sure that we have time to help you now, but our share of the company for helping you would be 3% each. On top of that, we would invest some of our money, as well as getting money from some people who always invest with us. We’d quickly pull together a half million or so. Then we’d go after some real money. Don’t give us an answer now. Just think about it.”
Then there were more handshakes as they rushed out, promising to get back with us.
We were very relieved. We had all but given up on Wally and Shawn. It seemed like Alexander and JP were very interested in us.
And they claimed to be able to quickly get the money we now desperately needed — more than we needed, actually.
A week later a message came through Jack. Alexander and JP liked us, but had decided that they couldn’t handle another company until sometime next year. They wanted him to make sure and pass on the message that they’d keep in touch.