While I did not care much for Bret, I didn’t mind the idea of him leading this effort. In the previous funding round, he had been a champion of getting the highest valuation for Neoforma. His confidence that he could get Neoforma a valuation greater than $250 million in this round was appealing. Most of us thought that anything above $150 million would be stretching it. But, if Bret could get a higher valuation, more power to him.
Which is what we gave him—more power. Previously, Bret had been a bit player. Even though he was well-positioned, he didn’t know much about our business or the people in it. He had invested some money and was only interested in seeing that money grow.
The first time we saw Bret around our offices—following his investment in our first venture round—was just prior to our most recent funding round. That was when he fought with Jeff over Bret’s insistence on securing a participating preferred clause favoring his investment in the funding documents. His bullying had been brief, but effective. When it came to handling the company’s valuation, thanks largely to my own naïveté he had pretty much gotten his own way. His investment money had nicely multiplied due to the new high valuation, which he could show on his reports to Venrock.
Then he had become active in recruiting a CEO. His unbridled enthusiasm for Joe had almost put Neoforma on the track to self-destruction. But in the end, he had been influential in helping convince Bob of the potential financial value of Neoforma. Bret took full credit for hiring Bob, in spite of Jeff’s leading role in getting Bob. He had also assured Bob that he would be there to help him through the next funding round.
For the most part, Bret’s contributions had been good for the company. Luck had been on his side so far. I could tolerate another period of personal awkwardness while Bret fought for our team.
So Bret informed all of the potential investors that he was the man in charge.
Shortly thereafter, Bret walked into my office, sat down and smiled so widely that my defenses sprang instantly into action. He had never been that familiar before. Just the fact that he’d come in and taken a seat was unnerving.
“Wayne, I want to talk to you about something. Now that I have looked into this next funding round . . . well, I just have to tell you, there is a heck of a lot of work to do.”
“I thought that was part of your job, as a representative of Venrock,” I said, “to help the company recruit senior people and help get funding when needed.”
“No, no, my job was to invest the money. That is what I do. A phone call or interview here and there, that’s about it. I went way beyond the call of duty in hiring Bob. This funding . . . well, this is a big project.”
“But . . . you’re going to be helping increase the value of Venrock’s . . . and your own . . . investment by double what we think we can get. Isn’t that what you do too? Isn’t that enough reason to do this?” I said.
“No, that’s where you have things mixed up. It’s Bob’s job now to get funding and so on.”
“But,” I said, “Bob’s too busy with the IPO process to get involved in every detail here.”
“Oh, I agree,” Bret said, “And I am happy to help out. It’s just that . . . well, I would expect the company to compensate me for my extra effort.”
“You mean, you want us to pay you to help us increase your investment? I’m . . . well, this just doesn’t sound right at all. What are we talking about here? Venrock gets paid in stock for your time?”
“Oh, no, this activity goes well beyond my role with Venrock. The stock would go to me.”
“Can you do that?” I couldn’t quite believe what I was hearing. “I mean, isn’t there something in your agreement with Venrock that keeps you from personally benefiting from your role representing other investors?”
“No,” Bret said with an expression of indignation. “I can still represent Venrock just fine. My role in evaluating the initial investment is over. There is nothing unusual about someone like me getting compensated for extra work. Venrock knows all about my outside projects. It’s all out in the open.”
“Well, obviously I need to speak with Bob and Jeff about this. How much stock are you asking for?”
“Oh, no. It’s not for me to put a number on that,” Bret said, with sudden modesty. “I’m on the Board. The other Board members need to decide what a fair amount would be. Talk with JP about this. I’ve already discussed it with him and he agrees completely.” He assumed a hurt, indignant tone. “If you don’t want me to help out . . . hey, that’s fine with me. Neoforma is only one of my investments. If I’m not appreciated here, my time can certainly be spent more productively elsewhere. I’m okay with that . . . though I do need to remind you that several of the investors have indicated that their confidence in Neoforma is greatly enhanced by my participation. Several of them . . . including Dell . . . might pass on the opportunity, if I dropped out. They’d wonder why.” He smiled again. “Anyway, let me know your decision.”
He stood and abruptly left my office.
I was fuming. I just didn’t get it. How could he be so selfish when we were all working so hard? What made him think that he was so special?
When my breathing returned to normal, I picked up the phone and called Jeff. He was traveling. I got him on his cell phone and explained the situation. I became seriously worried about the safety of those around him as he yelled some very creative profanities into the phone. I could feel his clenched anger struggling to squeeze through the holes in my earpiece.
We agreed that I should approach JP before bringing this issue to Bob. It was the last thing we wanted to add to Bob’s plate right now. Certainly JP would squelch the idea that Bret deserved more than he was already getting. After all, JP and Alexander had put an enormous amount of time and energy into Neoforma.
JP joined me in my office later that day. He looked very nervous. I had the feeling that he already knew why I had wanted to speak with him so urgently.
I wasted no time. “Bret came into my office today and asked for additional stock as compensation for his involvement in the funding. Did you know anything about that?”
“Yes, we did talk about that . . . in very general terms. He has been putting a lot of time into Neoforma. He got us the high valuation last time and he hired Bob.”
“But everybody has been working hard and everybody benefits from their own work. It wouldn’t be fair if we just gave a bunch of stock to Bret and left out the other investors.”
“Well, actually, not all investors have been putting in the same amount of work. Bret had been very active and . . . Alexander and I have been too. We still are.” He paused for me to let that sink in, then went on. “I think it’s only fair that the extra effort be compensated.”
I tried to stifle my shock. “So . . . let me get this straight. YOU are asking for more stock too?”
He shifted in his chair and avoided eye contact. “Not a lot. But it’s only fair that we are rewarded for our ongoing efforts.”
“But you have already been paid in stock for helping the company.”
“Yes, but that was only for our time getting you and Jeff through a venture round. Who knew that we’d still be helping out for this long?”
“You’re helping out for this long because you are increasingly likely to get a very large return on your investment. Isn’t that what it’s about?”
“We’ve already made our investment. There’s no reason for us to be here ... if we’re not appreciated ...” He put on the same air of indignation that Bret had used. I had the feeling that this had all been rehearsed, just as the first presentation by JP and Alexander to the Venrock partners had been.
“Just how much stock were you thinking about?”
“Oh, not much. I figure . . . about four hundred or so for Bret. Less for me and Alexander. You know . . . maybe a hundred.”
“A hundred what?”
“A hundred thousand shares for Alexander and me.”
“Divided between you?” I said.
“No . . . each,” he said.
“And four hundred thousand shares of stock for Bret!? That’s what we give to our executives for four years of sixty-hour weeks.”
“You can’t compare what we get with what the employees get. We’re the ones with the connections. Without us, there wouldn’t be a Neoforma. If you don’t want us around, just let me know. I have plenty of other things to do . . . you know, things that get me a better
return on my time.”
I couldn’t discuss this with him any further. I could tell that Jeff, Bob and I were being set up. Now that the IPO was getting close enough to taste, these guys were done pretending to be nice. It was all about the money. “Have you discussed this with Alexander?”
“Yes, of course.”
I couldn’t believe that Alexander would have a role in this obscenity. I called Alexander and insisted on meeting with him. The only time and place that worked for us was his house, early the next morning.
When Alexander greeted me, he could tell immediately that he didn’t want me within shouting distance of his family, so he guided me to some chairs in his back yard. This was my first time at his house. Through my fury, I noted that, while his house and property was large, it did not display the same level of opulence as the houses of other investors I had seen.
The sun was shining, but a morning chill was still in the air.
Alexander shook his head and smiled, “Oh, the things I find myself in the middle of! Okay, Wayne, what’s on your mind?”
I told him. Then I said, “Is this your idea? Did you all talk this over? Do you think you all deserve this extra stock?”
“I don’t think it’s inappropriate to compensate Bret for his efforts. I’m not sure what the amount should be though.”
“Don’t you agree that four hundred is too much? This will not look good to any of the future investors and it sets a bad precedent. Who proposed this amount?”
“Hey, this wasn’t my idea. Bret proposed the idea that our extra involvement should be compensated. Someone came up with that number. I don’t know the exact sequence. If Bret can get a high valuation, then four hundred thousand shares is nothing in the big picture, right?”
“True, but it’s still not right. And it’s not right that you’re going along with this.”
“Wayne, I’m fine, with or without extra stock. Right now, you need to keep the momentum going forward. Just go along with this and Bret will be gone from your life after the close of the round. Think about that.”
“What do Wally and David think about this idea?” I asked him. Wally was still on our Board and so was David. David was the VC on our Board who had officially represented the previous round of investors.
“As far as I know, they don’t know anything about it.”
Later that day, I reluctantly brought the whole unruly mess to Bob’s attention.
After listening to my summary, he said, “I’ve got to tell you, Wayne, I hate that he is doing this to us. But I can’t do this on my own at this time. I know you guys would help out . . . but if Bret stepped out of the scene right now, it would spook our investors—unless they thought I was simply asserting my new authority.”
“We have to give him what he asks for,” Bob said. “Why not try to negotiate him down from four hundred? That’s just so excessive . . . I worry that future investors won’t look fondly on the fact that we compensated a Board member so disproportionately. Make sure to let the other Board members know about this too. I’m sorry to ask you to do this on your own, Wayne, but Jeff is out of town and I am booked solid.”
If I had not had Anni to vent my frustrations to that night, I would have burst. Why, after this long, was there always some new catastrophe threatening the company?
I called Wally and let him know what was going on. His reaction was only slightly less spicy than Jeff’s had been, but he entered a state of resignation more quickly. “You know, Wayne, sometimes that’s the way it is. You have to deal with the worst side of people, when big money is involved. I’m not happy about this low blow, but I’ll go along with whatever decision you and Jeff think is right.” Loyal to the end, that was Wally.
“So you don’t have to worry about me,” Wally continued, “but David has never expressed confidence in Bret and will be very incensed by the whole thing. I’ve known David for a long time. You better let me give him this news.”
A few hours later Wally called me. He said, “I underestimated David’s reaction. He is threatening to demand all of his firm’s money back if we give any stock to Bret. He’s going to make a very big fuss that would certainly chase away all but the most steadfast investors.”
I asked Wally to set up a meeting with David. At first, David refused to meet, saying there was nothing to discuss. Finally, David did agree to meet with me, as long as Wally was there too. Or maybe Wally insisted on being there—to reduce the risk of violence.
David and I had not interacted much, but he had always treated me with respect. I knew that he had a reputation for being as fair as he was aggressive. I was hoping that this would help me.
David wasn’t just angry, he was livid. His moral indignation at Bret’s behavior overshadowed everything else. He had a great deal of pride in the value of what he did and he could not stand the idea that someone who represented a top-tier VC would act the way Bret was acting. And he strongly disagreed with Bret’s suggestion that extra compensation for funding assistance was common practice. “Everyone knows that creates a conflict of interest. My apologies to you, but I’ll take this company down before I’ll let him benefit from this disgusting behavior.”
I was not happy to be there. I wanted to be anywhere but there. What I wanted to do most was hold onto my own sense of outrage at Bret’s behavior. My instincts, too, were to stop him at any cost. But my investment in Neoforma was deeper and more personal.
So I sat there, arguing against my own position—telling David that the best thing to do was reach a compromise with Bret. It wasn’t easy, but by the end of a long meeting, we had come up with a plan that might work. All I had to do was work out a few details and figure out how to lower Bret’s expectations.
When I phoned Bret to discuss the issue, he was not in the mood for compromise. After I explained the other investors’ concerns about his conflict of interest, he said, “If David thinks he can do a better job with the round than I can, let him lead the effort!! The four hundred is not negotiable!!” Having nowhere else to go with his argument, Bret resorted to attitude alone. “In fact, that’s it. I can see I am not appreciated here. I am done. I don’t want to be a part of the funding any more . . . regardless of how much you pay me.” He hung up.
Several calls and meetings later, everyone was calmer and more willing to talk things through. But the illusory smiles were gone.
Bret had agreed to come to our offices to meet with Bob. Jeff had returned from his trip and Bret made the mistake of entering his office. Jeff and Bret exchanged a few words. Their brief encounter can best be characterized by the fact that Bret used his foot to launch Jeff’s wastebasket against several walls.
After that colorful encounter, Bret met with Bob. Bob graciously expressed his need for assistance and told Bret how much we wanted his help. He talked persuasively about how little the additional stock compensation really mattered in the overall picture.
Feeling properly appreciated, Bret agreed to help out—but only as a personal favor to Bob. Bob put some conditions on what Bret would have to accomplish to earn various levels of stock compensation. Something like an agreement was formed. Nobody was happy with it, except Bret, who made a point to say that the last thing he had ever meant to do was upset anybody.
To be continued...