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THE CUTTING EDGE: FOCUS ON TECHNOLOGY

The Man With the Money

A Day With Scott Sandell Shows a World of High Stakes, Brutal Conflict and Gut Instincts

August 21, 2000|JOSEPH MENN | TIMES STAFF WRITER

MENLO PARK, Calif. — Scott Sandell is racing through the tree-lined streets of the epicenter of Silicon Valley, an hour late for a meeting he arranged.

Waiting for him at an Italian restaurant are executives from an Internet start-up funded by Sandell's venture capital firm, New Enterprise Associates, and investment bankers trying to elbow others aside and grab the millions in fees for taking the company public.

Sandell, a 35-year-old partner in NEA, wants to use that eagerness as leverage to convince the absent competition, a better-known investment bank, to promise an initial public offering in weeks instead of months.

In an economy full of race cars, it's the sort of quiet conspiracy that runs under every hood.

Venture capitalists launched Yahoo, Apple and thousands of other firms, pacing the technology-driven U.S. economy and raising a record $46 billion last year. Yet with no regulators or shareholders to answer to, they're out of public view as they carry out their frantic duties, delivering companies into the world and sometimes killing them off.

A day with Sandell shows that world to be a swirling mix of adrenaline, intelligence and polite but brutal conflict.

He spends it scrutinizing come-ons by CEOs convinced they have developed the Next Big Thing, cajoling bankers and fellow investors, and hashing over high-speed arguments with his partners about the direction of technology.

With just a few hours' research, he must rely on hunches to invest millions of dollars, which could grow to billions or, more likely, shrink to nothing. All the while, he worries about where the guys down the street are placing their own warp-speed bets, knowing that no one will know who's right for years.

The entrepreneurs depending on people like Sandell run their own risks, sometimes without knowing it. Executives he has just met stake their entire companies on a bet that he is trustworthy, even though he can have huge, unspoken conflicts of interest.

"It's incredibly delicate," says Sandell, who this day faces one such dilemma. "You're holding their crown jewels in your hand."

*

The day begins early. By 8 a.m., Sandell and his school-administrator wife of six years have tended to 11-month-old twin girls and he has driven the mile and a half to the two-story NEA office on Sand Hill Road, the Hollywood and Vine of venture capital.

NEA has backed Silicon Graphics, 3Com, Juniper Networks and more than 100 other IPOs and is one of the oldest and largest venture capital firms, with $2.5 billion under management.

Sandell, a mid-level partner, works the first two hours in his second-floor office, participating by speaker phone in a board meeting of one of the 10 companies where he's a director.

He then joins most of his partners in the main conference room downstairs, slipping into one of the black leather chairs surrounding the table. A partner from the firm's two Washington-area offices joins via a Starship Enterprise-sized video screen.

Natarajan "Nat" Kausik, one of NEA's "entrepreneurs in residence," is seeking money for his own start-up idea. He's about to pitch the same people he has been working with for months.

What's discussed next can only be partly described. Sandell allowed a reporter to shadow him for a day in June on the condition that the deals wouldn't be detailed. The frenetic pace was similar during a second visit in August (see photos).

As the partners turn through the 14 graph-laden pages of Kausik's business plan, Kausik gives a broad overview of why and where the Web gets congested and then details his plan for a company to develop software to speed some of it. Call it Company One.

Simultaneous queries fly at Kausik about the technology in his prototype, the competition, and whether his business should sell a product or a service.

The partner on the East Coast warns from the video screen that when he was at another business, getting PC users to download software proved a brutal task.

"There is a mental block," Kausik concedes. He compares his program to the heavily downloaded RealAudio software, which plays recorded music on computers. "Winning the battle is hard. But once you get there, you're hard to displace," he concludes.

Kausik projects revenue of $44 million with a small profit by 2003. The partners remain after he leaves. "I came in in a dreadfully grouchy mood, and I still like this thing," says partner Arno Penzias, a former Bell Labs research chief and co-winner of a Nobel Prize.

A flurry of investment terms are offered up. "What about $4 million for 40 [percent]?" one partner suggests. "If we're too cheap, he will shop the deal."

Sandell returns to his office and quickly checks his voice- and e-mail, most of which he will respond to tonight when he's home and the kids are asleep.

Coming downstairs for another meeting, he runs into Kausik near the cramped kitchen. Kausik raises his eyebrows, the question being too obvious to ask.

"People were very positive," Sandell starts. "They have some reservations."

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