An Insider Look at the High-Pressure World of Venture Capital

<I>eBoys</I> takes a look at two years in the life of Benchmark Capital.
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During the high-tech frenzy of the last few years, many otherwise sane people, bitten by the start-up bug, left the mundane security of their jobs in search of the "next great idea" to enrich them behind their wildest dreams.

But the power and means to turn those entrepreneurial dreams into something real came from another source -- venture capitalists.

Now, author Randall Stross has provided a detailed account of the inner workings of one such group of venture capitalists. With his new book "eBoys," Stross tracks two years in the life of

Benchmark Capital

, which, with investments in enterprises like

eBay

,

Webvan

and

Ariba

, has been at the forefront of the high-tech start-up boom since it was founded in 1995.

Stross, a business history teacher at

San Jose State University

and author of books on

Microsoft

and

Steve Jobs

, gained his fly-on-the-wall view by convincing the Benchmark partners to give him unfettered access to the firm and some of its clients from the fall of 1997 to the fall of 1999.

And the result is a fascinating account of the ups and downs of the high-flying world of venture capital in the late '90s.

All For One

Unlike the rigid hierarchies that many venture capital firms embrace, Benchmark prided itself on its egalitarian power structure. The firm was a partnership of equals where the profits of each venture were divided equally among the partners, no matter who was responsible for bringing the business in.

Ironically, that share-and-share-alike approach prompted the partners to strive even harder to make their respective ventures fly.

And fly some of them did. The book chronicles Benchmark's investment in online auction site eBay, which hit the public market at 18 a share and climbed to over 300 within months of the company's initial public offering.

'Now I Get It'

Started in as an experiment out of 29-year-old founder Pierre Omidyar's apartment, eBay flourished under Benchmark's tutelage. The firm helped eBay lure Meg Whitman from her cushy, secure job as chief executive of

Hasbro

to sign on as the auction site's CEO.

The accounts of eBay and Benchmark's wooing of Whitman is one of the more compelling anecdotes in the book. Whitman's peers thought she was crazy for giving up her well-paying, powerful job at Hasbro to lead a relatively unknown company.

But that attitude changed after the first day of the eBay IPO, when the stock went from 18 to 47 a share -- the fifth-highest first-day gain in the market's history at the time. After that, her former boss at Hasbro called her up and said, "Now I get it."

Miscue on Priceline

But not every one of Benchmark's investments was a winner, and Stross dramatically profiles the partners' struggle in choosing investments and figuring out what to do with unsuccessful ventures.

One of Benchmark's biggest passes was

Priceline.com

, which was first noticed by rookie partner Dave Beirne. Beirne was convinced that Priceline.com was going to be a huge company, but the other partners couldn't get around the fact that Priceline had been selling discounted plane tickets at a loss. The firm passed on the investment.

Priceline later made its market debut at 16 a share, ending the day at 69, for a market capitalization of $9.8 billion -- the highest first-day valuation ever achieved by an Internet company at the time.

From then on, writes Stross, "Every time Beirne heard another one of those ubiquitous Priceline commercials on the radio, he would have to grip the wheel hard so as not to run off the road."

The partners are also faced with the ugly business of deciding whether to pull the plug on some business that just weren't working out.

In one of its most public fallings-out, Benchmark abandoned its partnership to help

Toys 'R Us

develop its e-commerce site because of irreconcilable differences between what the partners and the toy giant thought the site should be.

Doing the Right Thing

But therein lies the difficulty of the venture capitalist: You've got to know when to hold 'em, know when to fold 'em, as

Kenny Rogers

would say.

Stross' portrayal of Benchmark's partners shows a group of men that strove to break the traditional mold of venture capitalism not only with their unconventional egalitarian structure, but their concern for their clients as well.

When partner Bob Kagle anguishes with the others over whether he should abandon an investment in

Artuframe

, an online art dealer that was burning through too much money and overstated its revenue estimates by $2 million, the sense of pressure the partners feel to do the right thing is palpable.

The book at times is slow going and perhaps devotes more space than necessary to the partners' conference-room deliberations. But those discussions are also what give eBoys its rare insight into the inner workings of the venture capital world.