The Wild And Woolly Tale Of A Net Startup


How I Survived the Gold Rush Years on the Internet

By Michael Wolff

Simon & Schuster 268pp $25

Decades from now, we'll look back at the latter half of the '90s as the years when the Information Age was created. Like the Industrial Age, we'll note, it was built on the sweat and brainpower of the brightest minds of the time. But lest nostalgic souls attribute too much nobility to the cause, we now have what may be the first true chronicle of the times. Michael Wolff's Burn Rate: How I Survived the Gold Rush Years on the Internet pierces the hype to lay bare the forces driving the Internet frenzy. And they are not always pretty.

Burn Rate is a hilarious and frightening account of the life of an Internet startup. Wolff, a journalist who has written for The New York Times and other publications, started Wolff New Media LLC in the early 1990s. By 1994, he had stumbled on to the Internet--then just a geeky network used by comparatively few--and into the forefront of the digital revolution. His first Internet product, NetGuide, a book that reviewed resources and sites on the Net, was quickly followed by a series of expanded Internet guides and two Web sites. Overnight, his modest publishing venture became a hot property sought after by venture capitalists and investors.

From this vantage point, Wolff observes the exhilarating early days of the Net, a world where hype matters more than reality, buzz more than revenues, and where a mere idea can be dressed up and sold to eager investors, creating paper fortunes overnight. The book begins in 1996. Wolff is at an industry schmoozefest trying to drum up interest from investors and potential acquirers. He has hooked up with Robert Machinist, president of New York investment bank Patricof & Co. Machinist is hot to cash in on the company--he figures it's worth $60 million, maybe even $100 million. And when he tells Wolff that "our minimum goal is to get you out inside 18 months with $30 million," the entrepreneur begins to believe him.

No matter that Wolff New Media has slightly more than $1 million a year in revenues and losses of around $3 million. Or that, at the current "burn rate"--the amount of money consumed in excess of revenues generated--Wolff will run out of money in six weeks without fresh funding. The quest to feed the burn rate takes Wolff on a wild ride.

First, Machinist tries to combine Wolff New Media with Magellan, a West Coast search-engine company. The pitch: Wolff's content will keep people on Magellan's search site longer, generating more ad revenue. And the combined entities will make for a more powerful initial public offering. Magellan is far bigger than Wolff, but Machinist shrewdly manages to turn the deal into a merger of equals and then into a takeover of Magellan. Negotiations bog down, however, and the window for Internet IPOs slams shut. Magellan is eventually sold to Excite, a competing search-engine outfit.

For Wolff and his investors, it's on to Plan B, then C, then D. Wolff's narrative wanders, and the sequence of events is sometimes confusing. Eventually, he hits on the idea of producing a magazine version of NetGuide, sort of a TV Guide for the Internet. The only problem is, for all of the comparisons to TV, the Net is nothing like it. Fortunately for Wolff, most of his potential funders have never actually used the Net.

That includes executives at CMP, a publisher of computer trade magazines. Having just launched its Windows magazine, CMP is looking for the next big thing, and its brain trust is convinced the Internet is it. Wolff sells them on NetGuide with canned tours of the Net. "They had no real experience to get in the way of their enthusiasm," writes Wolff. "They seem to believe that we have captured the Internet and bottled it. And they want it."

Indeed, Wolff is stunned when CMP offers to buy NetGuide, then nothing more than a name, a concept, and a database of ephemeral Internet content--"absolutely nothing. There were, really, no assets"--for a seven-figure sum. (After spending $15 million to $20 million to buy and develop the venture, CMP would eventually kill the magazine.)

As these charades play out, the investors grow impatient. Desperately needed money comes with strings attached: Wolff would be kicked off the board, and his main investor, Jon Rubin, would become chief. Wolff narrowly escapes this trap and looks for new partners: Ameritech and Washington Post Co. show interest, but no deals materialize.

Through Wolff's tale, an insightful history of the commercialization of the Internet emerges--from the days when media titans declared "content is king" to the realization that the best hope for making money in this new medium may lie in E-commerce. We witness the birth of Louis Rossetto's Wired magazine and get a peek inside the hallowed halls of Time Warner Inc., where Walter Isaacson and Bruce Judson cook up Pathfinder, the high-profile Web site later dubbed a money-losing "black hole" by a ranking Time Warner exec. And there's a comic account of America Online Inc., "the world's most dysfunctional company."

As the fantasy starts to unravel, Wolff begins having some doubts about his fundamental premise. "In some perfect irony, we had invented this new publishing medium, and no one reads [on the Net]," he muses. The new insight led him to return to his roots. The result, Burn Rate, is a fascinating cautionary tale that should be required reading for all would-be Net entrepreneurs.

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